Insurance & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.


03:00 PM
Connect Directly

Legacy Systems Yield To Modern Technologies

As newer technology systems continue to prove their worth, rationales and approaches to moving away from legacy, mainframe-based policy administration systems are waning.

Carriers without significant IT resources may need to rely on vendor partners, so there is a place for that kind of arrangement, Hersh allows. However, he says, systems that operate on this model are also candidates to be displaced by business process outsourcing (BPO) based on modern systems.

Proven scalability on the part of newer systems is still a concern, Hersh concedes. But he notes that more and more carriers are willing to take a chance. "There are all kinds of ways to mitigate the risk, such as via lab testing and putting one line [live] and ramping up others later," Hersh submits. When all is said and done, he adds, "The road is running out for a lot of the arguments that have been made for why the older systems are still OK."

Clearly, however, many carriers, for better or worse, find some of those arguments compelling. Innate conservatism plays a role in making some insurers perhaps irrationally cautious, in the view of Joel Conrad, former National Life (Montpelier, Vt.; $1.3 billion in annual revenue) CIO and currently a Minnesota-based independent consultant. "There is a widespread sense that the cost of moving to a new policy administration system is too high," he says. "I don't think many companies make a strong effort to understand what the newer platforms will do and what the value proposition really is."

The kind of bovine reliability that older systems can afford also encourages a certain "if it ain't broke, don't fix it" mentality on the part of many insurers, according to Conrad. The same carriers are likely to be worried about whether or not they have the professional skills to move onto new platforms, including project management experience and the tools and techniques needed to convert existing business, he adds.

Further, the new-systems vendors themselves have yet to master making their own case, Conrad believes. Carriers' concerns about scalability and large volume batch processing are eminently reasonable. The vendors need to come up with true benchmarking statistics and stress performance testing on such tasks as large volume nightly policy runs, Conrad recommends. "I know the vendors can handle those volumes, but they haven't done a good job of demonstrating that they can," he says.

Unrealistic Expectations

Newer system vendors have also been guilty of encouraging unrealistic expectations, according to Brian Desmond, VP of marketing for Guidewire Software (San Mateo, Calif.). Modern systems have been hyped as permitting implementation in weeks, for example. But the reality is that implementation takes upwards of a year or two to bring complex policy administration systems live, Desmond contends. There are some essential integrations that cannot be skipped -- those to the claims and billing systems, a rating engine, the enterprise back-end systems, plus any number of external services, he explains. There are also issues surrounding data import, such as data cleansing and validation prior to import. "Consider a vendor claim to implement in a very short time more of a red flag warning that the vendor has no idea of how their software will fit into the customers' infrastructure," Desmond advises.

Another false claim, according to Desmond, is that systems are designed for configuration by business analysts and don't require skilled programmers. "The reality is that one must be fully conversant with not just the business process, but also the complexities of the workflow down each and every logical path in multiple branches of a business process," Desmond asserts. The skills needed, while business-focused, are very much like those required for the programming method, with the exception of actually writing in a specific language, he elaborates. "While the analyst can explain the business process, it requires specific capabilities to interpret the business intent, systematically work through the logical branches, decision points, loops and notifications, in order to develop a workflow process that performs as intended," he concludes. "Some analysts might be able to pull it off, but it's not for everyone."

The sort of disingenuousness cited by Desmond combines with questionable practices of more traditional vendors to reinforce insurers' conservatism and skepticism, according to Ric Young, SVP of sales and marketing for Glastonbury, Conn.-based SEG Software. "Most vendors' business models are strongly based on professional services, which is a built-in incentive to camp out at the carrier site for as long as possible, implementing never-ending changes [to legacy systems]," he says. "Many insurers have been lulled into this scope creep before they ever knew what hit them."

Carriers have understandably taken a wait-and-see approach toward new technology, as a result. "But when the carrier has waited too long and the old system has become too painful to work with, the BPO providers will swoop in with yet another set of promises," Young predicts.

A way for carriers to ease the transition to newer technologies is to insist that vendors share the risk, Young argues. Any vendor under consideration should be required to build a product and show it running on the system before the carrier makes a buying decision, he insists. "Any vendor not willing to invest the time and effort can step aside and make way for the next vendor in line," Young remarks. "Carriers have grown to expect so little from vendors; it's time to raise the bar and start making some real demands so that carriers can make an informed decision."

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

2 of 4
Register for Insurance & Technology Newsletters