Policy Administration Systems 7 Must-Haves

As a host of business and competitive reasons cause carriers to contemplate replacement of this most core of systems, a rapidly evolving slate of technology options awaits.

Insurance Networking News, November 1, 2011

Joe Mckendrick

The economy may continue to tread in rough waters, but that's not stopping carriers from moving forward with plans to replace, consolidate or augment their aging policy administration systems. Insurance technology analysts agree that there has been a surge lately in plans to invest in these systems, which serve as the core repository of policies and processes that support product configuration, rating, underwriting and customer service.

Frank Petersmark, former CIO of Amerisure and current CIO advocate with consultancy X by 2, has seen the challenge of managing aging policy administration systems firsthand. "Policy admin systems have been slow to change," he agrees. "That's because insurance carriers have had to put a lot of customization into their policy admin platforms-to the point where often those systems aren't even recognizable anymore from their original state. Carriers have also built big and hairy maintenance and support teams around these platforms."

This large base of customized systems presents the most vexing challenge for moving the industry forward to more modern systems. At Amerisure, Petersmark's department built a policy administration system from the ground up during his tenure as CIO, a project which commenced in 2001. "We didn't see any that were that good in marketplace, at least in our view. Carriers were often left with this choice to build or buy. We decided to do sort of a hybrid build and buy, buying a rating engine and putting rules around it. In hindsight, it probably wasn't exactly the best way to go, but it was just an example of how difficult it can be for carriers to find something out there."

The proliferation of such jury-rigged solutions also presents challenges in a key area for insurers: integration. For many companies, the choice was to either be forced to buy an all-inclusive enterprise system, or to piece together best-of-breed software, relates Dick Hoye, CIO for Arrowhead General Insurance Agency Inc. "The thinking is that best-of-breed approaches make an organization more flexible and more competitive because you get exactly what you want, rather than having to settle for the module within the gigantic enterprise system that comes from the factory," he says. "But the downside is that any kind of integrated or enterprise-level reporting becomes a nightmare. The systems don't talk to each other." Currently, Arrowhead is pursuing a consolidation strategy to bring its disparate platforms together employing ISCS' SurePower Innovation solution.

Indeed, it isn't always a lack of money or budgets that get in the way of policy administration systems upgrades. Hoye relates that one major carrier he recently worked with expected producers to work with a 1980s mainframe green screen to enter policy information.

The reason they remained with this system is the fact that it contained "millions of lines of code that went back to the 1970s, and no one at the carrier was originally associated with the system's development," he says, adding that "just because you have billions of dollars of capital and surplus, doesn't mean that you are immune from some pretty serious proliferation of legacy systems issues."

The Essentials

So what options does a carrier shopping for modern policy administration have? Petersmark says vendors have come a long way in the past five years in providing open platforms based on industry standards and provide greater flexibility. According to industry experts, carriers should note the following seven considerations when contemplating modern systems:

1. Scalability: This may seem obvious, but many policy administration systems have limits in capacity that may slow down the business. New features such as business intelligence dashboards and reporting interfaces are adding more stress to today's policy administration systems. "One thing that everybody needs in systems is scalability," says Hoye. "If your marketing guys just knocked the ball out of the park, and have 150,000 policies in force after two years instead of the 100,000 they were planning, your systems need to be able to scale up to those levels of transactions. That was true in the 1960s, and it's even more true now."

2. Ease of integration: Carriers have a range of applications-from business intelligence to customer relationship management to accounting to agency management-that need to talk to one another. "The way information gets into insurance companies nearly exclusively is through policy administration systems," says Petersmark. "That's the front end, the touch. Integration is key, and all that has to flow to claims systems and billing systems and CRM systems and so forth." He adds that vendors' offerings have improved in this area.

For more information on related topics, visit the following channels:

• Enterprise Technologies
• Policy Administration