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Michael Voelker
Michael Voelker
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Web needs and legacy systems limitations spark a surge of investment in admin systems and niche P&C applications.

One thing solutions providers agree upon when it comes to trends in property and casualty administrative systems is that 2000 has been a busy year. "Virtually every major insurer has several large projects, looking at replacing all or pieces of their policy and claims systems," says David Hollander, partner, insurance industry, North America, Andersen Consulting (New York).

One factor influencing the robust purchasing activity in core applications has been the freeing up of IT budgets that had been strapped by Y2K preparations in 1999. Another has been the need for administrative systems to support e-commerce efforts—something existing legacy systems are often ill-suited to do.

"The need to move to an e-commerce market is going to drive companies to change their old legacy systems, which don't lend themselves to e-commerce," says Bruce Davis, senior vice president of sales and marketing of P&C systems at Mynd (Columbia, SC), which posted approximately nine percent growth in core systems revenues in 1999. "Many systems out there are batch-oriented, not relational, and not available 7/24. The technology is old, so it's difficult, if not impossible, to effectively distribute some of the key functionality in those old systems without going to a new e-commerce-enabled platform."

Perhaps with the problems of adapting legacy systems fresh in mind, insurers are looking at ways to minimize future integration issues when choosing new administrative systems. This has caused a shift in insurers' system purchasing over the past 12 months. More and more, insurers are choosing component-based systems—built from a variety of different vendors—rather than a single system to handle all policy and claims processing functions.

"What insurers are trying to do is have any new system component-based so they can make better reuse of components; so they can use the workflow package or user interface in another module," says Andersen's Hollander.

That strategy has opened the door for specialty P&C vendors such as Naperville, IL-based Insurance Information Technologies (INSTEC), which reported more than 25 percent growth in revenues over the past 12 months. "A few years ago, nearly all the RFPs we received were from insurance providers looking for one vendor to deliver everything," reports Patrick M. Walsh, INSTEC vice president. "Today, companies are looking at best-of-breed vendors, coming to us for our rating engine, to anothervendor for a claims system and to another for a stat reporting system."

Indeed, some go so far as to predict a full abandonment of the single-system approach. "I don't really see a package company surviving," says George Stagno, vice president of the national insurance group of CGI Consulting's US head office (Andover, MA). "Packaged software is for a small set of the industry; for insurers who can't afford their own IT. The bottom line is the emergence of the best-of-breed concept."

Even single-system specialist Mynd reports growth in the sales of individual components of its P&C processing systems. However, Mynd executives don't share Stagno's view of the demise of single systems. "Virtual insurers are starting up that have a need for a full administrative system back-end," says Ray August, senior vice president of products and services. "A lot of mid-sized insurers are looking for complete systems, so we are seeing a new demand."

Part of the advantage of a complete system is the elimination of compatibility issues that arise among separate modules. However, changing or adding individual core system components can be an attractive option to insurance companies that find it difficult to completely let go of legacy systems, due to years of development and maintenance investment.

"Insurers often need to support the policy and claims systems they already have and to service those until they run out," says Andersen's Hollander. "As a result, you'll always have this hybrid world of the mainframe, the server."

Specialized property and casualty vendors are aware of the need to be flexible and have naturally dealt with integration issues. "In the past it was more difficult because you had AS/400, you had mainframe-based systems, you had PC-based systems, and there wasn't any good integration methodology," says INSTEC's Walsh. "With the advent of Internet technology and XML, coupled with the fact that best-of-breed vendors are proactive in working with each other, integration starts to be a lot more palatable."

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