Boston — A number of recent surveys and research reports list policy administration system replacement as one of the most important projects for U.S. insurers right now. What about elsewhere?

Insurers in the United States and Europe differ in their policy administration system approaches, according to a report released by Boston-based Celent LLC. The report, “A Global View of Policy Administration Systems: The 2007 Overview,” states that in the United States, building a policy administration system has become extremely rare, while assembling one from components (e.g., claims, policy, billing) has become increasingly common. In Europe, large insurers have a preference for frameworks, while midsize insurers prefer a single end-to-end solution. There are also a fair number of insurers in continental Europe who prefer to build custom solutions.

The report goes on to explain the factors driving replacement in the different regions. In the United States, the No. 1 driver for policy admin projects is product flexibility/speed to market. European insurers’ top driver is consolidation/integration. Celent attributes this to the fact that European insurers have grown inorganically via mergers and acquisitions, and have a plethora of customized and off-the-shelf systems for various lines of business and focus on consolidating these systems.

The U.S. insurers’ second-biggest driver is business process flexibility/improvement. One example is Springfield, Ill.-based Midwest Insurance Co., which was named runner-up for the INNovators Awards. Chosen for its strategy to replace an aging legacy policy administration system, Midwest Insurance implemented a new system that delivers real-time data to all end-users.

In 2005, Midwest had already outgrown its policy administration system. “It was old client-server technology,” Rick Vogl, the company’s VP-IT, told INN. “The legacy system couldn't handle the volume of quotes we have coming through our system, and the amount of premiums we push through it.”

The new policy administration system also automates and streamlines everything from document creation to e-mail creation and reporting. “We track everything now,” Vogl said. “When you give somebody a live view of the data, and you know it's going to be correct, then you're able to start gauging yourself and tracking your performance.”

Midwest is just one of many insurers replacing policy admin systems. Celent believes other insurers will follow. The market for policy administration systems will remain strong for at least several more years. For the P/C market, the continued influx of impressive, modern systems—for personal, commercial and/or specialty lines—will continue to keep prices low and force established players to improve their offerings, the report states. As this trend continues, modern systems will further prove themselves, causing some insurers to finally accept modern systems as legitimate options, and other insurers to expand their use of modern systems.

Celent expects the market in both Europe and North America to continue to grow over the next two years, and that total spending on policy administration solutions for the regions covered in this report will peak at US$1.7 billion in 2009. As systems improve, insurers’ appetites for those systems should continue to grow, while prices should hold reasonably firm for vendors (or even increase in China). The next five years are likely to be some of the strongest yet for vendors, and should yield tremendous benefits for insurers.

Source: Celent, INN archives

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