The insurance business, as we knew it, changed profoundly in 2009–transforming at a velocity never before seen in our historically slow-to-change industry. As a result, today's insurers are reevaluating their businesses, with a focus on achieving unprecedented agility throughout their organizations.
To get there, insurers require a new approach to technology. Specifically, they must pursue a progressive, adaptable information technology framework that enables them to embrace transformation rather than fight it.
For decades, insurers built their IT systems like dams–multilayer projects designed to harness a huge amount of potential power and resources and last for decades or longer.
This strategy will no longer work in today's rapidly changing environment in which line-of-sight decreases dramatically and insurers find it more challenging to plan even two years out.
Many of the systems that were put in place 20 or more years ago have become constraints on the business. With these "dams" still in place, it often takes 12-to-18 months to bring a new product to market or 30 days to issue a new policy.
To accelerate these timelines, insurers must adopt modern technology that can help them remove–or at least manage their way around–these constraints. The goal should be business processes that flow like water, with the flexibility to support ever-changing priorities and navigate obstacles encountered along the way.
As an example, let's take a closer look at the process of developing a new product.
Invariably, when an insurer looks at its timeline to launch a new product, it faces enterprise constraints. The insurer's legacy policy administration system may lack the technology necessary to support the new product.
Process is often the next constraint, followed by document creation, state filings and distribution. Adaptive systems help insurers remove these constraints by adhering to three key principles:
o Process Flexibility: Adaptive systems have the flexibility to accommodate new business processes, rather than requiring insurers to align processes with existing IT capabilities.
o Data Elasticity: By ensuring adaptability, insurers can reduce the time required to capture information or make attribute changes to support a new regulation from months to just days.
o Information Access: An adaptable IT framework enables insurers to quickly obtain and act on current and relevant information.
Underpinning all three principles is a strong technology foundation, based on an open architecture, which helps to drive down cost of ownership.
An adaptive IT framework frees insurers to develop and implement products that meet current market needs, as well as to support distribution to any customer and geographic segment. Insurers also gain the agility to respond to expanding, and often unpredictable, regulatory requirements.
Further, adaptive technology enables precise decision-making by providing access to current and actionable information.
Ideally, insurers want adaptability across the enterprise, but there are some core areas that provide more immediate benefit than others. The first is rating and underwriting.
Today, many insurers embed rating logic in multiple systems. This makes processes difficult to administer and leads to pricing inaccuracies. In addition, many rating applications rely on Excel spreadsheets, which offer flexibility in the short term, but fall short on manageability and scalability.
Also, rating logic is often assumed to reside in the minds of actuaries and underwriters. Insurers need to capture this knowledge and document it where multiple business users can maintain and build on the information.
Adaptable solutions use a rules-based rating application that is line-of-business and channel-agnostic, providing the process flexibility that insurers require as well as the scalability to maintain the system moving forward. Flexible rating engines also enable an infinite number of rating variables and logic, so that insurers are limited only by the creativity of their underwriters and actuaries.
Adaptability is also essential in policy administration, which often poses significant challenges in an insurer's IT environment. While many insurers fear system replacement, policy administration is the area that provides the greatest potential to achieve transformational results when moving to an adaptive system.
An adaptive, rules-based policy administration system provides data elasticity through configured variables and expandable data models. Moreover, insurers can actually write rules for their transactions.
Adaptive systems enable insurers to create their own single and multithreaded transactions through rules that give them greater control over their processes and products.
Claims is another key business process that can greatly benefit from adaptive systems. Insurers require flexibility to adjust their claims process to handle any situation, from the simplest auto claim to the most complex catastrophe scenario.
Insurers must manage very complex supply chains to ensure the optimal outcome for their claimants and for their own business. Adaptive claims systems can not only manage a wide range of insurance product claims but also can adapt to situational factors including the need to virtualize a claims call center in the face of a catastrophe.
Adaptive applications require a strong technology and process foundation. Ideally, insurers should implement a foundation that disappears into the fabric of the technology–requiring minimal IT maintenance while supporting strategic business operations.
An adaptive IT foundation enables insurers to implement efficient functions, such as document automation, to support all operating environments and document types without extensive intervention from IT staff.
As the events of 2009 demonstrated, times have changed, and insurers' approach to business must also change. IT is a great place to start, since it is one of the primary enablers of process change.
Ultimately, we must avoid rebuilding the dams of the past that become the constraints of the future. Adaptive IT systems are essential to enabling ongoing flexibility to meet the needs of the constantly changing business environment.
Chuck Johnston is vice president of global strategy and alliances at Oracle Insurance. For more information, go to www.oracle.com.
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