In a new report titled "Trends and Predictions for P&C Policy Administration Systems 2009," analyst firm Celent offered views on what can be expected in the near future. Improvements in business automation, configurability, and usability and design were among the latest trends, and insurers acknowledge vendors have made strides in these areas in recent years.
One of the report's authors, Jeff Goldberg, senior analyst in Celent's insurance practice, points to other new features now available, such as electronic communication with agents and customers.
But when it comes to what carriers really are looking for when they choose to upgrade systems, Goldberg points out insurers are not focused intently on some of the newest trends and peripheral features, and they do not make a decision to upgrade based on them. "They want better, faster processes for rolling out new products," he says, reducing the time frame to weeks instead of months.
EXTRA, EXTRA
If a carrier decides a new system is the best way to accomplish that goal, Goldberg continues, features provided by vendors can have extra value in the decision-making process. "I don't think a typical carrier goes out there and says, 'I want six of these eight new trends,'" Goldberg remarks. "They say, 'We need a new system,' look at what the system has to offer, and pick the best one."
Ultimately, carriers compete for business. Those that can take frictional costs out of the system, eliminate manual processes, and make it easy for agents to do business with them stand a better chance of success, according to Wayne Umland, executive vice president and chief information officer of Glatfelter Insurance Group, a managing general agency that handles many insurance company capabilities in-house.
Implementing technology platforms that accomplish these goals, he indicates, has become critical for insurers. "We want to be the best at what we are," says Umland. "We need to be the one people recognize as easy to do business with."
As to whether it is the people doing business with insurers, such as agents, or the insurers themselves driving the demand for upgraded systems, Ernie Pearson, IT director, applications development at SECURA Insurance, asserts the answer is both. He explains insurers will ask themselves internally whether their organization can respond as quickly as necessary to changes in the business. "If the answer is no because of the inflexibility of legacy software assets," he says, "then clearly there is a drive to want to eliminate that barrier."
But agent partners also can drive the discussion, Pearson notes. "At the same time," he says, "we work through independent agents. They use systems provided to them by our peers and competitors. If there is a significant gap between what peers develop and what we develop, we've got a problem."
WHAT CARRIERS WANT
For carriers looking to upgrade their systems, the question is what are they demanding from vendors? Pearson contends it depends on the carrier. While some may write commercial lines, another may write personal, and another both, which could influence what they're looking for in a policy administration system.
Resources also are always an issue, according to William Jenkins, CIO of Penn National Insurance Company. A company can do anything if it has carte blanche, he notes, though that is not the case very often.
In today's economy, the question of resources becomes even more pertinent. Goldberg observes in the last year, he has seen more carriers modernize but not fully replace their systems.
The decision cycle for carriers also slows down in a tough economy, according to Donald Light, senior analyst in Celent's insurance group and a co-author of the Celent report with Goldberg. Companies could take up to six to 12 months to make a complicated decision such as replacing a policy administration system, Light indicates. The mean time is generally eight to nine months, but with economic uncertainty, he explains, "maybe it's closer to nine to 12 months now." In addition, some insurance companies, he continues, are putting off major system replacements.
But Pearson believes the current soft market cycle in the industry actually might spur companies to upgrade systems despite the economy. "In a soft market," he says, "your profit margins are thinner, so trying to eke out more efficiencies becomes more important. To the extent you can automate more processes, minimize touch points--that's important."
"At the same time," Pearson adds, "companies look for opportunities to grow top-line premium. That requires a system that is easily adaptable to implement new products."
As for finding the right system, Pearson suggests, "it gets down to finding out what the vendor's claims are and then really taking it through the paces. One of the safest ways to do that probably is with some kind of proof-of-concept project."
Companies should be careful not to let vendors define the business process for them, Goldberg advises. Additionally, he cautions insurers should not define their business process based on a system, but rather they should get a system that can implement the process they want.
For Jenkins, "nirvana" would be one holistic system that ties together all four quadrants of his company's business--personal, commercial, billing, and claims.
TOUGH TALK
Along these lines, Light asserts the problems insurers currently have in their systems with slowness and the inability to make changes often stem from difficulty in integration. "To say systems can't talk to each other is a misstatement," Light clarifies. "They do, but it's difficult, awkward, and time-consuming."
The Celent report cites "new business automation" as a 2009 vendor trend and notes demand for better integration across systems stems from the growing scope of policy administration. "Whether or not an insurer chooses to work with one end-to-end vendor or multiple best-of-breed solutions, the goal is not just to have silo services but true cross-system processes," states the report.
It also indicates new business automation "involves multiple systems, including a Web portal, rating engine, rules/underwriting engine, underwriter and service desktops, document automation, and policy administration, as well as integration to claims and billing."
Sometimes a system that is simply designed well can attract insurers, according to Goldberg. Some insurers may opt for a well-designed system even if it is missing some functionality. If it has a better design and infrastructure, he says, insurers may be willing to spend some time building out the missing screens.
The Celent report, noting usability and screen design as one emerging trend among vendors, states: "Focusing on the look and feel may seem trivial, given the complexity of business logic behind the scenes. But to ignore the user interface is a mistake, in Celent's opinion, and vendors still manage to differentiate their products by keen attention to usability."
Light and Pearson also cite configurability--the ability to make faster and easier changes without having to write computer or programming code--as a function in demand among insurers.
Another possibly weak area, Light claims, is the process of making rate and rules changes to a system internally requires a significant amount of effort.
To that point, Pearson adds, "one objective is to try to take programmers out of the equation to some extent." Many insurers would prefer the ability to have experienced business analysts define new products within a toolkit, he continues, which "requires vendors to give sufficient thought to a tools-based approach."
For example, Pearson says, if a company wants to write a line of insurance or a coverage it had not written in the past, it does not want to have to go back to the vendor and request a customization of the system. Instead, it would like to use a toolkit to define the user interface, database changes, rating algorithms, etc.
The Celent report contends, "Ultra-configurable, meta-data-driven, rules- and tools-based policy administration systems are now so key to the modern PAS marketplace it is more of a reality of the space than a trend. Even vendors who offer solutions with more prebuilt domain content and less true configuration are providing increasing amounts of tools to alter parts of the system without code."
But Pearson asserts while many vendors claim to have this capability today, he does not have personal experience dealing with a vendor that can deliver on the promise of true configurability.
TECHNOLOGY VS. DEMAND
In general, Pearson says, vendors are not exceeding insurer demands with respect to policy administration system platforms.
Jenkins goes a step further, saying vendors are lagging behind insurer demands. In his view, there generally are two categories of IT solution providers: vendors that offer robust and mature functionality but old technology, and others that offer newer technology but immature functionality.
No one, he says, is in position today to offer the nirvana of one holistic system that his company seeks, but Jenkins admits some vendors are making strides, and he acknowledges while it costs insurers a lot of money to buy new platforms, it also costs vendors a lot of money to do "forklift changes" to their systems. Similar to how insurers approach replacing legacy systems, Jenkins says vendors "do it in bites, also."
On the whole, he concludes, "I think they're getting a lot closer."
Pearson, too, credits vendors with making significant improvements in empowering computers to do work that in the past was done by underwriters and claims adjusters, allowing companies to underwrite and issue business more quickly and effectively.
However, in a word of caution to buyers, Pearson notes, "I think one thing that's happened is that in the past, there were a few big players in PAS, and [now] I think you're seeing a lot of new vendors coming on the scene with products in sort of different states of completion. So, I think the vendors that have an off-the-shelf, ready system for all lines of business--be they personal or commercial lines--handle the complete policy life cycle, [but] it still takes some work to find out who really has a system that works."
And while Pearson cites the number of new players, a separate trend seems to be consolidation among existing players, observes Jenkins. He points to a convergence of vendors over the last 18 months as they attempt to tie a lot of solutions together, using Oracle and its acquisitions as an example.
Goldberg's assessment of vendor technology vs. carrier demand is the most optimistic. "I actually think they're pretty well in sync right now," he says.
Embracing standards such as XML and SOA has allowed for more open infrastructure, he continues, reducing the likelihood of a new "legacy trap" for insurers. The new systems, he finds, are easier to upgrade and modernize.
He also maintains it is easier today to switch away from a vendor system if a carrier chooses to do so--a statement supported by Umland, who says there is more compatibility today between vendor packages.
RIP OR WRAP?
Companies that move forward with upgrading their PAS essentially have two options--"rip and replace" or "wrap and extend." Light points out both have their share of advantages and disadvantages.
As Pearson states, "I don't think there's a right or a wrong answer. Each company has to look at its risk appetite, its budget, and the condition of its legacy assets and make a decision for itself."
He notes rip and replace is higher risk and generally more costly in the short term. "However, if it can be done successfully, it really allows a company to make a major leap forward" in technology platform and functionality and capacity.
Wrap and extend entails a more targeted and incremental approach to implement systems, Pearson says.
At the end of the day, Pearson sums up, an insurer has to ask itself: "Am I constrained by the underlying technology of my legacy system, and how is that affecting me?"
