Policy Administration Challenges in Insurance
May, 2013
Table of Contents Overview............................................................................................................................... 3 10 Questions when moving to a New System ......................................................................... 5 Best Practices for Policy Administration Modernization ......................................................... 7 Policy Administration Implementation Success Criteria .......................................................... 8 Major Policy Administration System Vendors ...................................................................... 10 References .......................................................................................................................... 11
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Overview The insurance industry is facing a crunch time to improve margins in an economically strained environment, as investment income has declined. Insurers are looking at ways to increase efficiency – policy administration qualifies to be an area where technology can be used to enhance efficiency. From quoting and rating, underwriting, distribution to customer service – policy administration systems virtually connects all functions of an insurer. Making them highly complex, this calls for multiple integration efforts. Many of the current policy administration systems have been around for decades – their maintenance is expensive and they can’t scale quickly enough to support business growth or meet growing demand from customers and agents. Insurers had to manually maintain each customers records in the past and this is required a lot of man power and the amount of time spent after creating each record and updating them was humongous. The introduction of smart and advanced administration systems in the form of management software made it possible to manage all records with ease, eliminating any errors in the process. These systems have immensely helped the insurance companies improve their cost effectiveness, cut down the operational expenses while providing better customer service. Regulatory requirements and latest business trends have helped the insurance companies to greatly improve their services. Highly customizable screens along with workflow that makes it possible to record the data and provide specific risk information for all types of transaction without any programming needs. Transaction workflows used for the new business, renewals, reinstatement of the policies, endorsements and cancellations are eased with the use of this administration system. These advanced systems allows insurers to perform a plethora of activities with ease, such as calculating the premiums, commissions, taxes, and other types of applicable fees that are based on the configurable rating engine. The policy system also enables companies to validate the data that has been entered, when a particular user goes through the workflow in order to trigger the referrals, warnings, as well as the compliance notifications along with other types of workflow events. Billing and invoicing being one of the most tedious and time consuming tasks and the modern administration system comes with an effective tax calculation engine that supports the complete management of billing and invoice creation. These systems also have other advantages like integration with the third party data providers and rating engines for reporting purposes. Insurance policy administration systems are highly useful in making the entire process cost effective and error free so that both the insurance companies as well as the customers can enjoy a better experience.
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Insurers irrespective of their size have similar goals – market growth, accelerated speed to market new products and the ability to tailor services to their member’s needs – but differ in budget allocations or access to resources. Hence, cost becomes a major driver in choosing and implementing policy administration systems – raising prices may not be a better way in the competitive insurance marketplace where customers can turn to lower price providers. More importantly efforts should be made to maintain a balance between affordability and breadth of functionality. New policy administration systems are required to introduce innovative products, develop complex manual workarounds and provide flexibility to mix and match riders across various lines of business. Core administration systems replacements are considered when an insurer realizes, technology modernization is a need to keep up with competition, more so with policy administration systems. A typical mid-to-large U.S. insurer maintains four or more policy admin systems, and many have portfolios of 10 or more systems. Multinational insurers are facing similar challenges. Many multinationals have redundant policy administration platforms across countries or regions, owing to earlier growth through acquisition strategies and subsequent governance of each region as a standalone profit center. Policy Administration System Implementation – some statistics A survey conducted in 2012by Novarica on 37 P&C insurers – 11 large (over $1 billion in premiums) and 26 midsize (between $100 million and $1 billion in premiums)—that have completed policy admin projects within the last 10 years found:
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Large insurers spend nearly three times more ($23.5 million) on policy administration system (PAS) projects than midsize insurers ($8.7 million), and both allocate around 50 percent of that for internal services Insurers that have completed such a project have witnessed more than 25% improvements in speed-to-market and data accessibility Large insurers typically completed their initial rollouts within 20 months and their full projects within 40 months and for midsize insurers, rollouts were generally faster, but more than one-third of the full projects took longer than 40 months Large insurers spent about $10.9 million and midsize insurers spent about $4.4 million internally. On other externals large insurers spent $2.7 million on an average and $400,000 was spent by the midsize insurers on an average Large insurers are more likely to hire third-party service providers System maintenance cost and underwriting results saw some of the most tepid improvements among both large and midsize insurers
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10 Questions when moving to a New System Policy administration systems are complex, as they're the gateway for information into an insurance company. It's a risky proposition that requires a lot of work, a lot of money and a lot of time. Hence, there are some questions that need to be addresses before implementing new policy administration systems: 1. How to sell the project to the upper management? Solutions for increased business, reduced costs, increased speed to market or better support to the firm’s business intelligence and analytics capabilities need to be answered. 2. Who should be on board with the new system? All parts of the business need to be involved with the implementation, as such new system implementation affect all the departments of the firm. 3. What will be the true costs? Most enterprises have an idea of their system running costs, but don’t really have a great understanding as to how they connect to a larger ecosystem at a detailed level. Once the costs creep up, executives may enter an endless cycle of having to re-justify why they are doing this initiative – this may cause the team to get further distracted from delivery. Hence, a strong enterprise architecture, in which a technology roadmap is laid out, will help rein in potential scope creep. 4. Whose time will the project take up? A lot of time and effort is put in by the IT staff making sure outside parties and vendors understand the kind of systems environment they're being brought into, and setting up integration methods. 5. Who is going to build the new system? Clear understanding of internal and external resources that needs to be used to build the new system would help control time and control cost. 6. Who will be the best external partner? Products are similar from most vendors, decisions concerning support from the selected vendor is one of the most critical aspects of the decision making process. 7. What's the best way to keep the business engaged? The solutions team should stay close to the business side once the project is underway. Agile methodologies should be used in which business and IT teams work closely to release iterations of the project-ensured successful installation of a new policy administration system. 8. How will business processes be changed? The impact and the cost of process change i.e. people change is a big factor that should be considered in the equation up front.
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9. How will the existing data be brought into the new system? The transfer of information, data back and forth from new policy admin system to other systems has to be done correctly. Plus the advantage of smart use of data for underwriting, servicing, renewingbased on pulling data from the policy admin system into other data stores to apply analytics. 10. How will the new system affect current business rules? Understanding and documenting the rules of the existing policy administration systems that are already in place and then decide which rules are to be carried forward and which are to be eliminated. System integrators who have methodologies and software to address such problems can provide solutions.
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Best Practices for Policy Administration Modernization
Life insurers have identified several key drivers as the reasons to purchase new policy administration platforms. They are: Products — Product innovation and product complexity are both identified as key reasons why new administration systems are needed. As the economy continues to improve, there will likely be a resurgence of new product innovation and complexity. Consolidation of platforms — As noted earlier, there is continued consolidation work to a smaller number of policy administration platforms. Given the large number of legacy systems still in the marketplace, it stands to reason that this business driver will remain a key driver over the next several years. New regulation — While nothing on the scale of Solvency II (the European regulation) has hit North America, life insurers should expect increased regulatory requirements. New technologies, tools and business practices — Business intelligence, common customer files, new Windows versions, predictive analytics, social media and other technologies will cause insurers to enhance their existing platforms to improve sales and service. Business expansion into new channels and markets — Several forces such as a high percentage of retiring agents and failure of agents to effectively reach the lower middle of the market will open the door to new innovative distribution. Life insurers will begin to experiment with innovative distribution channels, which will in turn demand new products and services provided by policy administration systems.
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Policy Administration Implementation Success Criteria •
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Iterative implementation methodologies provide helps justify costs earlier on in the process, by blending flexible best practices with deep insurance industry expertise and are closely mapped to a solution’s ability to quickly configure products. Such methodologies support a number of smaller scopes – quick implementation which help reduce risk and yield a fast return on investment. These methodologies can also give feedback after each iteration, allows constant improvement and justifies the business case early. Modern policy administration vendors can help develop risk-mitigation strategies and provide regular, objective reviews of a project if they have a project management office (PMO). Flexible insurance product architecture helps reduce costs and enables speed to market. Upon achieving a solid product business users can inherit and configure reusable product components from a central product repository to make simple product changes or create new products. Thereby removing expensive programming costs and provides real speed to market. The selected vendor’s implementation team needs to have deep insurance industry-expertise. Equally importantly, an experienced and capable team is required internally for quick solution deployment and integration. Need to develop an internal team to manage the systems implemented – the vendor should be able to provide comprehensive training programs to transfer knowledge and make the organization selfsufficient to lower future maintenance costs. Vendors which can provide customized and flexible solutions should be selected as no two organizations would require similar policy administration solutions. Need for an innovative team with proven success from the system implementation partner – customer testimonials would be of great help.
Modernization in Practice – Case Studies All most all insurers has a unique application portfolio and unique set of challenges, however few companies have been able to reduce complexity by reducing the overall size of the portfolio. In order to better support the company’s complex product development and underwriting requirements – Philadelphia Insurance Companies (PHLY) a leading P&C insurer completed an in-depth search for a policy administration system. The existing system did not support PHLY’s speed-to-market and longterm total cost of ownership needs, the company was looking forward to a highly flexible solution that could supported a very broad array of products within a quick implementation time so that the existing system could be retired as quickly as possible. Later in 2010, PHLY choose Sapiens’ RapidSure system and implemented it for three lines / five products (including conversion and integration) within six month. OMS National Insurance Company (OMSNIC) a liability insurer selected Accenture Property & Casualty (P&C) Insurance Suite, including Policy Administration, Billing and Claim Components software in order to create a single integrated solution for rating, quoting, underwriting, billing, claims administration and policy lifecycle support. OMSNIC will now be able to better support customers, independent agents and home office professionals. The flexibility of Accenture Duck Creek Policy Administration allows for rapid changes in policy pricing in response to changes in the market, helping the insurer remain competitive, the vendor claims. The software also automates quote processing for increased operational efficiency.
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Additionally, Accenture Duck Creek Billing and Accenture Claim Components will help to enhance OMS’s customer service and retention by providing centralized management for all billing, and improved control of all claims costs without adding complexity to existing processes. Conclusion As little as 10% to 20% of the functioning systems within P&C and life insurers are considered as “modern” policy administration systems (PAS) – one of the major reasons for the slow adoption is the multiple PASs used by insurers. Probably more than 3,000 to 5,000 PASs used in the industry with no more than 100 PASs sold per year, hence no more than 300 to 500 modern systems are in production today. Both P&C and life insurers are interested in improving business efficiencies and speeding up time to market, life carriers also are far more interested in promoting a self-service approach to managing these systems, enabling business users to update rates and business rules. There's also a greater driver toward consolidation on the life side. Life and annuity carriers have been far less likely to move off legacy platforms and the conversion tends to be simpler on the P&C side.
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Major Policy Administration System Vendors
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References • http://www.comtecglobal.com/index.aspx? id=3463 • http://www.insurancetech.com/policyadministration/you-need-to-replace-yourpolicy-admin-sy/240150706
• http://www.insurancenetworking.com/ issues/2008_76/scalability-integrationlegacy-system-upgrade-29249-1.html?pg=3
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