Out of the Box

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

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

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

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

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

It's not just small and midtier carriers that are taking a closer look at off-the-shelf software. "We're seeing RFPs from large insurers that historically have built their own applications," Forte indicates. "Insurers are asking, 'What business do we want to be in–software or insurance?'"

"Competition still is the main driver" for new policy administration systems, Blomquist claims. Insurers simply are finding it increasingly difficult to respond quickly to competitive pressures while using systems that require weeks or months more than their competitors' systems to launch new products.

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

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

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

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

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

In addition to ease of product deployment, the EDIT Solutions system has been intuitive for staff to use. This has been particularly important, since the company's rapid growth–from a startup in 2003 to more than $1 billion in written premium in 2006–has caused EquiTrust Life to hire many new employees and often use temporary staff to meet the demands of the business. "Old code-intensive systems take months to learn. [The EDIT system] is Web based. A lot of the people we bring in are young, and they're used to working in a browser environment," Wasilewski says.

In the P&C world, flexibility and business-side control also were important for SUA Insurance Company, a subsidiary of Specialty Underwriters Alliance, which writes commercial P&C for traditionally tough-to-place classes of business.

SUA just had opened its doors for business in 2004, but by the next year, already was dealing with a legacy system challenge. The company initially had undertaken a project to integrate a suite of policy, claims, rating, and management reporting systems and to deploy the result to both internal staff and agents, who are required to run on the SUA platform. But the systems the carrier chose from the first set of vendors required too much custom work to 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. SUA targeted a 120-day installation of Duck Creek's EXAMPLE policy administration platform for the first line of business, commercial auto–a goal it met.

The key to that speed was a high level of out-of-the-box functionality, Cordeiro contends. "The value proposition for the set of products Duck Creek has is [the products offer] a set of templates and solutions that have not only all the ISO rates there for all states but also the ISO forms and a mechanism to keep them up-to-date," he says. "One of the biggest difficulties most carriers have is the labor and administration of keeping up with regulatory changes and the enormous amount of maintenance to all the affected systems as a result."

SUA's current operating goal is to put up new programs or partner agents within 60 days, a goal the carrier is approaching due to those product templates as well as configuration tools that allow the setup of new products and new agents and product changes to be handled outside IT.

Like EquiTrust Life, ease of use by staff also was an important consideration. "Aside from the fact any change is difficult, CSRs say it's an intuitive interface, it flows like the ACORD form, and the cosmetic features are customizable. And it's available everywhere because it's Internet based," says Cordeiro.

Full ISO support was important to commercial lines P&C carrier Alaska National Insurance, which began deploying Insurity's Policy Decisions system in 2003 and has completed converting most non-workers' compensation lines. "We wanted full license support for states off the shelf, whereas others were 70 percent of ISO or intended to be full ISO but still were in development," says John Ramey, senior vice president of information systems at Alaska National.

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

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

Still, there are limits to how easy the technology can be. "You need to be a very sophisticated user and have some analytical skills [to make changes]," notes Larry Hall, recently retired vice president of information systems at AAA Missouri. In 2005, AAA Missouri began replacing a legacy Equifax system with Fiserv's Policy 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 you can't just pluck somebody off the product floor. You need to have someone with analytical skills," he says.

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

And business involvement in the development process, while a growing trend, is not a universal goal. Alaska National Insurance, for instance, sends all change requests for its Policy Decisions system to Insurity for development. Internal control of those changes "is important to some carriers, but it wasn't to us," says Ramey.

Other out-of-the-box benefits of modern systems that are influencing the policy administration replacement push include easier integration with other systems and a better ability to automate the policy life-cycle workflow. "Workflow has been a much bigger part of core insurance systems," Blomquist comments.

Alaska National, for instance, wanted to reduce the number of hand-typed forms in its policy-assembly process but still wanted to retain its policy print system from Docucorp. "In the past, we were able to automate about 80 percent of our coverages and forms" by having built custom integration between Docucorp and the company's DOS-based legacy administration system, explains Ramey. "It was important this time to get our arms around everything so every coverage could be automated."

With the system still pending deployment for some lines of business, that goal is a work in progress. "We are doing a lot less manual processing of documents today," Ramey says. "The other big improvement we made was our old system was a batch export, even though we were running batches every one or two minutes. With Insurity, 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-based front ends. "Having the ability to get into underlying rating and underwriting logic and extending those to the Web, allowing agents to do real-time rate quoting and look-ups, had been problematic. That's been a change with the newer systems as opposed to a few years ago," says Forte.

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

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

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

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

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

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

Cordeiro claims EXAMPLE's integration capabilities using Web services and a component-based design were important for SUA's IT staffing strategy. "I didn't want to build a big IT shop," he says.

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

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

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

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

Administration systems also could improve their compatibility with different databases and platforms, suggests Blomquist. "In the larger technology industry, the capability to interact with different platforms, such as .NET and J2EE, and to operate with different databases seems to have been solved. But I still don't see a lot of the administration systems having that capability," he points out.

In P&C, Forte observes one shortcoming is the lack of a platform 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 commercial BOP and auto, but they can't handle inland marine, a commercial output policy, or D&O liability," he says.

Finally, the quickening pace of policy administration system work presents the real possibility of demand-driven talent shortcomings. "Each vendor has only a finite number of people with experience in putting these systems into production, just because they're relatively new," Eyler remarks. "[Vendors'] building out capabilities from a service standpoint and building up knowledge with system integrators will be an ugly process over the next couple years. There isn't enough combined expertise in understanding how these rules-based systems work and how the prior mainframe systems work and building the bridge between them."

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

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