In my previous post, I talked about the ten primary business drivers behind a policy administration systems (PAS) transformation. Now, let’s dig deeper into the direct and indirect benefits.
Improved operating leverage will provide the most direct and immediate benefits. Justifying the cost of a policy administration replacement can be a challenge for carriers because some of the benefits are indirect and don't surface until years later. For this reason, the case for a transformation isn't as straightforward as for other core systems transformations, like claims or billing.
When building a business case for policy replacement, carriers usually look for quick and direct benefits in two areas: operating leverage and market agility. The prospects of improving operating leverage are particularly compelling to carriers because they often immediately impact the business, whereas market agility benefits take some time to realize as carriers identify new products and markets to enter.
A PAS replacement can result in improvements to operational processing, eliminate redundant legacy systems, and increase IT delivery assurance, thereby enabling both immediate and long-term cost reductions. However, not all operating leverage related benefits are direct — in fact, in the long run, you may find that the indirect benefits have the largest impact on overall profitability.
- Improve Operational Efficiency: A modern policy platform facilitates immediate and direct impacts to operational efficiency:
- Increased automated underwriting: Carriers often will use a policy administration replacement as an opportunity to streamline underwriting because the modern platforms make it easier to implement straight through processing and advanced business rules. This often leads to transformational business change and can result in direct, positive impacts to underwriting cycle times and reduced referral volumes.
- Decreased data entry: Operational efficiency gains resulting from leveraging the modern platform to create new pre-fill rules, look-ups, and data entry hand—offs also should result in tangible and immediate cost reduction benefits.
- Increased customer self-service: Carriers also may use the policy replacement as an opportunity to put more servicing in the hands of agents and customers. Modern platforms make it easier to extend these capabilities through a self—service portal and thus can reduce call center and home office touch points.
- Increase Delivery Assurance: An often overlooked benefit of PAS replacement is IT delivery improvement. A modern policy platform allows for simplification of the internal systems landscape and enables organizations to consolidate their IT skills requirements. Because of this simplification of technology and reduction in environment complexity, fewer resources will need to support the existing portfolio. Overall, these benefits will promote greater confidence in future systems enhancements and transformational initiatives.
- Eliminate Legacy Platforms: This is often a primary driver for transformation because of the benefits to many carriers of systems retirement and consolidation — namely, immediate cost reductions and a decrease in overall expense ratio. This is particularly attractive to carriers who have grown by acquisition and are looking to consolidate multiple policy systems.
While the direct and immediate benefits of improving operating leverage are extremely attractive, there are some significant indirect benefits that may prove even more profitable in the long run. It's easy to visualize cost reduction opportunities resulting from operational efficiency improvements, but carriers with a more long—term vision will see reinvestment opportunities. Underwriters have reported spending nearly twice as much time on routine processing tasks than they would like. Imagine if those underwriters were spending that time on more value added and profitability—driven tasks like reviewing a potential client risk with their producers.
Instead of using operational efficiency gains to reduce the number of IT or underwriting resources, carriers can take advantage of these improvements to move these resources into more value adding roles. Underwriters will have more time to focus on reviewing risks and engaging in loss control activities. Accordingly, a modernized policy administration system can be an enabler for a broader underwriting strategy that doesn't just reduce costs, but also streamlines underwriting operations to profitably grow the business. All of this can enable underwriters to focus on improving risk analysis and price accuracy, as well as free them to invest in more profitable relationships with producers.
By the same token, IT professionals can be redeployed to further advance business capabilities on the improved technology platform. Instead of spending time on complex, over-budgeted systems enhancements necessitated by years of patch code on ageing platforms, these IT professionals can drive significant business change on a modern platform that is equipped to enable transformation.
It's obvious that improved operating leverage will be a key driver of any policy administration transformation. In some cases, the fact direct benefits can be realized immediately may play a significant role in selling the business case to stakeholders. But, while these direct benefits are extremely attractive, it's important not to lose sight of the indirect benefits associated with reinvestment and redeployment. Upon a closer look, you may find that the indirect benefits will drive even more profitability in the long run.
Our next article will focus on the impact that a policy transformation can have on market responsiveness to customer needs and thereby improve the carrier's relationship with its customers and improve its overall profitability.
About the authors: Imran Ilyas, a principal in PwC's Advisory Services insurance practice, specializes in P&C and policy administration systems transformations. T. Josh Knipp, a director in PwC's Advisory Services insurance practice, also contributed to this post.