As Celent predicted in 2005, the last two years have seen a flurry of activity in policy administration system replacement and consolidation in both property/casualty and life/health. There are four key business drivers that are pushing insurers to consider taking the major step of policy administration replacement: Compliance, Speed-to-Market, Web-Enablement and Cost Reduction.
For many carriers, having five or more policy admin systems integrated with multiple billing, commission and licensing and contracting systems is the norm, meaning that extracting the right data in a timely fashion can be difficult, if not impossible. Modern, open systems can help dramatically improve audit and reporting capabilities, particularly when those systems are tightly integrated and share data.
Another business driver is the ability of modern systems to dramatically improve the speed-to-market of new and innovative products. Some systems offer the ability to take a product through the entire product development life cycle -- from the initial product modeling and calculations to billing for that product -- in a tightly integrated solution. This integration also allows changes to a product to be made by business users and cascade through a carrier's systems with little or no help from IT. In short, product development time and IT costs associated with product development and admin system maintenance can be decreased.
Creating products that stand out from the crowd has become increasingly important in recent years. As many insurance products become more and more commoditized, firm pricing in large part depends on differentiation. Differentiating products in the eyes of producers has grown very difficult as the ability to provide creative compensation is being largely eroded.
Providing Web-based access to all stakeholders (including employees, agents, policyholders, prospects and partners) is still not universal across insurance carriers, but it provides a win-win-win situation for producers, clients and the carrier. Web-enabling legacy systems via wrappers or other solutions, while not always impossible, is not always cost-effective either. The benefits of Web access for the three key stakeholders -- customers, producers and carriers -- are intertwined. For example, producers benefit from proactive E-mail notifications about a policy's status as it progresses through submission, underwriting, issuance, etc. They spend less time on the phone checking on policy status and more time selling. For the carrier, call volume and, therefore, call center expenses are reduced, and producers are spending more time producing business. As an additional example, an end-customer can quickly and easily complete an address change online without wasting an agent's time or internal carrier staff time. That agent can be notified of the change at the same time in case he or she wants to follow up with the customer for sales or service reasons.
A consistent driver for insurance IT projects has for many years been cost reduction. This has grown in importance as many insurance products have become commoditized, making price the only differentiator. In 2002 and 2003, limited or even negative returns on equity investments made this priority number one. While this pressure has eased a bit, it is still a major factor in carriers' decision-making processes. Often, the reduced development and maintenance costs typical of a modern suite, combined with the relatively low price of new systems and relatively simple integration of new policy admin systems with other carrier systems, means a quick payback on these large projects.
Building a system from scratch is nearly impossible to cost-justify when a new system can be purchased at significantly lower cost, even allowing for extensive customizations. More importantly, with some vendors offering pre-integrated suites that offer everything from quoting and rating to issuance and billing, at times it is difficult to cost-justify not replacing legacy admin systems and eliminating the associated maintenance costs.
Although policy administration replacement is one of the largest strategic IT initiatives that an insurer can contemplate, these four drivers are pushing many insurers to take the leap and some are already reaping the benefits.
Matthew Josefowicz, is the manager of Celent's global insurance group, based in the firm's New York office. He can be reached at [email protected].
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