Making Policy Admin Progress

Insurance Networking News, March 1, 2014 | Carrie Burns

Research shows that P&C and life insurers are moving along in their quests for modern policy administration systems. But, with more activity comes more misconceptions.

An increasing number of insurers are taking on policy administration projects – projects that many in the industry say are ‘once-in-a-career’ or ‘make-or-break-a-career’ endeavors. These projects can take anywhere from nine to 24 months when done right, and can drastically change the way a company does business for years and years to come.

As of April 2013, approximately 160 P&C insurers were in the implementation process, according to a report from research and advisory firm Celent. From January 2011 to April 2013, more than 150 P&C insurers and nearly 50 life insurers licensed a new policy administration system, and activity levels have remained high among both insurance sectors and policy administration technology vendors since the firm’s first report in 2005.

Nearly all vendors serving the P&C sector have made major investments in upgrading features, functions, usability and integration methods in the past two years, Celent says. According to the research firm, there have been some upgrades to modern frameworks and languages; very few vendor applications now run on legacy platforms. And while some capabilities for configuring products, rules, document management and user interfaces also have improved, true workflow/process design and mobile capabilities still lag. In general, these changes have occurred at a more modest pace than usability/personalization improvements for end users, according to the report.

When it comes to life and health PAS vendors, recent upgrades have focused on usability and personalization, Celent says. Many added or upgraded Web-based portal interfaces to benefit customer service representatives, underwriters and different distribution forces, according to the report. System administration capabilities for configuring products, rules, workflow, document management and user interfaces also have improved, though Celent notes that these changes occurred at a more modest pace than improvements for end users.

Research from research and consulting firm Strategy Meets Action (SMA) also shows increasing modernization and transformation activity in the life and annuity sector. While 40 percent of life insurer respondents to an SMA survey say they are very satisfied with their end state, 47 percent are reevaluating their situations, and more than 40 percent of insurers in the life and annuity market currently are involved in either PAS vendor selection, planning for a change, or implementation. Annuity providers are leading the way with 46 percent in vendor selection/planning and another 17 percent in the process of implementing new systems.

SMA Partner Karen Furtado, and author of the firm’s report, “Policy Administration: L&A Plans and Priorities,” says most insurers try to extend the lifespan of their PAS for as long as feasible due to the major investment in resources, time, budget and the risks that are involved in the implementation of major new systems. “Our research confirms that L&A insurers use their PAS for very long periods. More than half (54 percent) are using systems that are more than 20 years old,” she says. “And, 76 percent are using systems that have been in place for 10 or more years.”

Furtado notes that there has been an increase in the number of modern systems implemented. “This surge in new systems and planned implementations signifies a strong response to the requirement for flexibility and agility in today’s market conditions,” she says.

However, with this surge in interest comes a surge of “outdated or incorrect information,” according to research and advisory firm Novarica managing director, Chad Hersh. In his report, “Core Systems Replacement: 20 Myths and Realities,” he says when thinking about how to select a vendor and how to implement a selected system, insurers should recognize that these projects are likely to be the largest – or at least the most important – ones that the company will undertake over the next 20 years. By addressing as many misconceptions as possible as early in the process as possible, the chances of a successful project improve greatly, Hersh says.

20 PAS Project Myths

With all of this activity comes the likelihood of more opinions, lessons learned and just flat-out wrong information surfacing. In his January 2014 report, “Core Systems Replacement: 20 Myths and Realities,” Novarica’s insurance practice Managing Director Chad Hersh debunks myths about these replacements. Whether at the selection process stage and the implementation process stage, insurers need to avoid falling into the following mindsets.

  1. You don’t need to replace your legacy system. Wrap and extend is rarely a good strategy today. It also rarely makes sense to re- write/modernize your existing system(s).
  2. We should build, not buy. Success rates are much higher for packaged solutions than for custom builds, and it’s usually cheaper/faster/easier to configure a packaged system than build a custom solution.
  3. Selecting a vendor package takes a long time. Using the right approach can speed the process significantly and help you avoid the dreaded request for proposal.
  4. You should document your current system functionality in great detail before embarking upon a vendor-selection process. Until you understand what modern packages can do in terms of out-of-the-box functionality and configurability, it’s impossible to know what your future state should look like.
  5. Once you have your requirements, they all need to be met. Even after the system is configured, it may not meet all of your requirements – and that’s OK. You’ll likely need to change your business processes to meet the system’s capabilities.
  6. Finding the “best” system is your goal. Every carrier’s needs are different, and different solutions may be right for any given carrier.
  7. Agent input is not critical. Getting your agents involved early in the process is critical to the system meeting their needs.
  8. The short-term ROI will be clear. There are typically short-term benefits, but the really significant hard-dollar benefits come later in the project. Plus, realization of the benefits is dependent upon many factors.
  9. Get the price as low as you can. It is important that you partner with your vendor; if you’re squeezing the vendor on price, you’re less likely to get their “A team” staff and to be a top priority for them.
  10. Requirements should be fully established up front. The world – and your business – will change during the course of the project, and requirements will need to be adjusted accordingly. An iterative approach is crucial.
  11. You’ll use the new system “out-of-the-box”. The best system for your needs will get you close, but every carrier will require some configuration, product development, etc.
  12. The project will be quick/slow. In most cases, these projects take between nine and 24 months. If your vendor gives longer or shorter estimates, ask why.
  13. Business analysts will finally get to change the system. While business analysts may work on the system in a development environment, controls for promoting changes to testing, QA, and production are best handled by IT.
  14. It’s a technology project. It is a business project and a process redesign effort with a very significant technical component.
  15. Treat a core system replacement as a large project. It’s a program that encompasses a series of projects and related efforts.
  16. Employee buy-in = successful change management. Lots of jobs will change in areas ranging from new business to underwriting
  17. Conversion is key. Conversion is critical for life core system replacements, but for P&C thereare significant opportunities to minimize conversion that many carriers should take advantage of.
  18. Day 2 enhancements may never happen. Initial requirements tend to be greatly over-defined; release one should include the bare minimum functionality necessary to enable the business to run and start realizing benefits.
  19. Going global isn’t a big challenge for a flexible, modern system. In most cases it takes years to adapt a system’s capabilities to a new geography in order to deal with tax, language, currency and regulatory issues.
  20. Once you know the issues, you’re in good shape. There are myriad pitfalls, and in many cases while you can prepare for them and mitigate risk, you can’t eliminate risk.

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