Many carriers are held back by the constraints of their existing policy administration systems, which can lengthen product development cycle time, increase overhead, lock them into outdated business practices, and cost new business opportunities. To evolve with an ever-changing and often unpredictable marketplace, insurers need to consider adaptive policy administration systems that are designed to be flexible, agile, and maneuverable, so that the system itself is no longer a constraint to new product development.

Product Development for Insurance - What are the Constraints?

Insurance companies face various constraints - from people to processes to systems - when trying to introduce new products and capture market share. In fact, inflexible policy administration systems can be one of the biggest constraints in the "systems" category as insurers have modified and customized them many times over many, many years.

In the past, technologies and tools built for the insurance industry were massive systems which required much planning and took a long time to implement. Insurers built these systems to last in a steady environment where significant change was not expected. However, many of the systems that met insurers' needs 10 to 20-plus years ago cannot effectively meet the demands of today's industry, which requires unprecedented agility.

In addition, these legacy systems produced many inefficient processes, designed to work within the constraints of inflexible technologies. For example, a simple change to a product, such as adding a new data element, often requires changes to the system's underlying code and can turn into a protracted IT project.

Legacy policy administration systems have also introduced "people-based" constraints. Older workers who understand the legacy systems are retiring, and newer, younger employees do not have expertise in Common Business-Oriented Language (COBOL) or other code languages that dominated the IT world in years past. In addition, many of these highly customized legacy systems lack adequate documentation, making it difficult even for the most skilled programmers to manage and maintain them.

Minimize Reliance on IT for Product Development

How can insurers cast off their product development constraints, giving them freedom to quickly capitalize on market opportunities and shifts? Adaptive policy administration systems can help insurers eliminate constraints to the product development cycle in three ways: removing reliance on IT, streamlining quality assurance (QA), and managing rule migrations and standards.

An adaptive system is one that is highly flexible and rules-driven, using business rules to configure nearly all of the changes required by the carrier. This includes data fields, tables, screens, and more - all of which can be changed without ever modifying the underlying code. The advantage of an adaptive policy administration system is that new products can be created, or existing products updated, much more quickly and without changing the source code - which in turn has less impact on other systems and processes.

Using legacy policy administration systems in the product development process typically requires heavy reliance on IT. For example, if an insurer would like to add a health rider such as long-term care (LTC) to an existing annuity product in its legacy system, IT programmers would have to customize the system to modify the product based on requirements provided by the business unit. This lengthens the overall product development time cycle and also inhibits an insurer's ability to be nimble in today's competitive marketplace.

In contrast, with an adaptive policy administration system, the insurer could configure the change just by using business rules. Configurable systems enable collaboration across a hybrid group of IT and business users such as actuaries, customer service representatives, claims representatives, compliance officers, and others involved in the product development process. Users are not solely reliant on the IT team and its schedule to make system changes; nor is the IT team dependent solely on the business side of the house to provide product development requirements. With a configurable rules-based system, product development becomes a truly collaborative process between business and IT.

An adaptive rules-based system enables users to quickly create or change products with complex and extremely specific features - such as hybrid annuity or long term care products - without concern for system limitations. This level of flexibility enables users to drill down and manipulate products and features - for example, changing rates, modifying coverages, or adding riders - at very intricate levels. Lines of business can share rules where appropriate, enabling insurance companies to enforce common product and regulatory calculations and processes globally. This capability provides insurers the unparalleled opportunity to capture emerging markets with unique, niche products, and increase market share in existing markets by bringing new products to market quickly.

Quality Assurance: Enabling Transaction-Level Testing and Debugging

Many legacy policy administration systems place limitations on users' ability to perform thorough unit testing (tests that verify the functionality of a specific section of code) and debugging. More often than not, QA is forced to rely on the IT department to process test case results and unit testing before migrating over to the quality assurance environment - a process that can delay a product launch and cede a competitive advantage. Unit testing also is often restricted to single event processing or even a single calculation.

Moreover, QA testers typically bundle all cases together on a single processing date, which limits the amount of testing that may be done in a single batch. This approach makes it less likely that testers will be able to understand or predict the results that one event may have on another.

To break through this constraint, an adaptive policy administration system enables insurers to perform transaction-level testing and debugging in a real time mode. At every stage, including development and quality assurance, each policy can be independently processed forward - the system allows tests to examine each event or transaction as it occurs. This reduces the resources and time required to uncover complex errors such as mismatched valuations or complex math and helps to facilitate rapid time to market.

Users require visibility into every processed transaction including scheduled events, fund allocations and valuation, accounting detail, end results of calculations processed, disbursements, etc. This helps to streamline quality assurance, improves compliance, and reduces the workload associated with audits.

Managing Rule Migrations and Standards

The last limitation insurers typically encounter during product development is inadequate control of rules migrations and data standards from test regions to production. Traditional legacy systems require any changes to create or modify products to be hard-coded within the source code, making it difficult or impossible for end users to trace changes within the system.

Adaptive policy administration systems include built-in tools and processes to help remove these constraints. For example, a release management tool can be used to view a complete history of changes that have been made to any given rule and show rule versions. Tracking multiple product changes is not only important for history and documentation, but also a necessary part of compliance. To further assist in the configuration process, adaptive systems include an integrated data dictionary where standard naming conventions enforce consistency, making product development a more efficient process overall.

Market Success of Adaptive Systems

The need for adaptive systems is clear, and insurers using these systems are able to do more with less. For example, one insurer using an adaptive policy administration system reported developing six products in parallel using a team of 12 people - an undertaking which previously would have required up to 40 people using the insurer's older legacy system.

Another insurer based in the Northeastern United States used the business rules of an adaptive policy administration system to develop a highly complex new annuity product and bring it to market in less than six months. The response in the market was phenomenal, with the product accounting for approximately 25 percent of the company's total sales during the first year of roll-out. The insurer reported that it would not have been able to develop this product using its previous legacy system, which simply did not have the capability to handle the complexity of the many features and options of the annuity. This insurer has since migrated other products to its adaptive policy administration solution and retired its legacy system, significantly decreasing its overall product development cycle from 12 months on its previous system to four months with its adaptive policy administration solution.

The question looming for insurance carriers and providers is, "Is my policy administration system enabling my business to move forward, or holding it back?" By leveraging an adaptive policy administration system, insurance companies are removing the constraints that stand between them and agile new product development. Reducing reliance on IT, streamlining quality assurance, and managing rule migrations and standards will help insurers to successfully enter new markets and gain an advantage over their competitors.

Roger Soppe, CLU, is senior director of global insurance strategy for Oracle Insurance and Kate Fowler, Fellow, Life Management Institute (FLMI), is director of product strategy for Oracle Insurance

Special Reports /

A Clear Path to Performance with an Adaptive Systems Approach

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