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Thu, 31 May 2007 14:59:51 -0500

As market expectations grow ever-more demanding and new rules-driven policy admin systems continue to demonstrate their viability, insurers see less reason to continue to shoulder the inefficiencies of legacy systems.

Henry Pippins, vice president, commercial lines, The Main Street America Group, has big plans for the business segment he runs. By 2010, he projects a doubling of premium and the capability to compete with national carriers in the regional markets in which The Main Street America Group ($802.7 million in revenue) plays. The company's current performance bodes well for success, with annual growth of 11.5 percent, compared to an industry average of less than 3 percent. But if the super-regional carrier is to maximize growth and profitability, Pippins believes, it must go beyond its current systems.

The Main Street America Group's (Jacksonville, Fla.) focus on ease of doing business resulted in building a "Quick Quote" front-end system, Pippins relates. "It's very slick and works very well, but if agents want to issue [a policy], they have to send us a hard-copy ACORD app," he says. "We then take the information from the Quick Quote system, print it out, reenter it into our policy processing system and then enter additional data from the hard-copy application in order to issue a policy," Pippins continues. "We can't grow at the levels we're planning [if we're] processing and handling business that way. I guess we could if we doubled our staff, but that's obviously not the most efficient way, and we simply wouldn't be able to maintain that."

Upon arriving at Main Street America in late 2005, Pippins says, he became involved in the process of selecting a vendor that could deliver "a fully integrated system that would deliver policies from agent entry, handle them with straight-through processing and then download output into our distributors' agency management systems so that we could have a semblance of real-time processing." The result was engaging Hartford-based Insurity to create a customized solution built on the vendor's Policy Decisions product. The Main Street America Group began the requirements and building phase early this year and plans to start deploying the solution for commercial auto and workers' comp in mid-2007. >>

"We're looking to deploy the rest of the lines of business in late 2007, early 2008," Pippins says. "We look to have all of our lines of business fully automated, with predictive models [to determine profitability] built in, by the end of 2008 -- and that will give us full bandwidth to achieve higher growth targets between then and 2010."

Decisions such as the one made by The Main Street America Group to select rules-based policy systems built on Web-based platforms such as J2EE or Microsoft (Redmond, Wash.) .NET are likely to become more common because "the new generation of policy administration systems substantially delivers on the long-standing promise of software that gives the business greater control," says George Grieve, principal of Austin, Texas-based CastleBay Consulting. "This new generation [of vendors] has focused very hard to define what is core to a policy admin system and what is ancillary, and they're providing it in a services-oriented environment that can speak very readily to other services and systems to provide the ancillary capabilities."

The result is a degree of capability unmatched by legacy systems for providing -- and further driving -- the higher levels of functionality increasingly demanded by distributors and end customers, according to Grieve. Newer systems exceed older in their abilities to quickly deliver more-complex products, extend services to agents, provide an account rather than a product view of customers, and incorporate a wider range of data from external sources to drive more-sophisticated underwriting.

'Careful What You Wish For'

The potential procedural changes new systems can bring to insurers are sufficiently dramatic that people on the business side might find themselves in a situation of "be careful what you wish for," suggests Grieve. "The business has long had issues with the performance of their IT shops, and not without reason," he says. "Large P&C companies have traditionally had major issues keeping up with regulatory developments and rate changes across different territories, asking for trivial systems modifications that could take months to deliver." They wanted software that would give them more control, and with the new systems, they have it, Grieve asserts.

However, Grieve argues, now business executives have to live with the new reality by developing skills for which they formerly relied on IT people. "They now have to build a kind of hybrid person who has several disciplines, who can pick up some of the things that IT folks did that the business wasn't necessarily explicitly aware of," Grieve claims. "You have to build test cases and do the verification to see that what you build actually functions well."

How much of that duty is likely to be assumed by the business depends on the given carrier and exactly how it manages the necessary transition into the world of rules engines and their management. But dreams of reducing IT costs by decimating IT staffs are unlikely to be realized.

"Plenty of fantasies have been sold about business users taking control of this area," says Mike Roe, CEO of NaviSys, the Edison, N.J.-based life policy admin system vendor recently acquired by Accenture (Chicago). "We have never believed in simply saying, 'You're in control' when it comes to business rules -- manageability is as important as flexibility. Without a structured implementation approach, and without a full-featured user interface for rules management, rules can cause essential processes to run amok."

There are sound reasons for IT people retaining responsibilities in this area, Roe argues. Business rules are complex. It typically requires as much time in the design and discovery of business rules as in actually configuring systems. And effectively managing the vast array of business rules that guide any sophisticated policy admin system requires a structured systems implementation approach. "Some business users, such as actuaries, can be quite good at this given their structured-project backgrounds," Roe observes. "But IT professionals are usually the best skilled in this regard."

And the wider the scope of the rules engine, the more structure and logic are implied in their design, Roe explains. "When that job is left to business users who are unaccustomed to a structured implementation approach, eventually you'll produce a morass of overlapping and redundant rules," he predicts. "For less-powerful platforms that don't scale very easily, rules conflicts can quickly become technology overloads, where the system gets hung up completely."

In the right hands, then, new policy admin systems would appear to provide most of the promised benefits, if not drastically reduced IT staff. The same cannot be said, however, for older technologies and solutions whose resemblance to new technology often is more cosmetic than functional.

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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