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Policy Administration

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Newer Policy Administration Systems Ease Transformation of Smaller Insurers

As the insurance industry prepares for the next growth phase, small and medium-size carriers are taking advantage of rules-based policy administration packages to transform their capabilities and stand up to larger competitors.

Mercury Insurance has taken an opportunistic approach to adopting new policy admin technology, relates CIO Allan Lubitz. "We didn't want to have a gun to our head," he comments. "Rather than convert one of our legacy platforms, ... we thought this was the perfect opportunity to do this right, from the ground up."

This summer La Brea, Calif.-based Mercury ($4 billion in annual premium) will go live on Guidewire Software's (San Mateo, Calif.) policy, claims and billing products for homeowners' insurance in a state where the carrier currently sells only an auto product. "We decided to take a greenfield approach and thought that if we were going to invest, we would do it in a state where there is new revenue potential," explains Lubitz.

He describes the value of Guidewire's rules-based technology in terms of the benefits expected by his Mercury colleagues: "Our underwriters believe it will help their process, and it will certainly enforce best practices; our product guys talk about it in terms of being able to deploy new products and changes faster; and our architecture team is very positive about how well Guidewire's tools are designed," he says.

At the same time, Lubitz takes a conventional view of the limitations of newer technology. "Having seen what was available in the marketplace, we thought the Guidewire products were built in such a way that even if they lacked certain features or functions today, they would feel the pressure from the marketplace to provide it," he reasons. "Because of the way the product is architected, they can react more quickly than their competitors."

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Like Mercury, many insurers are increasingly finding the conditions right for movement onto more-modern policy administration systems, partly because of maturing systems and partly because of intensifying product and service demands from distributors and customers. Small to midsize carriers in particular are enjoying a leveling advantage as the maturity of newer, rules- and tools-based packages enables a clearer value proposition based on lower implementation and services costs, as well as more competitive licensing, according to Chad Hersh, a principal in Novarica's (New York) insurance practice. "Smaller companies are better able to compete with larger carriers by implementing modern systems at a cost they can live with, enabling them to be nimble and competitive despite their size," Hersh asserts.

In addition to the inherent flexibility of rules-based offerings, an emerging benefit of the systems is that they are better suited for agile implementation, leading to the opportunity for better and cheaper implementations, according to Hersh. "In general, as the modern policy administration system vendors have matured, their implementation capabilities have improved, often through third-party partnerships," he comments.

Gray Skies Are Gonna Clear Up

At the same time that policy administration technology is improving, insurers' business prospects also are starting to improve. "For many carriers, both life/health/annuity and P&C, the current downturn has been the impetus to buy or at least shop for a modern system to be at a competitive advantage as the soft market comes to an end and the broader economy improves," Hersh notes.

Carriers are preparing for an "opportunity market," agrees John Vale, a senior consultant with Accenture in Chicago. Having focused on cost-reduction with mixed results, insurers are turning to growth strategies as they see competitors distracted by the pressures of the financial crisis, he suggests.

Citing recent Accenture research, Vale reports that the vast majority of P&C carriers surveyed (84 percent) see policy admin systems as a key priority over the next three years, driven by the need for speed to market and greater flexibility in improving business processes. Ninety-two percent of respondents see organic growth as the main contributor to overall revenue growth, but 81 percent believe that their current systems are inadequate to support current and anticipated needs. "Insurers are aware that aging infrastructure is preventing them not only from breaking cost barriers but also from addressing business priorities," Vale says.

Almost half of the P&C insurers that participated in the research feel that current systems prevent effective competitive differentiation, owing to a lack of flexibility to meet customer needs, sluggish product launching and the cost of maintaining existing systems, Vale adds. "Carriers need to determine the areas in which they want to excel relative to their peers and define programs to get them there over the next few years," he says. "They have to build a strong business case that will withstand leadership changes, and they need to evaluate various approaches, balancing big-bang efforts and componentized approaches that will generate revenue and offset costs."

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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