It wasn’t supposed to be this way. Policy-administration replacement projects were touted as once-in-a-lifetime, make-or-break efforts to meet customer expectations and establish strategic advantage in a flat market. But now, a number of P&C insurers are finding it necessary to replace core systems that are only a decade old, or less.
Spending on policy-admin and other core-processing systems continues to increase and comprised the single largest segment of software spending for P&C insurers last year, accounting for 48 percent of all software purchases from vendors. This compared to 27 percent the prior year, according to Celent’s recently released “North American Insurance Software Deal Trends 2014, Property & Casualty Edition.”
While the business imperatives for these large-scale initiatives have evolved over the past decade, the accelerating pace of technological change, including the advent of service-oriented architecture and hosted solutions, as well as the revolution in consumer technologies and expectations, is driving some insurers to replace systems that have been in production for just a handful of years.
“We are now far enough into the modernization era that it’s time to start replacing some of the systems that were bought at exactly the wrong time,” says Chad Hersh,SVP at The Nolan Company and a core-systems expert. “There were some systems that touted client-server. There were systems that came out at the very front of the Web era that were built on architectures that were not configurable or flexible; systems that used a lot of legacy ideas, with modern technologies, that were not service-oriented, easily upgradable or were just not legacy.’ That’s not good enough.”
Minimum, Necessary and Sufficient
CSAA Insurance Group is a national federation comprised of more than 50 individual auto clubs that sell auto insurance directly through captive agents in 22 states, the District of Columbia and Canada. The company had endured several policy-administration replacements, none of which were entirely successful.
“When I started there, it had already reached the level of folklore,” says Scott Hunt, general manager of policy-administration system transformation. “They spent hundreds of millions of dollars; they had some very big-name consulting firms and there was a lot of finger-pointing. The board, from their learnings, said, We’re going to do this again, because this is still a business imperative.”
In 2009, CSAA put together a team to look at future business requirements and spent nearly a year doing proof of concepts on different technology options. The insurer was a longtime customer of Innovation Group, but after completing a proof of concept on the platform, it decided to consider other vendors. CSAA at that point had six policy-administration systems in production and had customized the Innovation Group software significantly, which would have complicated a new implementation, Hunt says.
“What we were really looking at was not just installing an upgrade, but doing a whole new installation. But it went down the wrong path,” Hunt says, explaining that the application wouldn’t function in a service-oriented architecture (SOA). The “bake-off” winner was an SOA-compatible application from EIS Group that CSAA spent 12 months installing and configuring before going live with its first release.
Having a service-oriented architecture has helped CSAA avoid the time, effort and expense associated with hard coding and data transfers. Instead, the insurer now uses data profiling and a data dictionary, allowing users to share and consume data in a consistent way. “From our policy-admin system,” Hunt says, “I can, just like an electric outlet, put the plug in. And anybody can plug into it. When we do a system upgrade, we have to make sure it didn’t affect the contracts that provide the services, the call and the answer, but it’s much more flexible than the old technology.”
From a strategic vantage point, SOA has helped CSAA increase its speed to market and reduce costs. “Having multiple policy-admin systems, the mainframe systems, the fragile integrations, was all very costly,” Hunt says.
The project took 13 months to convert the company’s personal auto book of business, which includes more than a million policies, according to Hunt. “Our approach was: minimum, necessary and sufficient to get into production. We didn’t have all the bells and whistles that everybody wanted. We did launch with some issues and challenges, but we could write and service policies.” CSAA then began rolling out the system to each of the states, incorporating improvements with each release.
Next, the company will launch a line of home insurance products on EIS, first in Arizona, followed by California and the rest of the states. CSAA also is rolling out usage-based insurance and considering a number of non-standard insurance products, all of which will tie into the EIS system. Says Hunt: “The core system lets us offer these things.”
Hunt asserts that CSAA is succeeding because the company focused on getting the project done in the shortest amount of time. “I’ve been really impressed with the leadership at CSAA courageously implementing and saying, Let’s get things into production as quickly as possible and then we’ll build on it from there.’ If you can simplify the requirements, focus on the minimum, necessary and sufficient, and have empowered, highly focused leadership, you’re well on your way to success.”
Enterprise Risk Management
For more than 25 years, Society Insurance was an AQS customer. The insurer, a regional commercial lines specialty company focusing on the hospitality industry, had operated on each of the three different versions of the AQS policy-administration platform: Version 1, Version 2 and AQS Advantage, a web-based platform running on Windows and an SQL Server database, before deciding to replace it.
“It was a fairly new architecture,” says Tom Konop, VP of IS at Society Insurance. “We were on it for about 12 years.” However, when AQS was purchased by Insurity in 2013, Society’s senior management grew concerned that the new owner would not continue to invest in the platform, Konop says: “We just didn’t feel that we could rely on AQS being there for the long term.”
Instead, Society chose the Cover-All Policy platform for its commercial auto, workers’ comp and business owners policies lines of business.
With Cover-All, the ability to integrate systems, process transactions and push information both to and from the policy-administration system are big advantages, as is being able to make those modifications in-house and not have to rely on outside resources. “Whether it’s a rate change or state addition, Cover-All has a component called Dev Studio; it gives us the ability to make changes without having to engage Cover-All. That lowers our cost of ownership, improves our speed to market, and we can control our fate better,” Konop says.
Next, Society intends to implement straight-through and exception-based processing, leveraging Cover-All’s ability to accept integrations with a homegrown, web-based interface for internal CSRs, called Expressway. “It’s almost a workflow component; we move a transaction from conception to completion. The most efficient way is not to get off the Expressway,” Konop quips. “That allows us to take information into the company, whether that’s a quote or a transaction request, like an endorsement, make that electronic and put business rules around it so that we only need to deal with the exceptions. It’s the information an underwriter needs to make an underwriting decision. They might be looking at claim information or other external information. And we present it in a common user interface so that they can make a decision. Once they make that decision, we push it down as a transaction into the back-end systems.”
Society hasn’t yet exposed the system to its independent agencies, though it does offer other ways for them to create quotes and access billing, policy and claims information, Konop says. “We’re hooking up all those components and trying to make that a seamless transaction. That’s why the integration is such a key component.”
Society signed contracts in January 2013, assembled project teams a month later and had its first line of business, commercial auto, in production within 14 months. Konop says there were as many as seven full-time employees on the project and the same number contributing on a part-time basis. Despite the large amount of integration that was done, Society used just one outside consultant.
The insurer will continue to enhance the application, Konop says, especially in the way it presents information. “That’s where having a modern platform that’s conducive to change or integration will be key: mobile apps, being able to push information out, having agents able to initiate changes on a policy, those are areas that Cover-All will allow us to do. Making it easier for our independent agents to do business with Society Insurance; straight-through processing and the efficiencies of being exception-based, that’s going to be our focus after the implementation.”
The Mississippi Windstorm Underwriting Association is a residual market for hail and wind coverage, created by state law in 1972 after Hurricane Camille, a Category 5 hurricane, hit Mississippi in 1969, explains executive director Joe Shumaker.
“Being in the northern Gulf of Mexico, we don’t have a lot of coastline, but bull’s-eyes aren’t very big,” Shumaker says. “We experienced the worst natural disaster to hit the mainland back in 1969, which was Hurricane Camille; then Katrina came along [in 2005].” Katrina accelerated big changes at the company, including a second replacement of the company’s policy administration system and changes to how the company manages the business.
Until 2007, the insurer was a servicing carrier, Shumaker explains. Voluntary carriers wrote business on their own paper for MWUA, which accepted the premiums and issued the policies. The policies were issued on the voluntary carriers’ system, and they were responsible for printing the pages and documents and sending them to MWUA, which would then distribute them.
“Management realized that it needed better data capture and analysis, especially for CAT modeling, and to go into reinsurance,” Shumaker says. “The decision was made to get a policy-management system and bring some of those services in-house.”
MWUA selected a local vendor in 2005 to build a system modeled after one the company had developed for use in a neighboring state. “It moved us off a servicing carrier system onto a more modern .NET platform. The policies were converted, and it was a challenge because of the way our data was stored.” For example, street numbers, names and types, along with city, state and ZIP code, were all stored in a single field on the insurer’s old IBM AS/400-based system.
The customized system was completed in 2007, but while it functioned, it wasn’t very efficient and scalability soon became an issue. “In 2005, we had about 16,000 policies and $12 million a year in written premium.” Shumaker explains. “Two years after Katrina, we were about 46,000 policies, about $80 million in premium and $7.8 billion of limits. We needed more functionality, we needed a more stable system.” Meanwhile, the local company that had built the .NET platform was no longer in business.
So, MWUA went out to bid again in 2010, and management unanimously decided to go with ISCS’s Sure-Power Innovation Policy Administration Suite. “We began configuring and developing our rules, rates, forms, etc., in 2011, and we went live with new business in January 2012,” Shumaker says.
With ISCS, MWUA is able to send electronic notifications to mortgagees through integration with LexisNexis Financial Institution Reporting System (FIRSt). “Anytime there’s a change of the policy coverage, or a notice of cancellation, the system creates a daily file that we upload into the LexisNexis FIRSt,” Shumaker says.
“They provide electronic notification, which costs between 17 and 20 cents, compared to a 45-cent stamp.”
MWUA also integrated ISCS with its Microsoft Dynamics GP accounting software and offers agency downloads through the IVANS Agency-Company Interface. “We have a claims TPA and five points of delivery with hundreds of examiners, hundreds of adjusters, all of which will be putting information directly through the Web into the claims part of our policy-management system,” Shumaker says. He adds that it also has helped MWUA with its own CAT plan and disaster recovery.
The launch of ISCS has dramatically streamlined processes for the company, Shumaker says. “Number one, it’s all web-based. Number two, we have pushed it out to the agents or producers. They go online, they do the quoting, they submit it to us for approval.”
The new system also brings services to the insureds. They can log into their account, pull up a list of their policies, see any outstanding invoices, make payments, report a claim and print copies of their deck pages, which cuts down on telephone calls, Shumaker says.
For the insured, the new system offers the option to request all electronic correspondence, which MWUA can deliver via integrations with Vertafore’s ImageRight. “Every document the system generates is stored in the system,” Shumaker says. Not having to print deck pages, notices and invoices saves the company $25,000 per month, and MWUA continues to generate paper only for those policyholders who have not chosen email delivery
The company also intends to launch a mobile claims application that offers GPS coordinates to field adjusters. “We capture lat/longs on every risk that we write,” Shumaker says. “We go out and do inspections. If the construction doesn’t match, it throws up an underwriting flag that allows us to address the issue promptly.”
CSAA, Society Insurance and MWUA all made hard choices to get what they needed from their policy-admin systems. But while early lifecycle upgrades and platform changes can be daunting and disruptive, all three insurers recognized that the future of their business depended on achieving new functions and efficiencies. The price of innovation can be steep, as insurers are beginning to realize, but the cost of doing nothing can be devastating.
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