A New Policy Administration Paradigm: Synthesizing Agility and Cost Savings

By Chuck Johnston, Oracle Insurance

Recent market events highlight that even the traditionally conservative and complex insurance industry must prepare for rapid shifts in business climate. Insurance companies - focused on remaining competitive and profitable in an uncertain market - need the ability to quickly exit unprofitable lines of business and enter new ones that offer greater opportunity. At the same time, they are under pressure to keep costs down. Agility and cost reduction are the watchwords, and insurers are seeking to reconcile these two business goals which, until recently, have been seen as diametric opposites.The traditional approach to balancing agility with cost-savings has been to avoid the cost of wholesale system replacement by customizing legacy systems. Unfortunately, these efforts have resulted in systems so heavily modified with layers of code that even the smallest change requires months of research and development. Like a truck stuck in the sand, the faster business and IT teams try to move traditional processes and applications to support new products and distribution channels, the deeper they sink and the slower they move.

Insurers cannot simply put a wrapper on last-generation technology or reuse the same application development methods with new tools, and expect to remain viable in current market conditions. Rather, they should let the principles of configurability, globalization, openness and completeness of process guide development and implementation of new systems, as much as traditional considerations of industry functionality. In doing so, they can achieve the lower costs and product agility needed to remain competitive in the contemporary marketplace.

One of the greatest controllable barriers to increased agility is the policy administration system - which is high on the list of strategic priorities for carriers, according to a 2009 assessment by industry research firm Novarica. On board with the drive to modernize, forward-thinking insurers must now devise a strategy to create a policy administration infrastructure that takes a more holistic view of product development and provides a flexible environment for product support - ensuring a more agile and cost-effective insurance product management process.

There are three elements that insurers should consider when aligning modern policy administration environments with these key business principles:

Extensible Enterprise Business Objects Enterprise business objects (EBOs) contain all the data associated with a specific business object or process, such as policy, customer or disbursement. Modern policy administration systems should minimize reliance on fixed data models and place more weight on EBOs, which can be easily extended and shared with other systems through open interfaces. Since EBOs are defined around business processes, rather than insurance theory, they more easily support integration with industry-standard interfaces, third-party systems and cross-industry initiatives, such as financial services umbrellas. In addition, rules-based policy administration systems that are designed to work with various EBOs give insurers the agility to maintain multiple product types, product families and insurance lines.

Configuration, Not Coding Modern policy administration systems should separate core functions from product and transaction configuration. This gives insurers defined exit points and the methodology to implement new functions that may not exist in their current systems - without incurring the additional expenses associated with source code modifications. Insurers can maximize cost efficiency by implementing rules-based systems, user-configurable workflows and transparent rate management tools that provide the necessary separation and configurability to minimize modification expenses.

Globalization Without Proliferation While it is unlikely that an insurer would run its worldwide operations on a single instance, policy administration systems that provide insurers with support for multiple regions and globalization/localization methodology enable the flexibility required to ensure compliance with both corporate mandates and local regulations. Modern policy administration systems that separate core functions from product configuration enable the insurers that operate in multiple countries to isolate and configure local regulation and taxation logic with ease.

Early adopters of modern policy administration systems that employ these components are realizing the benefits of a holistic approach. Recently, a large U.S. life insurer migrated to a new policy administration platform to replace its aging technology and facilitate new product introductions to promote business growth. With its consolidated environment, employing configurable business rules, the insurer accelerated time-to-market for new products - reducing the average product lifecycle by three months. In addition, the first new product introduced under the modern system accounted for approximately one-quarter of the carrier's sales during its first year of availability.

A demanding insurance marketplace is forcing insurers to make greater demands on their insurance application vendors, who must more closely align with mainstream application development patterns. Insurers that take a long-term, holistic approach with modern policy administration systems will be well-positioned to deal with the realities of the current economic landscape, while gaining the agility needed to promote growth for many years to come.

Chuck Johnston is vice president, strategy and alliances, Oracle InsuranceInsurers must devise a strategy to create a policy administration infrastructure that takes a more holistic view of product development and provides a flexible environment for product support - ensuring a more agile and cost-effective insurance product management process.