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 over 53 percentof insurers saying they will either increase investments for policyadministration services over the next three years or at least keepthem at current levels. Most insurers have many opportunities forautomation in the queue. Given the important role the policy systemplays as the system of record, it is understandable that manyinsurers choose the replacement of this core application as apriority project. For some insurers, this is the first majorinvestment they have undertaken in a number of years.

Any departure from the familiar is difficult, but taking a newview concerning replacement solutions for policy administrationsystems is the first step toward opening a whole new arena that isbursting with potential. It is not unlike the decision that afriend of mine faced recently when his trusty vintage cellphonefinally died its final death. He envisioned his needs based on whathe was used to doing—making and receiving phone calls—nothing more,nothing less. The salesman informed him of some of the new optionsthat were available with a phone, such as the ability to managee-mail and even communicate using text messaging—options he had noteven 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 atotally new view of the role that the phone might play in his dailyliving. He was often on the go and frequently traveling withoutaccess to his computer. He dreaded the e-mail overload upon hisreturn. Armed with new insight, he was able to see what thelimitations of his old phone were and his eyes were opened to thepossibilities presented with new technology. Phones had evolvedfrom single dimensional voice function to multi-functioncommunication devices.

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 frequently companiesapproach 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 business strategy guide thedefinition of need—to determine exactly what functional businesscapabilities are needed and then to use those business capabilityrequirements to guide investments in technology. The followingquestions and considerations can be helpful for insurers indefining their requirements for functional businesscapabilities:

• Distribution Channel Interactions: How do you want to handleinterfacing with your business channels? Do you have an agentstrategy or a direct to consumer strategy or both? How do you wantto be able to interact? What information do you want topresent?
• Product Agility: Do you offer highly customized and specializedproducts? How often will you be making changes to your productofferings? How quickly do those changes need to be made? How oftenare rate changes required?
• Collaborative Underwriting: What is the maturity level ofyour underwriting process? How much interaction is required betweenthe agent and underwriter? Do you plan to handle the majority ofyour business in a straight-through manner? Or, do you have highlycustomized offerings that require many interactions between theagent and the underwriter?
• Time to Market: How time-sensitive are your new productofferings? Is time-to-market really important? Is your currentdevelopment cycle 3 to 6 months when you really need it to be 30 to90 days? Or, does the 3 to 6 month timeframe meets your needs?
• Process Efficiency: Are there several unneeded steps inyour processes? Are these extra steps tied to the technology thatis currently being used? Is there a more efficienttechnology-enabled process that would help your business?
• Content—Rates, Rules, Forms, Stats: Is your regulatorycontent heavily based on ISO? Could you benefit by taking advantageof offerings that can expedite the implementation timeline andreduce cost of staying current with regulatory content?
• 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), Software as aService (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 done; 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 roadmap, insurers areable to evaluate and make intelligent choices about the componentsthey 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’s detailplans 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.

About Strategy Meets Action

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.comfor more information about SMA, or contact the author, KarenFurtado at kfurtado@strategymeetsaction.