For the past few years, many insurance industry observers and participants have heralded the benefits of policy administration systems replacement. Whether implemented to replace an existing system or to support a greenfield opportunity, dozens of insurers have implemented modern policy admin systems over the past 10 years. And while there is little debate about the value of modern systems in improving agent communication, data transparency, speed to market and internal workflow at this point, there is still considerable debate about how long it takes to implement a new policy administration system (PAS) and at what cost.
In a best case scenario, PAS projects can take as little as six months from selection to implementation, and external costs can be well under $1 million. While these low numbers typically represent a single line of business in a few states for a P&C insurer (life/health/annuity implementations tend to be considerably more expensive due to higher license and conversion costs), even more complex initiatives have been completed in less than two years for under $10 million.
But with some PAS projects taking as long as seven years or more, at costs of more than $100 million -- and not necessarily for a success -- skepticism is understandable. With modern PAS offerings having started to mature only recently, it's not surprising that many insurers have had experiences that make the best-case numbers seem completely unbelievable.
Indeed, many well-run implementations have -- and should have -- taken several years and cost many times more than projects at similar carriers due to the complexity of products/lines of business, the number of states implemented, the conversion process and many other factors. These projects didn't go badly; they just didn't fit the best-case criteria.
In an effort to garner some objective numbers to help quantify implementation time lines and costs and to get a qualitative take on the benefits, Novarica's latest research focuses on these questions. While the project still is ongoing, the partial results are compelling.
Based on our research across both P&C and life/health/annuity, the vast majority of initial projects (most often one product or line of business, and in either one or all 50 states) cost less than $1 million in license fees. The majority of those initial projects also cost less than $1 million in external service fees.
Even for full implementations, which most often included between one and 10 products/lines of business and a wide variety of states (though most often all 50 states), the numbers did not increase significantly for many midsize P&C insurers. Many reported license and external services costs under $2 million and total project time lines under two years.
However, the sample clearly showed that larger and more complex projects had much higher services fees -- with several above $10 million, one over $20 million and one more than $50 million -- and project time lines stretching to two to three years or more.
What drives this variation is complexity. Well-known factors that drive up cost include more products/lines of business and the level of variation between those lines, more states of operation, more existing policies to be converted, and more and older source systems to be converted. These are the starting point that any insurer has to face based on its current situation.
But other significant factors are under insurers own control. One is the ability to adapt processes to embrace the capabilities of a new system rather than bend the system to its existing processes. Another is effective program management, not just of the vendor but of the internal organization, to make sure the right stakeholders are participating effectively in the project and are committed to its success.
Based on early research, the benefits of implementing a new PAS are undeniable. For each of the following areas, a majority of early participants rated performance "slightly better" or "much better" post-implementation: speed to market, ease of doing business for distributors, internal workflow/efficiency, data accessibility, systems maintenance costs, technology risk, business user satisfaction and operating costs. Underwriting results had a somewhat higher percentage of "neutral" or "don't know" responses, but on the whole also were positive.
Evidence is mounting that PAS projects are becoming more affordable and faster while the benefits are becoming stronger and more measurable. Even the most skeptical observer is likely to recognize that PAS implementations are frequently adding value at carriers more quickly and with less risk than ever before. n
Chad Hersh is a principal and lead core systems researcher in the insurance practice at research and advisory firm Novarica. The complete results of the referenced survey are available in an upcoming Novarica report.