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Insurers Now Have Modernization Options When Package PAS Systems Don't Fit

Rules-based, configurable policy administration systems have proven themselves in the market. But packaged solutions aren't right for every insurer. Fortunately, other, more flexible alternatives to legacy systems offer new options to carriers that need to modernize their core capabilities.

Insurers seeking to modernize their core systems have better options today than they've had in a long time -- maybe ever. The newer "rules-and-tools" configurable systems have demonstrated the viability of modern technology and changed how insurers evaluate the trade-offs they face in modernization initiatives. But trade-offs still remain: simple replacement of old with new technology is not a solution for all carriers. Happily, alternatives have been evolving in parallel to the new core systems packages, improving the chances for success of outlier insurers whose business models make packaged approaches less attractive.

Modern policy administration packages are still evolving, which means that insurance CIOs must still weigh the virtues of configurability against deep functionality, acknowledges Brian Desmond, VP of marketing for San Mateo, Calif.-based Guidewire Software. "No modern vendor has all the bells and whistles of the older vendor systems," Desmond concedes. "But it's only a matter of time before they do."

Today almost any carrier can find a modern packaged system that would be viable, if not exactly ideal, argues Chad Hersh, a principal with research and advisory firm Novarica (New York). Insurers can choose among available options whether they want to use a system to liberate them from processes dictated by antiquated systems capabilities, bend a system to their vision of process or anything in between, he suggests.

In recent years, the drama of modernization initiatives transformed from narratives about failing rip-and-replace efforts involving large monolithic systems to stories of challenged implementations of new configurable systems, Hersh reflects. But even those stories are largely in the past now, he says, adding that we can gauge the industry's progress by how routine -- and even boring -- successful rules-and-tools implementations have become.

Packages, however, still are not the be-all and end-all for the industry. "Although packages can be almost infinitely flexible if they're built right, there will always be cases where a package won't fit," Hersh comments. "Just because packages have matured doesn't mean development on other options has stopped." Hersh cites component-based frameworks, such as life insurance-focused FAST, an Edison, N.J.-based company formed by former Navisys executives that uses a development framework resembling the approach originally taken by software companies such as OneShield and Wyde for the P&C industry.

Insurers also are enjoying successful modernization initiatives by adding critical components that leave legacy back-office capabilities more or less intact, reports Kimberly Harris-Ferrante, VP and distinguished analyst with Stamford, Conn.-based Gartner. "Five years ago, if you had a problem with a system, you had to replace it completely," Harris-Ferrante says. "Today you can buy smaller application footprints, such as an underwriting system, and substitute it for existing functional capabilities within a policy administration system."

Harris-Ferrante also notes the increasing use of business process management to externalize hard-coded capabilities and serve as an enterprise tool for managing diverse core systems that may include a combination of legacy and modern technology. "For years we talked about systems almost as if they were islands," she says. "Now we see more management of data and process associated with multiple systems at an enterprise level."

The ability to either configure systems or integrate them from an enterprise perspectives relieves insurance CIOs of being beholden to the business process assumptions imposed by their choice of system, notes Frank Petersmark, CIO advocate of Farmington Hills, Mich.-based consulting firm X by 2. Petersmark relates that as CIO of P&C carrier Amerisure (Farmington Hills; $488.6 in 2010 sales) -- a post he held for 12 years ending in 2010 -- he took an approach that was a hybrid of "buy" and "build" through a close relationship with a software partner.

"Our first step was to determine the optimal processes for ourselves and then figure out whether there was something in the market that came close to it," Petersmark recalls. "That was somewhat utopian in those days, but the dream is closer to reality today with the flexibility enabled by configurable systems and component approaches."

Carriers enjoy less-risky options today that are likely to make for a better fit for their process needs, Petersmark continues. However, he cautions, "It's still incumbent upon the carrier to identify the right solution and partners, especially in the case of outliers with less-conventional business models."

But carriers face other challenges, too, according to Gartner's Harris-Ferrante. Many insurers, she insists, lack the "culture of configurability" necessary to take advantage of new systems. "Configuring a system is very different than customizing a system," Harris-Ferrante explains. "You're writing workflow rules as opposed to writing source code, so it requires different process and methodology."

Harris-Ferrante adds that while the evolution of alternatives to packaged systems has helped reduce the risks associated with modernization, it brings other costs. "We have more options than ever to address legacy today. However, almost every option is not simplifying but adding more complexity to the IT landscape as well as creating the need for a wider range of IT skills," she comments. "IT organizations will have to grow and adapt to handle these needs."

Austin, Texas-based National Western Life ($1.6 billion in total 2010 premium) has enjoyed a durable record of success through its conservative financial management and a unique business model that includes significant annuity distribution in 49 states as well as accepting applications and issuing policies to residents of various countries in Latin America, Eastern Europe and Asia. However, by 2008 the company's legacy policy administration system and supporting subsystems had nearly reached the limits of their durability. Since continual development of new products is core to National Western Life's business model, the carrier sought to renovate its total systems capabilities, including core systems, according to SVP and chief administrative officer Mike Hydanus, who was hired to drive the transformation.

"Our approach was to assess the whole market and identify a partner or partners who could help us produce the best outcome," explains Hydanus, adding that he approached the task with an open mind rather than a set strategy. "What we did not want was to end up with an outsourcing relationship or a solution where the product would control our business model."

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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