Rethinking Policy Admin

Legacy systems can hamper insurers' abilities to grow and be flexible. But next-generation policy administration systems can deliver increased efficiency and improved customer service.

Q: What are the capabilities of current policy administration systems? What are their limitations?

A: Andrew MacDonald, The Hartford: Multiple policy systems increase maintenance costs and mean that it is much more difficult for the business to provide a consistent customer experience. They have an inflexible design that never could have contemplated today's regulatory requirements or what the business needs to compete and win in today's marketplace. Speed of change is increasing and, if you think of the policy admin system as the central hub of insurance operations, it is essential that the central engine can be configured efficiently to deliver new products and support new distribution channels. Though speed to market can be increased by delivering on rating and underwriting rule engines, the real value comes when all cogs in the policy life cycle can execute at the same rapid speed - most important, policy administration. Straight-through processing leveraging an unattended underwriting model is essential for business today, and legacy policy systems typically have limitations of batch windows and a lack of fully automated transactions (such as out-of-sequence processing).

A: John L. Johnsen, TCi Consulting & Research: One of the limitations of the older vendor-provided policy administration systems for life and annuity is that they tend to use old programming languages such as COBOL. Because some of these systems have been around since the '80s, they are mature and have rich functionality. These systems work well and have the ability to process large blocks of business. The challenge is the cost of maintaining these systems and finding programming people who have the skills to work on them.

A: Michael A. Betts, McCamish Systems: The solutions available in the marketplace today range from legacy systems focused on administration of older blocks of business to systems that focus on new product functionality and speed to market. There is no single solution that fits all the needs of a carrier, and therein lies the problem - and the opportunity. Client/server-based systems are better positioned to seize the opportunity to bridge this gap, but they must focus on developing the disciplines associated with a mature infrastructure.

Q: What is the best strategy for dealing with legacy policy administration systems?

A: Lawrence A. Danielson, Deloitte Consulting: The strategy for legacy core systems is all about the cost/benefit. There are common trade-offs for each technique (i.e., extending, migrating and replacing), but the fundamental driving force for change will come from a strategy that links business benefit to technical delivery. A phased strategy that has a long-term view is a must because product capabilities improve frequently. When considering an approach, one must consider all options with a recurring focus on outsourcing commodity capabilities - but only after the process is refined. A key factor in making these decisions varies by insurance product because the amount of time for which service is required is dictated by the term of the risk.

A: MacDonald, The Hartford: Insurers need to determine what their business goals are first. If it is to continue to be competitive in a more rapidly changing business environment, then just tweaking legacy policy systems is not the answer, and typically a major renovation is still a significant cost and is unable to deliver as much value as a new system. The question will typically come down to buy vs. build, and in that will be the typical criteria of whether there is a package system available that meets your needs of functionality, scalability and technical architecture and that is proven in your market space. Insurers must work closely with their business to understand where they truly see their competitive advantage; when evaluating packaged systems, this is key - not getting too hung up on how business is done today, but thinking differently to see how the new system could be leveraged outside the box.

Q: What new capabilities are available in the next generation of policy administration systems? What capabilities should insurers look for in a new system?

A: Danielson, Deloitte Consulting: Next-generation policy administration systems offer three notable competitive capabilities: stronger self-service functions, tighter integration across the insurance supply chain and faster implementation tools. Insurers already are seeing many of the self-service capabilities, including policy changes that prompt carriers to contact the insured/broker; integrated business rule engines that enable straight-through processing; and direct billing. Proven integration of functions will link sales management, underwriting, commissions, claims and reinsurance functions. And implementation tools that accelerate conversion, interface to ERP [Enterprise Resource Planning] solutions and provide best practice business models will offer lower costs and reduce implementation risk.

A: MacDonald, The Hartford: The driving force should be to deliver IT systems to meet business needs. With that in mind, insurers should be careful not to get blinkered into evaluating only newer technologies. The key for The Hartford is to blend proven and scalable technology with new generation approaches in which there is a business value to be realized. An example would be leveraging a proven back-end mainframe DB2/COBOL//CICS policy administration engine with a modern front-end, thin-browser deployment using ACORD XML standards translated through XSLT. Ease of doing business with current and future distribution partners is critical, and so moving to more modern standards of services using soap and XML is a fundamental requirement for the future.

A: Betts, McCamish Systems: New technologies have created an environment in which companies can really focus on delivering services, getting products into new distribution systems and reducing costs by streamlined workflows and access to information. Web services, workflow management systems, imaging and other technologies that aid in achieving service and sales goals are important innovations in the marketplace. However, some of the basic requirements haven't changed. Can the system help get products to market faster and more economically? Can it help seize new market opportunities, improve service and reduce the overall costs of the back office?

Q:. What are some of the critical success factors in implementing a new policy administration system?

A: Danielson, Deloitte Consulting: The critical factors for successfully implementing new policy administration systems have not changed for years. The top three factors are: Use a proven software product; be realistic about scope; and have the right business and technical people. A proven software product must be architected to perform in different technical environments. A very effective pre-step is to perform a proof of concept for risky interfaces. Scope management is essential, but in this situation, it is imperative that the scope not be reduced by forgoing real-time interfaces - this often directly affects the overall business benefit. Last but not least is to have the right people. Consultants and outsourcers offer only temporary solutions, but professionals that are employees must be an important part of every integration effort.

A: Johnsen, TCi: Do your due diligence before you buy. A robust request for proposal is a must. Once you buy, assign someone who has experience in implementing a new policy administration system, including conversions to have overall project management responsibility.

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THE EXPERTS: Policy Administration

Andrew MacDonald
AVP, IT Systems
The Hartford, (Hartford)

Lawrence A. Danielson
Principal
Deloitte Consulting, (New York)

John L. Johnsen
Managing Director
TCi Consulting & Research, (Cresskill, N.J.)

Michael A. Betts
Senior Vice President and COO
McCamish Systems, (Atlanta)

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio