Seeing the Tunnel

Armed Forces Insurance twice tried and failed to upgrade its policy administration and claims systems, but when Del Chisolm, senior vice president and COO, joined the member-owned, nonprofit insurer five years ago, he knew the company had to try again and hoped the third time would be the charm.

"We made another attempt at it because it really was necessary," says Chisolm. "In order for us to compete in the marketplace, we had to have a functional system that was easily adaptable as opposed to our mainframe system. [The mainframe] keeps chugging along, but it was difficult and time-consuming to make changes, and it was not particularly adaptable for where we wanted to go."

AFI brought in Edgewater Technology, a consulting firm, to perform two functions. The first was to document AFI's overriding business requirements, according to Chisolm, and the second was to prepare the request for proposal and evaluate the vendors that replied.

AFI began the evaluation process in late 2003 and ultimately selected IDP as its business partner, signing a formal contract in August 2004. In addition, the carrier is working with separate vendors on a new billing system, a general ledger, and a data warehouse. "We have a lot of moving parts," says Chisolm.

Starting over with a new policy administration system is a lengthy and difficult process, and Chisolm anticipates he will be happy when all the work is complete. "We haven't seen the light at the end of the tunnel, but we've seen the tunnel," he says.

One of the reasons AFI turned to IDP is the vendor demonstrated successful implementations with its product when the carrier was in the evaluation stage. "We weren't willing to accept someone with strictly a promise or a good concept," says Chisolm. "We wanted someone with active clients even if they were not as challenging customers as we are."

AFI is the first national writer IDP has dealt with, Chisolm explains. "So, this is not only an advantage for us but for IDP from a marketing perspective to be able to provide a policy administration system that can support a nationwide writer with multiple lines of business," he says.

The carrier liked the ability to customize the solution rather than enter a "take it or leave it" scenario, notes Chisolm. "IDP provides the capability to build off the base system and customize it to the unique features of our company," he says. AFI also was impressed by IDP's understanding of the insurance industry. "We had some dealings in the past with companies that had good systems, but we weren't satisfied with their expertise," he adds.

The carrier's underwriters were attracted to IDP's expert underwriting system, which Chisolm indicates will provide the capability of evaluating particular risks and being able to recommend whether the risks are acceptable, should be rejected, or need to be referred to the underwriters. "[The system] allows you to customize those particular rules and guidelines based on table input we can control," he says.

As the two sides entered into negotiations, Chisolm also discovered IDP was flexible with its pricing. "It got to the point where we felt we had the product we wanted to meet our needs and within a price range we thought we could afford," he says.

One of the difficulties AFI has had in launching the system is the eligibility changes in the membership. AFI is no longer offered exclusively to officers in the armed forces. Today, new members also are accepted from the Department of Defense as well as family members of the two groups. "We moved from a homogenous group of members to a more diversified group," says Chisolm. "We have a different risk profile now, much broader."

This change would have been impossible to accomplish in the past because the mainframe was unable to perform tier rating. "What we had basically was a base rate, and it was one rate," says Chisolm. "We didn't have multiple-rate sets, so we've had a difficult time trying to match our underwriting guidelines to our ability to write a particular risk. As a result, it's been difficult for us to be as competitive as we'd like." Having a new system allows AFI to address complex rating algorithms, points out Chisolm. "That in conjunction with our ability to get out to the Internet will make a significant difference in how we market and respond to our members," he says. "It will help us to stay competitive in the marketplace."