Policy Administration systems are a hot topic across the industry, just as it was when I entered into insurance in 1978. My first COBOL programming assignment was on a new workers' compensation policy admin system maintaining rating logic. In the 1980s and 90s, policy administration systems were still just as hot, and I led the charge of two commercial lines policy administration replacements projects.
Based on our experiences at Smallwood Maike & Associates and with the insights from a strategic research project, we are challenging the industry to rethink the requirements because we believe they are chasing a 30-year-old dream.
As we look at the policy administration RFPs and requirements, there are some new features and functions being added but, under the covers, these solutions capture policy/quote data, rates, quotes, issues policies and produce the back-end interfaces to billing, statistical reporting, filings and financials. These systems process all transactions from quoting, new business, endorsements, renewals and all of the cancellation, rewrites, replacement and reinstatements, while its database is the contract of premium record. These systems have all of the logic and rules around product definition, filings, and regulatory logic, rates and forms.
From a technology perspective, of course, the technology has matured. There are now Web front ends, written in new languages, with more advanced rules, rating and workflow engines. As we review many of the architectures, they are still fully contained solutions that cannot be unbundled or componentized.
Insurers are looking for policy administration solutions because the legacy system pain points are real.
Typically, maintenance costs are expensive, coupled with the lack of speed to market, all due to multiple systems, rating/rules engines, embedded rating, rules and forms. The costs and time to make changes is extensive.
The lack of agility and flexibility create challenges with agent and front-end quoting, and also with back-end systems, creating data and system integration nightmares. These systems are rife with crippling technical constraints.
Yet many companies are paralyzed with the decision to replace them. One reason is the investment to replace yields limited ROI. Another reason is many companies have a bad track record with large-scale project implementation, and leadership tends to be risk-adverse. Although the current legacy systems are cumbersome and costly, it runs the operations today, so why change something that isn't broken? Lastly, some may even say there is a lack of vendor options.
One of the biggest challenges we see across the industry is the misalignment of strategy to business processes to technology investment decisions. There needs to be enterprise linkage-a clear connection across the enterprise to redefine the capabilities required in both business and technology to remain competitive. We clearly understand the pain points but, typically, a system replacement does not align to the strategy. A replacement will fix the time-to-market issues and high maintenance costs, and provide some flexibility, but does it help catch the competition, achieve business goals or position a company for competitive advantage? In some extreme cases, yes, but in most cases, no.
Moving beyond linkage to strategy, let's think about how our business operations have changed due to expansion in distribution channels, usage of automatic submissions, straight-through processing, precision pricing, automated underwriting and the explosion of the Internet for self service, agent connectivity and comparative rating. Over the past few years, many carriers have been spending significant dollars on these front-end solutions. As we look at these new investments, we see a significant overlap between these capabilities and those of a policy administration system. Data capture, rating, quoting, document management and interfacing with back-end systems are examples. These front-end solutions also have many of the same business rules and logic creating duplication of functionality.
THE CHALLENGE AND OPPORTUNITY
Insurers have the opportunity to ask for a scaled-down, headless policy administration system that leverages existing front-end capabilities, reduces duplication and aligns with business drivers and strategy. Yet, this requires insurers to start to demand this from vendors because it does not yet exist.
As we reflect on the past 30 years, business models have changed, and will continue to evolve and technology will transform as well. But before you invest in all of this technology, create the linkage between your strategy, your true business capability needs and the right technology investments. And let's start asking the vendor community for what we need today, not yesterday.
Deb Smallwood is co-founder of Overland Park, Kan.-based Smallwood Maike & Associates.
(c) 2008 Insurance Networking News and SourceMedia, Inc. All Rights Reserved.
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