The Amazing Race

Although business leaders may like to think otherwise, at a fundamental level, few carriers do anything truly unique in the market. And if they do, that uniqueness doesn't last long in a competitive environment.

"All insurers do rating, quoting, and issuing similarly from a process perspective," observes Cindy Maike, cofounder of the consulting firm Smallwood Maike & Associates. "It's the particular data they use and the way they actually orchestrate those processes that may be different."

In light of that reality, vendors have been building platforms as configurable components that include insurance-generic data, process, and service models. By providing configuration tools that can be used by the business side, these components aim to get IT off the critical path and increase a carrier's speed to market.

"Why do companies buy new rating engines, which is happening often these days? Because whatever old rating engine they had, it can't be configured rapidly or cheaply enough to handle new forms of rating the actuaries have developed, or it is too difficult to work with in a real-time sense," says Donald Light, senior analyst with Celent's insurance group.

This purchasing activity, combined with the deployment of BPM technology and the ongoing build-out of SOA within the industry, has impacted the way insurers view systems development.

"We're starting to see not just IT but the business side talk in terms of 'We need a new underwriting module or a new rating component' rather than 'We need a new policy system,'" Maike says.

CHALLENGES AND SUCCESSES

Chubb deals with legacy systems where business rules are hard coded into the system, and customization is needed. "It gets complicated because a lot of our rules are tied up into custom code, making it difficult to see the opportunity that might exist within your products in order to respond to a client's need in a given market," says Anne Rocco, Chubb's vice president of product services, referring to the company's core commercial lines products.

The company is planning a move toward a component-based system that can be configured more easily as part of the solution. "It's an immediate, imperative business issue we are taking action to address," she says.

Although configurable components enable speed to market, Light stresses even those systems have their limits. "The question is how fast they can be configured and whether there are inherent limitations to systems in terms of what an actuary or product designer wants to do."

In other words, if the carrier's new product calls for a data field the system doesn't capture, that may require either configuration using rules and tools or customization through writing new code, depending on the flexibility of the particular system. How flexibly a component's prebuilt capabilities and configuration tools respond is therefore a key factor for insurers to evaluate.

"The best modern systems rarely if ever bump into that limit. The less-best modern systems will hit it a few times. But the not-so-great systems bump into that limit as much as 25 percent of the time," Light observes.

A company also needs to be in the right mindset for configuration. "You have to accept you will use the component as delivered and configure the business rules around it. If you make the mistake of writing code to customize it, you're right back to where you started because that customization impacts your ability to support the system easily," Maike says.

Additionally, any component, by definition, is just part of the overall environment. Architecture is as important today as ever.

"Companies are focusing on deploying configurable assets, but those assets still need to talk from one to another. There still is the integration and architecture aspects to consider," Maike points out.

"If carriers don't have an internal data model they're integrating their components with, then they need to take a step back and make that investment first," she explains. "Having a common language will greatly facilitate the integration of the components. This also can be accomplished with a data service transformation layer or component, which is truly one of the most critical aspects. Otherwise, you have the traditional hard coding or point-to-point integration of components."

P&C PERFORMANCE

Beyond making plans to a move toward a configurable, component-based architecture, Chubb plans to review, as well, how it manages its products and insurance department filings by evaluating different content management solutions. The goal is to better leverage its numerous coverages and products to address the diverse portfolio of businesses it insures.

"We want to provide more transparency for our internal business community with respect to our product capabilities, rules for use, and availability in given markets to afford the maximum flexibility at the point in time we are submitted a request for an insurance solution," Rocco says.

In the meantime, Chubb's commercial insurance division has found some speed-to-market success by finding ways to tailor its products to match customers' needs, rather than rolling out entire product refreshes for different constituencies.

"Oftentimes, current filings afford you the flexibility you desire to match a specific customer segment need, but the system's lack of flexibility or lengthy regression testing, given all of the complicated hard-coded logic, may slow your desired responsiveness," Rocco says.

The Hartford has committed to a component-based legacy modernization initiative in its personal lines speed-to-market initiative, which began in 2003 as the marketplace was becoming both more competitive and increasingly sophisticated.

"We saw the personal lines market progress from paper applications and a handful of high-level rules to an online submission world and a multivariate pricing scheme," says Eric Nordquist, vice president for product and underwriting in The Hartford's personal lines.

The carrier realized it didn't just need a new rating methodology to compete, it also needed to create an environment that would enable it to respond rapidly and plan proactively. "Our systems were not reusable, flexible, or fungible. We had built systems for one purpose and had different rating engines for different systems, such as underwriting and policy submission," Nordquist says.

"We determined we needed to renovate those systems into a modular-based, services-oriented technology the business would have more control over, rather than requiring a hard-coded effort by IT," says Carin Stepeck, vice president for applied research and product development at The Hartford.

The multiyear initiative still under way at the insurer began with extracting legacy applications' functionality as services connected via ACORD XML messaging standards. Gradually, this will result in a total legacy replacement as those component services are rebuilt internally or replaced using vendor components.

Today, The Hartford has created a large portfolio of centralized system components--building blocks it can use to roll out new products quickly to other states.

"We've made some significant progress," says Stepeck. "All our rates, pricing, and underwriting rules, which used to be in a hard-coded legacy world, now are components that are managed by the business. Rules are in a table format so that, while you need some technical skills, you don't need a master's degree to make changes. Probably 80 percent of what we do can be handled by a trained business resource vs. going through IT."

As a result, The Hartford has reduced the time it takes to put new products on the street from two years to eight months, and changes to existing products can be made within weeks.

Business control over component configuration meshes with The Hartford's philosophy about business-level accountability for new product rollout. Product development starts at the local level, where state product managers are responsible for identifying new products and product changes that will drive growth. In turn, product managers are supported by IT counterparts who enable any changes that can't be handled through configuration.

"We also reorganized our project management office, and our IT organization reevaluated how it deployed and organized its resources in order to support the business staff who now were responsible for configuration," Nordquist says. "We did go through a whole process management [initiative] and change management process to ensure we capitalize on all the benefits our system strategy offered, because you can't just make a change of that magnitude without providing support and taking a holistic view."

LIFE IN THE FAST LANE

In addition to finding faster ways to make system changes to accommodate new products, insurers have worked to speed the product development process itself by using product configuration tools.

"A lot of firms are coming to market, trying to create a streamlined process for product configuration," says Matthew O'Mara, director in the insurance practice at BearingPoint. "You configure and write your product specifications in a central repository, and those specifications become the rules of behavior for the new product or product changes."

For the life market, in particular, product configurators and similar development tools aim to speed time to market by shortening both the development and testing cycles. "In the typical model, the build, test, and quality assurance processes are very cumbersome. Under this new [configurator] model, after you've centralized data, rules, and calculations and already created the interfaces, you don't need to retest those for each subsequent product effort," O'Mara explains.

However, he reports the adoption of these tools by life insurers is still in the early stages. "It is not a mature marketplace, and insurers are being cautious in their adoption," he says.

Minnesota Life, a subsidiary of Securian Financial Group, Inc., has focused on reusable components and a multitiered product component strategy in its speed-to-market initiative. One of the earliest components to be extracted and rearchitected as an extensible component was the calculation engine.

"We have a lot of actuarial involvement in designing, programming, and testing a set of calculations that will be used at the product level within our illustration systems, administration systems, and other systems," says Bob Reynolds, director of life product management. "The calculations are basically the same, so why build them twice? Now when we build them, they get packaged within the architecture of the engine so that multiple systems can reach in and grab the calculations from a single place."

The insurer is transitioning from building new products on its home-grown policy administration environment to the AdminServer system. It hasn't been an easy process, Reynolds reports. "We went through two years of excruciating growing pains, and we're finally starting to see some of the benefits," he says. The primary benefit is that product configuration changes now are performed using the XML-based functionality of AdminServer's "Rules Palette." Additionally, the system contains a library of business rules and transactions that can be combined to create new business processes and support new product definitions and business requirements.

Minnesota Life also has established a three-tiered component strategy for product definition. First are "global" components--generic life insurance processes that can be used across all products, such as modified endowment contract processing. Second are plan group components, such as those that are specific to universal life or term products. Third are the components specific to a product within those plan groups, such as five-year term or secondary-guarantee fixed.

In creating that strategy, the company has learned some lessons. "You have to make sure you're balanced among those tiers. You have to identify components that are appropriately global so that you avoid rebuilding the same component for different products or plans. However, if you try to make everything fit into 'global,' it ultimately would require too much customization of those global components for individual products. It can backfire on you if you're not careful," says Reynolds.

The systems work associated with Minnesota Life's speed-to-market initiative also coincided with a focus on project management discipline. "One of the critical elements we identified we were missing was a BPMO [business project management office], which we're in the process of putting in place. Before, we would assign the project management role to different people on the team, but now we've carved out that piece to make sure we're putting the right accountabilities where they belong," Reynolds adds.

The company also has adopted a streamlined testing approach to bring systems and products online faster. "Before, we tested 100 percent to completion. Now, we're focused on risk-based testing that focuses on the most critical components. That can save time, but you do have to understand and manage the risk," Reynolds states.

Minnesota Life's strategy has had concrete benefits, including enabling the company to shorten the average rollout time of a new product by several months. "We've been able to reuse so many of our components on an as-is basis because of the work we put into creating a reusable, architecturally sound design," says Reynolds.

FILING FOCUS

In their focus on bringing in new rating and administration components, insurers can't lose sight of the fact the speed-to-market process involves other areas, such as filing.

"Forms filing is the least glamorous and exciting part of speed to market, but it can kill you if you don't do it right because you can't sell a product until you get regulatory approval and are in compliance," Light observes. "If a filing with a state department of insurance is missing three exhibits or attachments, it could eat up weeks to months to get straight."

Yet according to a recent Celent report, the filing process has seen relatively less investment than other areas of product development, even though it is a frequent bottleneck. Instead, many insurance companies use manual processes or a mix of older and newer technologies to manage the state filing process, which not only slows time to market but also puts insurers at risk of running afoul of System for Electronic Rate and Form Filing (SERFF) mandates.

Form-filing system components that can be configured to meet insurers' specific needs address this bottleneck. These components provide a centralized repository of filings in process and approved, eliminate duplicate data entry for new states, and serve as templates on which to base filings for new products or product changes.

Utica National Insurance Group implemented Skywire Software's Tracker to automate a paper-based filing process, enable the company to comply with electronic filing mandates of states that support SERFF, and increase its speed to market. Melissa Porten, state filings system analyst at Utica, says the component can be configured quickly by actuaries and analysts to complete a new product rate filing.

"Before, in the paper environment, it literally would take us at least a week just to get out a complete countrywide filing--endorsements and manual pages being mailed and transmitted to different places. Now, by using the system and SERFF, we can get a filing out in one day even if it includes several states, and it supports EFT functionality [for filing fees]," Porten explains.

Utica has estimated productivity savings of more than 50 percent with the system, and users have noticed the impact. "Recently, we had one state approve a filing within a minute," Porten says. "Obviously, it's dependent on how backed up a particular state is, but average turnaround time has decreased significantly."

Utica has looked for other ways to leverage the filing component. First, it expanded the scope of the system beyond the handful of original users to more than 200 throughout the company. And by integrating it with the company's agent portal and forms repository, Utica now is able to provide its agents consistent access to current forms and endorsements.

"In the past, a lot of e-mailing was going on," Porten notes. "Agents would have to go back to an underwriter to see what forms were available at a particular time or order pages through our distribution center so they would know what was current. There was a lot of paper being passed before."

LIMITS AND GOALS

Insurers successfully have leveraged configuration to support innovation and increase speed to market. However, despite the availability of more flexible tools, carriers should not underestimate the scope of the work involved.

"Whether they are bringing a truly new product to market or changing a product that's already in place, it's a large undertaking," says O'Mara.

And Reynolds stresses technology is just one part of the speed-to-market solution.

"When it comes to product development, you have to look at people, process, and technology," he says. "You can buy all the best technology in the world, but unless you use it properly and have standards and templates that you're adhering to, it will fall apart really fast."