When one considers the data processing picture for insurance companies, it seems clear that the policy administration system (PAS) is the core application that literally impacts every area of the carrier’s operations.
There is no doubt that if you have an outdated, outmoded, inflexible or otherwise poorly functioning PAS, you are at a competitive disadvantage. You can’t get your products to market as quickly as others, you’re not utilizing technology to the fullest, and you find it difficult to expand into new markets. And since the current tight insurance market and sluggish economy shows no real signs of abating, being at such a disadvantage is a very troubling thing. Thus, many insurers are now faced with the question of whether or not they should upgrade or replace their policy admin systems—and whether they should do it now or later.
In researching this question with some of the brighter minds in the industry, I have run across many brilliant answers, but the bottom line among the experts is that the best answer will depend on factors that are unique to each insurer. The key, really, is not to compare yourself against the industry as a whole, but rather to see how you stack up against companies whose customer and agent profiles are similar to your own.
Certainly, you want to look at your own profitability versus theirs, as well as softer factors such as the buying public’s view of you versus them. This process is a little like trying to pick a winner for the upcoming Kentucky Derby—a race that has been proclaimed as “wide open” by racing experts. You could, of course, compare your entry to the 20 or so other entries one by one, but that’s a lot of work, and time is not on your side. Instead, what many horse racing handicappers recommend is that you first eliminate any candidates that you believe have little or no chance for success. This way, instead of considering one versus 20, maybe you can cut it down to seven or eight.
Insurers who can thus “eliminate” certain competitors from consideration will have a much clearer picture of where they stand in the marketplace. A competitive analysis may reveal that you are among the bottom 25% of all insurers in terms of critical factors like time-to-market and technology utilization. On the other hand, in your particular corner of the industry—geographically, line of business, size of company, likely buyers, agent profile, etc.—you may be in a much more advantageous spot.
So, if you narrow your competitive field based on some or all of the key factors mentioned, you know whom you need to beat. If you’re already beating most of them, perhaps you can stand to wait a year or two to tweak your PAS, much less replace it. Of course, you may also reason that making a change now would put you light years ahead of your key competitors, but at least in that case you would be dealing from a position of strength.
The point is this: Don’t let the current PAS-mania sweep you away without carefully considering just where you stand today, and where you’re likely to be tomorrow. A PAS is a significant investment, in terms of both time and money. Your detailed analysis should be your guide to the proper level of urgency for your unique situation.
And for you horse racing fans out there, I’m kind of leaning toward a long shot, Midnight Interlude. Then again, I have some carefully considered handicapping to do. Good luck!
Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.
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