P&C Policy Admin System Replacement: Be Careful Whom You Trust

Policy administration system (PAS) replacement is becoming a hot topic within the insurance industry. Many P&C insurers implemented new PAS applications in the late-90s, during the last hard market. Business was booming and it seemed that Policy Systems of the day needed a face lift. It appears it's getting to be that time, as 90s systems need enhancement the insurance market begins to turn hard again.

So, as many carriers begin to turn their attention to PAS replacement, there are myriad third-party "industry experts" willing to offer a hand. Interestingly, it seems that insurer personnel are more than happy to go outside for assistance - after all, as the argument goes, "insurance is our core competency, not technology. Why not let the technology experts sort out the details and choose the PAS vendors for me?" But such thinking may be more about looking for an easy way out than a concern about core competency.

Insurers should think twice, before jumping on the "industry expert" band wagon. Some of these "experts" are less than objective - with long lasting and rich relationships with particular vendors - that often cloud their judgment and confuse their loyalties; while others are guilty of becoming distracted by the "bright and shiny."

Strikingly, a quick review of the latest industry research, one will find that the PAS vendors being touted as the best in class are the ones that offer a lot of sizzle, but not necessarily a lot of steak. This demonstrates how easily excited "experts" can become with flashy tools that employ trendy technology. It gives the experts something to write about and report on. But what really matters is effect this fascination with the "latest and greatest" will have on the carrier who chooses to follow the advice.

Can You Afford the Risk?

There are inherent risks that come with choosing PAS software vendors that don't offer products that are fully featured and rich in insurance functionality. This is not to say that you can't bring in a newer vendor with less sophisticated offerings than some of the stalwarts in the PAS industry. However, if you choose that path, be cognizant of the risk.

You may not have the functionality you need to run your business right out of the box. You may be paying for a vendor to absorb the business learning curve. You may not be able to use your technology investment as a competitive differentiator until your vendor evolves its application along the "insurance industry" maturity curve - supporting more sophisticated business requirements, like out-of-sequence processing, underwriter's workbench and composite rating.

What To Do

Here are some tips to consider when initiating a PAS selection initiative:

1. Take control of the selection process. Do not let an outside "expert" drive the short list. They may lead you to a vendor selection that isn't right for you. Sure, you can benefit from outside help. But, don't relinquish your responsibility to identify the best vendor to meet your needs.

2. Don't let the sizzle fool you. Clearly, it's easy to be "Wowed" by new technology - after all, new technology offers hope. Who doesn't want to imagine that the acquisition of a new system will solve all the ills of the past? But, in reality, there is no panacea to be had, no silver bullet solution that can be acquired that will magically deliver everything needed to run the business, will be easy to use and will be inexpensive to own and maintain.

3. Recognize that there will be trade-offs. Trade-offs will be made in every selection process. Recognizing that those trade-offs exist is the first step to avoiding buyer's remorse during system implementation.

4. Know the implications. Be disciplined in understanding the trade-offs so that you can be deliberate in your software selection.

5. Be prepared to dig deep. Getting past the surface and digging deep into the functionality may be the most important thing that you can do to reduce your risk. Don't be afraid to ask that next question (see the sidebar below: Digging Deeper).

Conclusion

We all know that a PAS solution should support and deliver on the following requirements:

- Agent connectivity - Agent portal

- Modern user interface - Insured Portal

- Document management - Data integration hub

- Business intelligence - Product configuration

- Underwriting exception processing - Rules engine

- Straight through processing - Rating engine

- Workflow design with management and measurement

- Web services to external data and/or predictive models

All objectivity concerns aside, the "experts" don't have an insurance company to run, they often fail to recognize the degree to which vendors/product offerings differ in their capabilities. Sure, most software vendors will check most of the product features boxes on an RFI; but, that doesn't mean that they actually deliver on those requirements. Keep in mind, there's a big difference between "yes, we can do that" from "yes, we have done that and it's in our product set".

You want to seek out, and do business with, the vendor that has actually "been there and done that", not the one that "can be there and may be able to do that'. The future of your business can rest in digging deep enough to understand the subtlety - and that responsibility cannot and should not be assigned.

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Digging Deeper

It's very easy for a vendor to check the boxes on a "Must Have" requirements list. But, beware, not every checkmark is created equal!

You may be surprised by how difficult it will be to bend some PAS offerings today to deliver what you really had in mind when putting together your firm's mandatory requirements list. So, don't be afraid to ask the next question: "How does your offering satisfy the requirement?"

Here are a few sample questions that illustrate the point:

1. Do you support ISO regulatory changes? If so, which lines and which states do you support?

2. How do you deliver the needed rate, rules and forms changes? Do you make the changes needed for each circular, or do I?

3. Do you support Specialty Insurance lines? How does a new line get brought up in the system? Who does the work? What skills do you need to possess to do the work? How quickly can a new line be brought up and running in your PAS application?

4. Do you support composite rating? What functionality is provided? Does it contemplate all risks including those related to premises, operations, product liability, and automobile?

5. Do you support out-of-sequence processing? If so, does your system do the calculations for me and pass down the premium offsets automatically, or will manual intervention be required?

As you can see from these sample questions, that regardless of your specific PAS replacement needs, you need to get past the surface of the offerings that you are considering and take the time to dig deep into the functionality - learning how your needs will be met. It may be the most important thing that you can do to reduce your risk.

About the Author: A former insurance carrier CIO and consultant to LexisNexis Risk Solutions, James M. Kerr assists carriers with vendor selection and business transformation strategies. He can be reached at [email protected].