Getting There First
In the insurance industry, as elsewhere, the race may not always be to the swift. But, as Damon Runyon observed, that is the way to bet. Fast-following may be the more prudent ideal when it comes to the adoption of innovative business practices and technology, but getting insurance products to market quickly is the key to capitalizing on today's consumers' appetites for new offerings.
Many factors can impede insurance companies' getting out of the blocks quickly, from regulatory obstacles to marketing indecision. But even if the business side achieves the necessary agility, legacy-bound IT organizations face challenges in developing new products and modifying existing ones.
"You can argue that there's always been an issue with technology being the bottleneck on the critical path, but now that a lot of companies have done good work around streamlining business processes," IT can be seen as even more of an impediment than an enabler of business, says Paul McDonnell, managing director and insurance segment leader, KPMG Consulting (New York).
Legacy environments, for all their virtues, are simply not designed to permit the quick modifications that are necessary for market agility. "A product is basically a collection of rules, and historically these rules have been written into lines of code within the systems," McDonnell says. "But going in and modifying those rules can be a complex problem." So much so, that an insurer might not even bother introducing a new product via existing systems, but will simply go out and buy a new system, or create another version of the same one.
To the extent that product rules can be externalized from the system, the possibilities exist for bringing the capability to change the structure of products directly into the hands of the business people who produce those products' specifications. Industry thinking about how much systems-based product development can be handed over to the business ranges between two extremes, according to McDonnell. "There's a continuum: One end is where, whenever you introduce a new product, you need to get someone to open up the system and write new code. The other end of the spectrum is where 100 percent of the rules are where people can get at them and change them," he says. What makes sense for most insurance companies is to be somewhere in the middle, McDonnell opines. "There are companies and people out there that say, 'Speed-to-market means I need to be way over on the right where I've done 100 percent business rules externalization.' That's unrealistic."
Part of the issue for insurers is figuring out the economics of where to be on the continuum. In the wake of 9/11, some companies are "knocking the cover off the ball" selling traditional products, making the speed-to-market question moot, McDonnell points out. But those that are not need to adapt to survive, he adds, and the scope and focus of speed-to-market initiatives will depend on their particular market and systems challenges. "Is it around some of the underwriting rules, around being able to add specific features to a product, being able to modify the edit rules, the ability to actually go in and tweak the pricing?" These are questions insurers need to ask, McDonnell says.
Evaluating Trade-Offs
Milwaukee-based Northwestern Mutual (NWM, $92.1 billion in assets) faced such questions when the firm decided a few years ago it should introduce variable life into its product suite, recounts Phil Zwieg, vice president, information systems. The insurer's systems realities dictated considering three options, Zwieg says. "One was to implement on our legacy platform, a second was to buy an administration package and the third was to look at some frameworks or development tools."
Of the first option, Zwieg explains, "we concluded that we could not cost effectively implement this new product line on that platform—the changes to our historical processes were just too complex and time consuming to make it reasonable." Since the package alternative presented the dilemma of either having to make changes to either it or the carrier's processes, that option was rejected too. "That left us with the framework," which led NWM to London-based Sherwood International's Amarta business process implementation environment.
Since the Amarta framework models and stands on top of a carrier's own processes, implementation begins with mapping, or documentation, of business processes, according to Martin Lambert, chief marketing officer, Sherwood. "In a typical deployment you will tie into your priority legacy interfaces," for which Amarta "has a complete Oracle-based tool set, which in turn allows you to hook from the Amarta-driven data on new business back into underwriting, claims, accounting, agency, commissions, etc.," he says. "To model new product and put new tables into the system, you plug the process documentation in the front end and it will then go through the workflow—you don't have to code anything new to introduce a new product."
From Zwieg's perspective, that capability promised both speedy delivery of required products and reduced programming costs. And it delivered. "We began activities with Amarta in mid-1997 and delivered the first product to market in April '98, followed by a second in December," Zwieg recalls. "Then we took about a year to do some stabilization, because we had gone through such a rapid introduction process." NWM went back and tweaked implementation and administrative activities and went on to introduce a third product in April 2000 and a fourth in July 2001, which Zwieg submits "is a rapid introduction pace."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio
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