Policy administration system implementations consistently makethe 'A List' of important projects for insurers every year. Therealways are a large number of policy administration projects underconsideration in the insurance industry—some to handle new lines ofbusiness, some to manage processing for new companies—but the vastmajority are undertaken to replace tired existing systems.

SMA research finds that spending in the area of policyadministration services is consistently high with more than 53percent of insurers saying they will either increase investmentsfor policy administration services over the next three years or atleast keep them at current levels. Most insurers have manyopportunities for automation in the queue. Given the important rolethe policy system plays as the system of record, it isunderstandable that many insurers choose the replacement of thiscore application as a priority project. For some insurers, this isthe first major investment they have undertaken in a number ofyears.

Any departure from the familiar is difficult,but taking a new view concerning replacement solutions for policyadministration systems is the first step toward opening a whole newarena that is bursting with potential. It is not unlike thedecision that a friend of mine faced recently when his trustyvintage cellphone finally died its final death. He envisioned hisneeds based on what he was used to doing—making and receiving phonecalls—nothing more, nothing less. The salesman informed him of someof the new options that were available with a phone, such as theability to manage e-mail and even communicate using textmessaging—options he had not even considered.

He could choose a phone similar to what he'd had in the pastwith slightly upgraded functions like call waiting, storage formore phone numbers, and an alarm clock…or…he could take a totallynew view of the role that the phone might play in his daily living.He was often on the go and frequently traveling without access tohis computer. He dreaded the e-mail overload upon his return. Armedwith new insight, he was able to see what the limitations of hisold phone were and his eyes were opened to the possibilitiespresented with new technology. Phones had evolved fromsingle-dimensional voice function to multi-function communicationdevices.

Just like my friend, insurers need to explore what is new andlook at the vast possibilities available today thanks to advancesin technology. Recent SMA research findings indicate the primarybusiness drivers for insurers are focused on growth, efficiency,and agility. All three of these drivers are dependent on keycapabilities managed by policy administration systems. Now is thetime to take a fresh look at what is really possible with today'smodern policy administration systems.

The Missing Link

Companies beginning the process of looking for a replacementpolicy administration system first need to answer the followingquestion: Are you looking at just replacing your old system due tothe limitations of your current systems environment, or are youlooking at the possibilities of what a whole new environment willbring to your business? SMA observes that companies frequentlyapproach technology updates with their eye focused more on thelimitations they want to free themselves from, rather than thepossibilities that could transform their businesses. It is criticalto understand what the needs of the business really are.

All too often companies rush into the vendor selection processwithout first doing some critical evaluation of the real functionalcapabilities that are required to meet the company objectives. Itis important to approach the selection of a policy administrationsystem by starting with a clear understanding of how the requiredbusiness and technical capabilities of the system relate to thebasic elements of the business strategy. The critical link betweenthe strategy and the technology, the definition of functionalbusiness capabilities, needs to be shaped and guided by thebusiness strategy.

For example, a business strategy and accompanying objective ofincreasing growth through agent/broker channels by five percentwill require business capabilities that make it easy for the agentto place and service business. A strategy that is geared toreducing loss costs by five percent likely requires businesscapabilities that enable highly informed risk selection andsophisticated analytics for pricing precision.

The business strategy should take market and competitive trendsinto account and define expected outcomes and goals for thebusiness. Using the business strategy as a foundation or base,functional business requirements can then be documented—specifyingthe particular needs and preferences of the insurer. These desiredbusiness capabilities can then be used to determine the specificapplication and technology requirements that will be needed toguide investment decisions.

The important point is to let the businessstrategy guide the definition of need—to determine exactly whatfunctional business capabilities are needed and then to use thosebusiness capability requirements to guide investments intechnology. The following questions and considerations can behelpful for insurers in defining their requirements for functionalbusiness capabilities:

• Distribution Channel Interactions: How do you wantto handle interfacing with your business channels? Do you have anagent strategy or a direct to consumer strategy or both? How do youwant to be able to interact? What information do you want topresent?

• Product Agility: Do you offer highly customized andspecialized products? How often will you be making changes to yourproduct offerings? How quickly do those changes need to be made?How often are rate changes required?

• Collaborative Underwriting: What is the maturitylevel of your underwriting process? How much interaction isrequired between the agent and underwriter? Do you plan to handlethe majority of your business in a straight-through manner? Or, doyou have highly customized offerings that require many interactionsbetween the agent and the underwriter?

• Time to Market: How time-sensitive are your newproduct offerings? Is time-to-market really important? Is yourcurrent development cycle three to six months when you really needit to be 30 to 90 days? Or, does the three- to six-month timeframemeet your needs?

• Process Efficiency: Are there several unneeded stepsin your processes? Are these extra steps tied to the technologythat is currently being used? Is there a more efficienttechnology-enabled process that would help your business?

• Content—Rates, Rules, Forms, Stats: Is yourregulatory content heavily based on ISO? Could you benefit bytaking advantage of offerings that can expedite the implementationtimeline and reduce cost of staying current with regulatorycontent?

• Vendor Management Process: How capable is yourorganization when it comes to managing vendors? Do you haveprocesses in place that are effective? How will you manage a singlesupplier or services? How will you handle a multi-partyrelationship?

• Control—Application Service Provider (ASP), Softwareas a Service (SaaS), Outsource: What is the culture of the companyregarding application and technology control? Would your companyconsider looking at services that are provided through some form ofoutsourcing, or do you want full control of the infrastructure?

Once the required functional business capabilities have beenclarified and defined, the next step is to review what you'velearned in terms of the people, process, and technologyrequirements. Look at the level of automation that is needed andthen assess the gaps that exist.

Understanding the Technology Decisions

The technology investment decisions should start with somebasics. Is it appropriate to enhance existing systems? Is it betterto buy new components or enterprise solutions? Are the needs of theorganization so unique that it is necessary to build your ownapplications? At the heart of these decisions is the architecturalenvironment. Modern systems operate on open platforms. They areflexible, using “small grain” components with callable interfacesto make linkages to other components and services easy. They canaccommodate a wide range of devices. They are business-process andrules-driven and use common data models where the database isindependent instead of being tied to a specific system orprocess.

A good place to start the process of outlining technicalrequirements is to review the current and planned direction for theorganization's technical environment. Begin with an inventory ofthe fundamentals. Architectures are never finished; there is alwaysroom for improvement. There is an operational architecture in placeand there should be a master plan for its migration to a futurearchitectural vision. With the aid of a clear road map, insurersare able to evaluate and make intelligent choices about thecomponents they implement.

The requirements for a policy administration system will varywidely depending on the progress that has been made in theimplementation of a modern architecture. For example, an insurerthat has recently invested in updating their user interfaces andseparating them from the processing logic would be most concernedabout finding a policy administration solution with Web services toconnect with the front end. Portal functionality would not be asimportant because they already have that capability. A forward lookis critical. Smart investments are planned with a fullunderstanding of the capabilities of the architectural environmentand technology that is in place today and the organization'sdetailed plans for the future.

Opening the Door to New Possibilities

It is indeed time to consider the possibilities moving out ofthe world of limitations. First, start with the strategicobjectives of the business. Then, define the functional businesscapabilities required to achieve the organization's goals.Understand the current and planned technology environment and thenbegin to look at solution options. By spending the time to take theappropriate initial steps, the process of evaluating those optionsand making sound investment decisions will not only be much clearerand easier, it will be much more productive—resulting in asuccessful solution that will stand the test of time.

Exclusively serving the insurance industry, Strategy MeetsAction (SMA) blends unbiased research findings with expertise andexperience to deliver business and technology insights, research,and advice to insurers and IT solution providers. By leveragingbest practices from both the management consulting and researchadvisory disciplines, SMA's services are actionable,business-driven, and research-based—where strategy meetsaction—enabling companies to achieve business success. Visitwww.strategymeetsaction.com for more information about SMA, orcontact the author, Karen Furtado, atkfurtado@strategymeetsaction.