Carriers cant assume spending seven figures on a new policy administration system is the only answer to their problems.

By Robert Regis Hyle

Could the day come when insurance carriers outsource the policy administration function? It might be a few years off, but the popularity of business process outsourcing has made it an option to consider for insurance carriers, suggests Stephen Forte, a re-search analyst with META Group.

Like any outsourcing solution, insurance carriers have to decide whether the particular process under consideration truly is their center of excellence, according to Forte. Is [policy processing] really a core competency? I would say its not, he contends. An insurers core competencies usually are found in the areas of underwriting, claims, and getting products out to the market, he continues. If there is someone out there who can do it cheaper, faster, and better, why not turn over the reins to someone else, and the carrier can focus on the processes that are its center of excellence, he adds. With more than 30 providers of policy administration in the P&C space, the market cant sustain that kind of vendor number, so you are going to see some consolidation over the next couple of years. Youre starting to see some of the bigger providers recognize this, and thats why they are moving into more of the outsourcing and hosting. Fiserv recently bought Results International, and in the life space, youve got IBM that bought Liberty [Insurance Services].

An obvious step for a carrier when contemplating outsourcing is to make sure it is dealing with a vendor that has expertise in this area, Forte notes. There has to be synergy between the carrier and the vendor, he says. They both have to have a sense of the direction [toward which] the carrier wants to move. Service-level agreements are very important, and so is the decision whether to go offshore or nearshore. Dealing with offshore firms in India can present a special type of risk, particularly with the time difference and communication issues. Some domestic companies are offering services, as well.

Outsourcing has been more prevalent in the life space and mostly with closed books of business, he says. Thats starting to change a little bit, especially with IBMs acquisition of Liberty. Its definitely not a mature market by any means right now. Handing over the keys to your core systems to a third party is a pretty scary thought for most insurers. Theres nobody who is going to be diving headlong into this right now. But I think you definitely will see policy admin move over into the outsourcing space in the next few years. Youll see more carriers get more comfortable with that.

For those looking for new systems, Forte maintains carriers are aiming for more integration with their other systemssuch as CRM and claims systemsacross all platforms, so they can get a single view of their customer and to service clients, which is the number-one priority for any carrier.

What were seeing now and probably will see more of over the next couple of years is insurers taking a look at the core systems, asserts Forte. Traditionally, theyve run these systems in siloed approaches, but in order to bring in the idea of business process management across all the different processes, there really needs to be a linkage with all the disparate systems to get the single customer view within their database.

Many carriers are running on multiple policy administration systems for a variety of lines of business. A life carrier Forte spoke with has 13 different platforms. A lot of the languages these old systems were written in go back to assembler language, he says. There arent many people around who still can code this stuff. Anybody new coming up today is not learning this [assembler] language. They are either .NET or a Java shop.

If carriers have a large IT shop, they are going to continue with building out their own solutions or look to tool-based vendors, predicts Forte. The midmarket carrier is starting to examine consolidating multiple systems to get down to one platform, if thats possible. Theyre looking at Java vs. .NET, he says. There are a lot of new policy admin vendors out there that are .NET focused.

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