Omnichannel Revolution Grips Insurance Core Systems

It's no secret that the insurance industry is in a bit of a renaissance when it comes to policy administration. The "U.S. Insurer IT Budgets and Products 2014" report from Novarica found that for P&C companies both large and small, policy administration projects are among their top three technology priorities in the near term. On the life insurance side, the gap isn't as pronounced for the largest companies, but small and midsize life insurers also ranked it as a top three project.

"More than one-third of insurers are either in the middle of a core policy administration system replacement or are planning one for 2014," report author Matthew Josefowicz writes. But "top priority doesn't necessarily mean a replacement of the system," he continues. "Major enhancements, or even minor enhancements, can be top-priority activities for insurers."

Whatever the kind of activity, it's clear that insurers are looking for the system that will enable them to participate in an increasingly digital marketplace for years into the future.

The Cloud Emerges

Rockford Mutual CIO William Hanby had a long list of needs for the company's next policy administration system. He wanted something architected on a modern platform, such as Java or .NET, instead of the Cobol legacy system Rockford currently runs. The system also had to be flexible so the P&C company could adapt to changing market needs. That meant a rules-based, configurable system was required so that changes could be made quickly. Finally, the company wanted a system with scalability to meet its aggressive growth agenda. All these characteristics can be summed up in an overarching one: Rockford needed a cloud-based system. The company recently selected one from ISCS.

"It's going to be an off-premises, cloud-based solution that's hosted by the vendor," Hanby explains. "Ultimately, it could be moved to another cloud provider. But the piece that you really get with the cloud-based solution is the flexibility and the scalability."

Hanby says that in addition to all the customer acquisition and service benefits of the cloud, an ancillary benefit is that it will help the company save money on expensive server maintenance as well.

"It's very difficult for companies to continue with the old model of big data centers that each company maintains," he says. "I've been a firm believer for several years now that internal data centers are not cost effective -- but a cloud-based solution allows you to turn up space or server capacity as you need it."

[The State of Policy Admin Modernization]

Many insurers have experimented with the cloud for peripheral systems over the past few years. While Rockford isn't the first to go all-out with cloud-based core systems, Hanby believes that insurance companies' increasing appetite for data is going to accelerate the pace of change in the traditional data center structure. Advances in security and clear delineation of service duties at cloud providers only make the concept more palatable to traditionally risk-adverse insurance organizations.

"Most of these companies have subject-matter experts on each component, like the operating system, the hardware, network connectivity or the firewall -- all they do is one thing," he explains. "But in an internal data center, you may have one person that covers all those items. When you think about it, it's really much more effective for a company to have solutions based out of a cloud."

A Customer Focus

This kind of flexibility also supports the industry's shift to a more targeted approach to sales and service. Traditionally, insurance companies have been product-centric, with technology and business objectives geared toward supporting products on an individual basis. That all has to change now, says Allan Lubitz, senior VP and CIO at Mercury Insurance.

"The power has shifted from the insurance company being able to dictate terms to the customer. You need a different kind of back-end system to drive that demand," Lubitz says. "When we migrated from building our own system to going out and looking for a world-class solution, it had to be architected well for market flexibility and speed."

That means more than just providing a core set of functions required to produce a policy, Lubitz adds. The best systems are those that have a global view of the insurance business and are architected to adjust to trends that emerge worldwide.

"What might be test marketed in the Ukraine might be something we see in the U.S. a year from now," Lubitz says. "If we get that global input, it's really helpful."

But what really powers customer-centricity at insurance companies is data, and CIOs expect their policy administration systems to be able to handle and house the large amount of data collected on each policyholder. From there, the data must be accessible and interpretable by all customer-facing employees.

"You need to have data services available to agents so they can serve their policyholders 24/7," says Rockford Mutual's Hanby. "People could have an accident in the middle of the night, and the expectations from all of us [as consumers] is that we should be able to obtain services 24/7. The agents want to do a great job of servicing their policyholders -- you don't want your system to be down from 7 at night while you're running a batch process."

There's no shortage of the amount of data that can be relevant in a policy administration environment. Guidewire recently released the DataHub addition to its InsuranceSuite core systems line that allows insurers to integrate third-party data with their proprietary policy data -- or even share anonymized information with each other through a network.

"Everyone shares their data and then you benchmark against the pool," says Guidewire CEO Marcus Ryu. "Customers have been excited about the visualization. You can put layers of data on top of each other, like a map of a town and a flood. It's especially useful with third-party data."

Ryu says the latest release of Guidewire's InsuranceSuite -- version 8 -- focuses heavily on tightly integrating the different components of the core systems suite so that the service experience across the enterprise is more standardized.

"It's really about putting a lot of features that are at the suite level that involve the unification or collaboration of policy and claims in a much more intimate fashion," he explains.

This is something that has taken vendors some time to recognize, Mercury's Lubitz says -- but as a Guidewire customer, he appreciates where that company has arrived.

"Sometimes it's not immediately obvious which capabilities are the ones that might have the most value," he says. "But you see that Guidewire is beginning to introduce new capabilities that are significantly better ways to visualize that data. Because of the complexities of the back-end operations, the ugly side of the plumbing, that's where this 'one system, one source' becomes important."

Through acquisition or business expansion, some companies have found themselves on multiple policy administration systems for multiple products or lines of business, Lubitz says. While there are always corner cases that require something different, he says that modern suites that are flexible offer opportunities to simplify the environment and prepare insurers for shifts in the market.

At the same time, he cautions, it's unlikely that a single policy system can be all things to all lines.

"You want the core capabilities to be solid, and you don't want them chasing a bunch of rabbit trails if there's already a bunch of good solutions in the marketplace," he says. "If you're happy with the services you've got, then you want the ease of integration into the core system that you're buying -- if there's someone out there who's the best at gathering credit information, the vendor has to provide a plug-in, for example."

But insurers can't depend simply on bolt-on solutions to carry them through the digital revolution, says Kaenan Hertz, executive director in the financial services customer practice at Ernst & Young.

"The legacy, particularly in North America, is cited as reasons why change is so difficult, and if insurers are developing a three-year or five-year plan for their legacy systems, by the end of that time, when they wrap their legacy systems, the digital world itself will have changed," he says.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio