In a new report being released tomorrow,
In its “U.S. Property/Casualty Rating Systems: ABCD Vendor View, 2009,” report, Celent studied a variety of vendors that are active in the stand-alone rating applications space, as well as vendors that offer rating as a part of their larger core system offerings.
Admitting that the rating and rules engine solution space is a relatively mature market, Mike Fitzgerald, senior analyst in Boston-based Celent’s insurance practice and author of the report, tells INN that the study offers some surprising insight into the differences between functionality offered in stand-alone rating systems, and the level of functionality now being incorporated into larger, core systems, such as policy administration.
“Our goal was to provide comparative data that helps carriers shortcut the process of evaluating rating engine vendors,” says Fitzgerald. “The surprise was that rating is now being seen as more than a calculator—it’s beyond a rating system. It must be usable from the business users’ standpoint. And it’s becoming more obvious that carriers are asking “how much functionality do I have versus how do I get the right rate out?”
For example, the report notes many solutions have been extended to control other product features such as forms, eligibility and underwriting rules. In this respect, the most functionally rich rating packages approach product design tools (also known as product configurators). Celent expects these features to become more common in the next few years, and rating solutions to continue to expand their reach into product management.
Fitzgerald points to economic factors only somewhat influencing the property/casualty carrier’s drive to “right price” risk. “If the rate is too low, an insurer will not remain solvent and cannot continue to deliver on its promises,” he says. “If the rate is too high, an insurer will lose business. This fundamental makes rating a core business function for property/casualty companies. The ‘right rate’ is table stakes. But as rating continues to become more sophisticated, stand-alone rating engines will continue to respond to this challenge.”
The decision to choose a stand-alone rating system versus a refresh and/or replacement of core systems that now offer more feature/functionality will depend on the insurer’s architecture, and where they want their technology to take them, Fitzgerald adds.
“This is an explicit decision, and one that needs to be made based on the insurer’s unique requirements,” he says. “Some may choose a standard rules engine; some may build a rating engine hub; and still others may place their policy administration system in the center. Insurers need to recognize that they can still get good value in a ‘calculator’ type of rating product, but the hook is in offering the business user the most functionality possible.”
