Over the past few years, more vendor solutions have come online that can help small and medium carriers do more or at least not be at a competitive disadvantage," says Paul McDonnell, senior vice president and managing director of BearingPoint's insurance practice.
As both a cause and consequence, the interest of property/casualty insurers in replacing or rehabbing policy administration technology continues unabated. In a recent Gartner survey, policy administration still was ranked as the top business priority, reports Kimberly Harris-Ferrante, research vice president at Gartner.
She adds, however, things have been a bit different on the life/annuity side. "We've seen interest in policy administration take a bit of a dive because it's difficult to cost-justify a conversion for a new policy administration system. Therefore, there has been a shift from administration replacement to the desire to improve the existing end-to-end IT platform--leveraging ACORD standards, Web services, SOA, and other tools and technology to get more out of legacy systems," she observes.
What also has changed in both sectors is carriers' views of what administration technology is supposed to do. "As priorities shift in the industry, insurers are realizing while policy administration systems are important, investments in customer service, call centers, and product development technologies provide more competitive advantage and support differentiation than simply having a new policy system," Harris-Ferrante says.
This also is seen in the shift from building a sales culture to improving customer service. "In previous years, we saw a lot of focus on straight-through processing in life and sales force automation in P&C," Harris-Ferrante explains. "We're seeing a huge shift in 2008 toward making sure your administration platform will deliver fast, quality service and support self-service and cross-channel linkage that will drive customer satisfaction and retention."
The increasing emphasis on customers is one that North Carolina Farm Bureau (NCFB) confirms. "Five years ago, our initiatives were focused on delivering solutions to our agents, not for our customers to have self-service options," indicates Linda Squires, senior executive of NCFB's operations and information systems. Today, NCFB has rolled out several self-service features to its customer portal and plans additional ways to let customers take charge of policy changes.
This shift favors smaller companies. "Midsize companies tend to understand naturally the value of relationships. They also have an easier time gaining collaboration and corporate agreement on strategy and the process changes and technology needed to support it," Harris-Ferrante says.
Today, it's common for carriers to talk about the need to get products to market quickly. Turning this buzz-phrase into reality requires more flexibility than insurers traditionally have had.
"Insurers are looking to create an environment where the business can perform a lot of the work on its own by defining product rules without writing code," McDonnell says. The essential features of policy administration for midsize companies include rules engines to house and process business rules, BPM layers that enable carriers to automate and orchestrate existing and new processes, and an effective content management platform.
"Part of the policy problem is creating the policy documents and streamlining correspondence with agents and customers. As a result, we are seeing a great interest in the ties between policy administration and content management systems," Harris-Ferrante says. "The use of new tools to automate the generation of policy documents and deliver electronic documents to the sales channel or customer is becoming a key investment area."
Carriers are doing a better job of assessing both the feature sets and underlying technologies of policy administration platforms they are considering. "Companies are assessing the support of industry standards, such as ACORD messaging, as well as support of newer technologies, such as Java or .NET. There is improved understanding of the need to have rules-based systems and embedded business process management capabilities to automate workflow, centralize business rules, and support tasks such as exception-based underwriting," Harris-Ferrante reports.
Insurers also continue to work to simplify their administration environment by standardizing and centralizing system interfaces, often within an SOA construct. At Unitrin Direct, the SOA design of its administration system from DRC gives the carrier a competitive advantage that begins in the IT department.
"The SOA approach [of DRC] eliminates having to pull features and functions out of programs when we bring new products online and eliminates redundant code," says John Elcock, the carrier's CIO. "In addition to providing us with network and database efficiencies, DRC's SOA design has enabled us to create easily multiple front-end applications using common core functionality, such as recalling, saving, and rating a quote, all using a unified XML interface to the services provided by DRC."
As a direct writer, an effective administration platform is essential for Unitrin Direct. "We can't be a direct writer without good, stable systems. So, DRC became the foundation on which everything we do is built," Elcock says. Having started its business in 2000, Unitrin Direct did have the advantage of building its administration environment from the ground up. Elcock notes key features of the DRC platform have enabled the carrier to roll out product changes quickly.
"[DRC's] rating engine is Excel based and therefore eliminates the need for programmers to write COBOL code, helping us get our products out faster to the market and at a lower cost. The ability to generate policies from a quote also saves time by eliminating rekeying and improves accuracy," he says.
Operating in the same market space as Progressive and GEICO but with $253 million in annual written premium, Unitrin Direct has to make smart use of its available resources. On the customer-facing side, the carrier focused on adding new functionality to its Web site--which was redesigned in 2007--that links to the DRC platform to enable customers to make changes and print revised policy documents.
On the back end, Unitrin Direct focused on creating greater efficiency throughout the policy administration life cycle. For instance, one of the more recent enhancements to the issuing process was an automated form-tracking feature. Previously, although the DRC system identified what signature forms to send customers based on state requirements, tracking their return had meant manual review.
Working with Optical Image Technology (OIT), Unitrin Direct developed a forms-tracking process based on OIT's DocFinity imaging and workflow software. Signature forms now leave the company with a bar code that enables documents to be automatically captured, indexed, and routed when customers return them.
OUT OF THE BOX
Another trend that has helped small and midsize companies compete in both property/casualty and life/annuities has been the availability and maturation of out-of-the-box policy administration solutions.
"In property/casualty, smaller carriers have benefited from single systems that can support all lines of business a company writes and that already are configured to support business, particularly for ISO-based companies," says McDonnell.
"On the life/annuities side, there are two driving forces for out-of-the-box systems. First, they offer greater speed to market, just as in property/casualty. Additionally, a lot of companies have grown through acquisition, so they're looking to migrate books of business and simplify their environment with these systems," he points out.
But even with the availability of these solutions, the question remains whether it's a better strategy for midsize carriers to go with replacement or to rebuild and add components as needed to create greater flexibility and visibility. "There is the opportunity for small and medium-size companies to gain a competitive advantage by implementing a new package," McDonnell asserts.
"Each sector is taking a different path. P&C insurers are more actively pursuing system replacement projects than their life insurance peers," Harris-Ferrante reports. "The conversion and migration effort needed to move P&C policies from the legacy system to a new system is more manageable than with life insurance policies. As a result, the risks are less and time requirements shorter due to annual renewals."
The Main Street America Group, which writes just more than $850 million in premium, went the replacement route in commercial lines based on the inability of its existing legacy technology to respond to an increasingly competitive environment.
Bill Anderson, senior vice president of Main Street America's insurance operations department, says even with a manual policy administration process, the company competed effectively against national carriers in its niche market based on Main Street America's reputation and the strength of its independent agency relationships. However, when it came to competing against other regional carriers, Main Street America needed to enhance its "ease of doing business."
"We tend to write the smaller commercial accounts--a segment that currently is very competitive. To be successful in this market niche, your system must be easy to use and extremely efficient," he says.
Until recently, Main Street America's policy administration system could not support a fully automated quote-to-issue process. Although the carrier offered agents online quoting, the online application agents completed needed to be reentered manually.
Main Street America considered a rebuild or upgrade of its current system but decided against it. "Our existing policy administration system was antiquated; we simply couldn't retrofit it to handle the expanded amount of data we needed to meet our customers' new expectations. The old systems also limited our ability to store and manage data for use with our predictive modeling work," Anderson notes.
Therefore, Main Street America deployed Insurity's Policy Decisions system, beginning with its workers' compensation line of business in September 2007. The rollout will continue this year.
Currently, the system delivers about a 60 percent pass-through rate, but Main Street America expects to add underwriting rules that will push that number closer to 85 percent.
Other benefits include capture of more granular data Main Street America is beginning to use to create multivariate pricing models. "In personal lines, we've already gone from three rating tiers with hundreds of price points to our 'MVP' products with millions of price points. We anticipate doing the same thing with our commercial lines portfolio. Insurity has the ability within its rating engine to handle all the pricing segmentation we require," Anderson says.
The Insurity system also enables Main Street America to roll out new products faster. For instance, the company will be introducing a new businessowners' product by the end of 2008. "In the 'old world,' we would have had to document the requirements, coordinate work with multiple vendors, and manage a complex quality assurance process," Anderson explains.
Critical to the system implementation was Main Street America's creation of a new Web service to handle data translations that previously were hard coded into the administration systems. "We have many different interfaces from external sources that pass data into downstream systems," Anderson says. "If we change a data provider, historically we would need to rebuild that interface. The new service reduces the work and time required, thereby improving our speed to market."
But the replacement route doesn't suit everyone. "A lot of companies don't have the time or can't justify the ROI for a new system. Or they've already invested money on Web enablement and are looking at internal projects to modernize and wrap legacy administration systems," Harris-Ferrante says.
"Particularly in life/annuity, there potentially are many other systems that are part of the total environment companies need to do business. Just replacing the administration system doesn't solve the problem," says McDonnell.
Augmenting its existing administration environment was the best solution identified by NCFB, which writes $850 million in premium. At the core of NCFB's strategy was the Tranzax BPM platform from Clear Technology, which the insurer began deploying in 2003. NCFB worked with Clear Technology to custom build Web services interfaces to connect the Tranzax workflow automation engine to its legacy administration systems and has been able to leverage these interfaces to extend automation to additional lines of business and to agent-facing systems.
"We've been able to build on our initial implementation [of Tranzax] to create a seamless, paperless process from the agent through underwriting," says Squires. "We've dropped our headcount in operations by 30 people over the last three years, and underwriting has been able to maintain a hiring freeze during that time because of the efficiencies we've gained."
Squires anticipates headcount dropping even more as NCFB extends automated workflow to the last remaining lines of business and with the pending implementation of a rules-based underwriting system in the policy issuing process. "We've been able to identify and build business rules that are systematic, and the platform has the flexibility so that underwriting can set the review process to tweak what passes through and what doesn't. From a quality standpoint, the underwriting evaluation is more consistent and we're applying best practices."
Squires comments "the sense of urgency isn't there" to replace NCFB's legacy administration systems. "About 10 years ago, we did a lot of foundational work on our systems to bring them up to par, including rewriting them to be table based. We continued to build our own infrastructure so we could take advantage of what's in the marketplace, allowing us to leverage new technology without having to replace core systems. And when we look at other products on the market, even though they have nice GUI front ends, some are still COBOL on the back end."
NCFB has been able to take a best-of-breed approach to legacy system modernization. "We've peeled it back like an onion. We recently pulled out billing and replaced it with a different system. The biggest challenge is the fact that legacy environment is touching so many systems, which creates many different connection points," Squires says.
NCFB's key competitors in the state are national companies, but NCFB has the competitive advantage of being member based. "The membership system allows us to know our customers better and lets us do data mining, which gives us an advantage in the market. It allows us to evaluate the demographics of our membership and show us how we can change our strategic direction. From a marketing standpoint, it's allowed our senior management team to have a better understanding of where growth comes from," Squires explains.
CLOSING THE GAP
Technology will continue to help narrow the gap between regional or midsize companies and their national counterparts.
"All insurers are struggling with how to maintain competitive advantage and differentiate themselves in the market," says Harris-Ferrante. "Policy administration is an important enabler of fulfilling business objectives, but it is not the most important factor."
Another factor is the continued trend toward flexible, service-based technology, which complements the way regional carriers do business.
"A lot of midsize companies tend to be regional players, and one of the important things for a regional carrier is the relationship it has with agents, brokers, and policyholders," says McDonnell. "Most of the new systems will provide insurers more flexibility around how they run their business and build on those relationships."