For years, we've been beating the drums for policyadministration replacement, almost talking ad nauseam–but themessage finally is coming through," says Stephen Forte, seniorresearch analyst in the P&C sector at Gartner.

The surge in policy administration projects is due to manybusiness factors that have been highlighted in Tech Decisions inrecent months: the inability of legacy platforms to respond quicklyto business demands; the need to reduce the oft-cited 80 percent ofthe IT budget relegated to maintenance of aging platforms; and theupturn in financial fortunes of insurers that has freed up ITbudgets, to name three.

However, also important is the fact insurers today have betterreplacement solutions to which to turn. Policy administrationsystems had long been characterized as custom-built systems or atleast applications that needed significant modification to deploy.Today, this no longer needs to apply.

"Vendors, either on their own or partnering with insurers, havebuilt out much more complete business functionality," says Forte."A few years ago, you might get 40 percent of the basefunctionality you needed and the rest was custom work–changing thesource code–and that impacted installation, configuration, andmaintenance costs. Now, the base functionally is up in the 70percent range."

The increased pace of vendor merger and acquisition activitythat continued throughout 2006 also has been a net positive on theproduct features front, according to Edward Blomquist, lead analystin financial services technology at Datamonitor. "We're seeing alot of good technology that is now supported by better, largermarketing resources and can align with other IT services resourcesto better position [carriers] in the industry," he reports.

It's not just small and midtier carriers that are taking acloser look at off-the-shelf software. "We're seeing RFPs fromlarge insurers that historically have built their ownapplications," Forte indicates. "Insurers are asking, 'Whatbusiness do we want to be in–software or insurance?'"

"Competition still is the main driver" for new policyadministration systems, Blomquist claims. Insurers simply arefinding it increasingly difficult to respond quickly to competitivepressures while using systems that require weeks or months morethan their competitors' systems to launch new products.

"When it takes nine months to launch a product, it'sunacceptable. That gets C-level attention," says Todd Eyler, vicepresident in the life insurance sector at Gartner.

"New rating engines and new calculation devices enable insurancecompanies to develop products more quickly and to have productdevelopers who understand the insurance business drive the productrather than go through an IT conduit," Blomquist adds.

When EquiTrust Life Insurance Company, one of FBL FinancialGroup's two primary operating subsidiaries, searched for a systemto handle a new line of annuity business in 2003, flexibility wasthe key issue. "We wanted to get to market quickly with theproducts being developed," says Ray Wasilewski, emerging businessand technology vice president at EquiTrust Life. "We also wanted abusiness person with reasonable technology skills, such as anactuary, to handle many of the product changes and builds."

Wasilewski asserts that's what EquiTrust Life got with the EDITSolutions platform from Software Engineering Group (SEG). "SEG'sscripting language works like the calculators actuaries are usedto, and once they get their mind around how the code is flowing andhow the system handles different products, they can create newproducts fairly easily. If they understand Excel spreadsheets andhow to use an HP [financial] calculator, they can get up to speedquickly," he says.

Having a two-person team consisting of a business analyst and anactuary to handle new product deployment means most new productstake just a few weeks to deploy on the platform. "We've done themin as little as two weeks, and it's hard to imagine a product wecouldn't launch in less than a month," reports Wasilewski. Thebusiness side handles post-implementation rules and rate changes,as well.

In addition to ease of product deployment, the EDIT Solutionssystem has been intuitive for staff to use. This has beenparticularly important, since the company's rapid growth–from astartup in 2003 to more than $1 billion in written premium in2006–has caused EquiTrust Life to hire many new employees and oftenuse temporary staff to meet the demands of the business. "Oldcode-intensive systems take months to learn. [The EDIT system] isWeb based. A lot of the people we bring in are young, and they'reused to working in a browser environment," Wasilewski says.

In the P&C world, flexibility and business-side control alsowere important for SUA Insurance Company, a subsidiary of SpecialtyUnderwriters Alliance, which writes commercial P&C fortraditionally tough-to-place classes of business.

SUA just had opened its doors for business in 2004, but by thenext year, already was dealing with a legacy system challenge. Thecompany initially had undertaken a project to integrate a suite ofpolicy, claims, rating, and management reporting systems and todeploy the result to both internal staff and agents, who arerequired to run on the SUA platform. But the systems the carrierchose from the first set of vendors required too much custom workto deploy quickly and maintain easily, according to Barry Cordeiro,vice president and CIO at SUA, who joined SUA in 2005.

The insurer signed a new contract with Duck Creek in 2005. SUAtargeted a 120-day installation of Duck Creek's EXAMPLE policyadministration platform for the first line of business, commercialauto–a goal it met.

The key to that speed was a high level of out-of-the-boxfunctionality, Cordeiro contends. "The value proposition for theset of products Duck Creek has is [the products offer] a set oftemplates and solutions that have not only all the ISO rates therefor all states but also the ISO forms and a mechanism to keep themup-to-date," he says. "One of the biggest difficulties mostcarriers have is the labor and administration of keeping up withregulatory changes and the enormous amount of maintenance to allthe affected systems as a result."

SUA's current operating goal is to put up new programs orpartner agents within 60 days, a goal the carrier is approachingdue to those product templates as well as configuration tools thatallow the setup of new products and new agents and product changesto be handled outside IT.

Like EquiTrust Life, ease of use by staff also was an importantconsideration. "Aside from the fact any change is difficult, CSRssay it's an intuitive interface, it flows like the ACORD form, andthe cosmetic features are customizable. And it's availableeverywhere because it's Internet based," says Cordeiro.

Full ISO support was important to commercial lines P&Ccarrier Alaska National Insurance, which began deploying Insurity'sPolicy Decisions system in 2003 and has completed converting mostnon-workers' compensation lines. "We wanted full license supportfor states off the shelf, whereas others were 70 percent of ISO orintended to be full ISO but still were in development," says JohnRamey, senior vice president of information systems at AlaskaNational.

This was important as the company looked to expand into newwestern states. "If we wanted to go into Idaho, we wanted to getfull Idaho ISO. We also wanted proactive monitoring of bureauchanges and someone who rolled them out on a scheduled basis. Inthe old environment, as we had grown as an Alaskan company, it hadworked to monitor the bureau changes ourselves. But as we spreadinto new states, that no longer worked," Ramey explains.

Business control of the product development process is afrequently cited goal in new policy administration proposals, andit is why vendors in both life and P&C have worked toincorporate template-based product development in their platforms."It's like 'cloning' products but with greater functionality,"Blomquist says. "Templates dramatically reduce calculating ratesand reserves that go into a product and make sure everything iscompliant."

Still, there are limits to how easy the technology can be. "Youneed to be a very sophisticated user and have some analyticalskills [to make changes]," notes Larry Hall, recently retired vicepresident of information systems at AAA Missouri. In 2005, AAAMissouri began replacing a legacy Equifax system with Fiserv'sPolicy STAR administration platform. "You can configure your edits,rules; assemble things together to create new products; add fields,change fields; do things without modifying the base code–but youcan't just pluck somebody off the product floor. You need to havesomeone with analytical skills," he says.

Not all systems are created equally when it comes to ease ofdevelopment, Eyler adds. "The major knock still is the usability ofthe rules engine," he says. "The business person trying to use itstill needs knowledge of XML or Java scripting to change rules in alot of cases. [Vendors] need to improve how intuitive it is to usethe system."

And business involvement in the development process, while agrowing trend, is not a universal goal. Alaska National Insurance,for instance, sends all change requests for its Policy Decisionssystem to Insurity for development. Internal control of thosechanges "is important to some carriers, but it wasn't to us," saysRamey.

Other out-of-the-box benefits of modern systems that areinfluencing the policy administration replacement push includeeasier integration with other systems and a better ability toautomate the policy life-cycle workflow. "Workflow has been a muchbigger part of core insurance systems," Blomquist comments.

Alaska National, for instance, wanted to reduce the number ofhand-typed forms in its policy-assembly process but still wanted toretain its policy print system from Docucorp. "In the past, we wereable to automate about 80 percent of our coverages and forms" byhaving built custom integration between Docucorp and the company'sDOS-based legacy administration system, explains Ramey. "It wasimportant this time to get our arms around everything so everycoverage could be automated."

With the system still pending deployment for some lines ofbusiness, that goal is a work in progress. "We are doing a lot lessmanual processing of documents today," Ramey says. "The other bigimprovement we made was our old system was a batch export, eventhough we were running batches every one or two minutes. WithInsurity, we can tie [the Docucorp] print module in with[Insurity's] print code, so it's truly real time."

Today's systems also are designed to integrate with Web-basedfront ends. "Having the ability to get into underlying rating andunderwriting logic and extending those to the Web, allowing agentsto do real-time rate quoting and look-ups, had been problematic.That's been a change with the newer systems as opposed to a fewyears ago," says Forte.

AAA Missouri's previous support for the insurer's Web-basedrating tool for agents, using its legacy VSAM-based administrationplatform, was "smoke and mirrors," according to Hall.

"We took all the transactions that occurred on the Web, then allthe 'green screen' transactions, merged them together in a batchprocess at night, and downloaded [everything] back to the site. Itlooked like all the processing was in place and it was done online,but it really wasn't. As we were growing, and growing fast, wecouldn't survive with that process in place."

Web-based homeowners applications for agents combined withupfront address, class, and fire protection code scrubbing haveimproved the policy issuance process at AAA Missouri. "When youquote a policy, it's correct," Hall says. "Before, the policyapplication had to be handwritten, mailed in, entered, and so on.Now, it goes right to the underwriting queue, and all we need arethe photos [of the home from the agent]."

By April 2007, AAA Missouri expects to have extended theWeb-based Fiserv system to its auto business, too. Like homeowners,new auto business will be handled in real time, and the Policy STARsystem also includes prebuilt integration to commonly usedthird-party data sources in auto insurance underwriting, such asmotor vehicle records and CLUE reports, to automate thenew-business-issuance process.

Ease of integration via standards-based mechanisms such as Webservices will be an increasingly important consideration for thesystems insurers choose. "In the future, we will get to a pointwhere SOA will be required," predicts Blomquist.

"We have an SOA structure, so it was important the Duck Creeksystem fit into that environment," Cordeiro says. For connection toother systems, such as SUA's claims administration system, "the XMLtool set is pretty intuitive and reasonably easy to use. We'vetrained some of our local consulting people rapidly," he adds.

Cordeiro claims EXAMPLE's integration capabilities using Webservices and a component-based design were important for SUA's ITstaffing strategy. "I didn't want to build a big IT shop," hesays.

Still, Cordeiro has some features on his wish list. "What Iwould hope [Duck Creek] would do over time is create more prebuiltconnections [to third-party applications]. The architecture permitsthose connections via Web services, but I would expect to see moreout-of-the-box, prescribed connections."

While the traditional reluctance of policy administrationvendors–particularly those with multiple ancillary offerings oftheir own–to opening up their core systems for easier integrationwith other vendors' applications has diminished, it's still a workin progress. It's something Wasilewski wishes was more complete inthe SEG system.

"They need to do further work in the integration area,specifically with exposing some of their transactions through Webservices or other means to other systems. Your administrationsystem doesn't exist in isolation, and there are things we want todo from a workflow perspective and agent Web site perspective thatwe want to call more easily into the administration system andautomate," says Wasilewski.

Thomas Johnson, SEG Software president, reports SEG is in theprocess of expanding its product rules engine to allow services tobe dynamically defined and published. "We will not only have alibrary of 'prebuilt' services but will be able to define newservices on the fly in the same manner as we define new productfeatures," he says.

Administration systems also could improve their compatibilitywith different databases and platforms, suggests Blomquist. "In thelarger technology industry, the capability to interact withdifferent platforms, such as .NET and J2EE, and to operate withdifferent databases seems to have been solved. But I still don'tsee a lot of the administration systems having that capability," hepoints out.

In P&C, Forte observes one shortcoming is the lack of aplatform that truly handles both commercial and personal lines."Best-of-breed vendors that do both don't exist. If they do both,they tend to handle only some of the lines; they'll do commercialBOP and auto, but they can't handle inland marine, a commercialoutput policy, or D&O liability," he says.

Finally, the quickening pace of policy administration systemwork presents the real possibility of demand-driven talentshortcomings. "Each vendor has only a finite number of people withexperience in putting these systems into production, just becausethey're relatively new," Eyler remarks. "[Vendors'] building outcapabilities from a service standpoint and building up knowledgewith system integrators will be an ugly process over the nextcouple years. There isn't enough combined expertise inunderstanding how these rules-based systems work and how the priormainframe systems work and building the bridge between them."

Despite these shortcomings, analysts anticipate interest byinsurers in modern policy administration platforms will continue togrow. "The more companies start to adopt this technology, the moreproven it is; and the more the ice melts, the more insurancecompanies will make these kinds of changes [to their policyadministration systems]," Blomquist predicts.

"Insurance companies are beginning to get more aggressive,"Eyler says. The difference between a few years ago and today, headds, is "then, projects were in the planning stage; now, insurersactually are spending real money."