Policy-administration system upgrades have been top of mind for insurer CIOs for the last few years, but questions continue to arise about how best to transform these systems. Is anyone still building? Is there a valid reason to stabilize and wrap legacy? Or is everyone buying these days? The answers are yes, yes and yes.

Is Everyone Buying?

Almost everyone. Most organizations look at the vended policy-admin market before considering other approaches. And most will find a suitable system with the functionality, pre-defined content, configurability and proven track record that they want. They typically won’t get a perfect fit, but carriers usually can find an offering that addresses their key requirements and that they can make work.

See also: Reconstructing Policy Admin

Vendor offerings have matured over the past five years — the major players have invested heavily in their end-user “out of the box” functionality, expanded their lines of business support and enhanced their configuration capabilities. A huge number of policy-admin deals have been transacted during this time, so the vendors have many more successful implementations under their belts (or in progress). You still hear of the occasional failed project, but far less often than just five to 10 years ago, and many of those come down to poor selection or poor project management discipline rather than platform instability or immaturity.

In the last two to three years, we have seen several very large insurers buy vended policy-admin solutions — a segment of the market that until now has been squarely in the build category, or at least the “wait for better solution options” category.

It’s also interesting that the buying trend continues, even as the cost of license and implementation has risen significantly over the past two years. In our recent PAS Project Metrics report, the average cost reported has doubled since our last survey just two years ago. So, yes, most insurers will buy a policy-admin system, and are willing to invest heavily to reduce risk and implement a proven product.

So, Who is Still Building?

Some very large insurers are still building, or rather maintaining and extending their internally developed solutions. Many are perfectly happy with the robust and scalable solutions they have developed in-house. They value the vendor independence, functionality, extensibility and scalability provided by their well-designed internal solutions and have the expertise, staff and budget to support them.

A very few small insurers have successfully built policy-admin solutions. These insurers write single lines of business, and have found that budget constraints rule out the vended options that they would consider a good match. Most of these insurers owned an older vended system that they could use as a design reference, and the more successful of these companies learned best configuration practices by assessing the modern solutions on the market today.

Most small and midsize insurers recognize that their core competency is the insurance products and services they offer their agents and policyholders, and that sophisticated software development is best left to dedicated engineering organizations.

Why Would an Insurer Wrap and Extend?

Many insurers will do this at some point to buy time until they are ready to take on the disruption, cost and risk of a policy-admin replacement. Sometimes they revert to this strategy after a failed vended implementation. They can often address their critical pain points and some of the limitations of their legacy systems by wrapping legacy systems in modern services and investing in ancillary systems — portals, data warehouses, workflow/BPM and more. While some of these ancillary systems can play a role longer-term in the enterprise architecture, wrapping the core policy system tends to be a temporary fix.

Policy admin is a vitally important core system for insurers. A solid policy-administration system is necessary to support growth, operational efficiency, rapid speed to market and business agility. Regardless of their strategy, core system transformation is a top priority for insurers today. Fortunately, vendors, partners and technology are available for insurers to determine a strategy to reduce technology risk and deliver robust capabilities to meet short- and long-term business goals.

INNSight is exclusive commentary from Novarica. Martina Conlon is a principal at Novarica.

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