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SMA's Insurance Transformation, Where Strategy Meets Action

Deb Smallwood

Policy Administration - Are We Chasing A 30-Year Old Dream?

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Please join us for this brief podcast on the steps insurance carriers can take when evaluating their existing policy administration system.

Listen to or download the 6:26 minute podcast below:

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Announcer: Welcome to another ebizQ podcast.

PS: Hello, this is ebizQ's Peter Schooff. And today I am speaking with Deb Smallwood, the Founder of SMA, Inc., which is a strategic advisory firm that services the insurance industry. Deb is also the ebizQ Community Manager for Insurance. And today, we're going to discuss policy admin systems and the question, are we chasing a 30-year-old dream? Thanks so much for joining me today, Deb.

DS: Hello.

PS: Now, first of all, I find the title very intriguing. Can you tell me just a little bit more about that?

DS: Well, there's a little history on that. Policy admin systems have been around probably since the 60s and early 70s. It was actually one of the large system implementations that were happening back at that time. And when I entered into the industry in the late 70s, it was actually my first programming assignment.

And so, if we go back in time, policy admin systems were a hot area, a hot topic back then and it still remains to be a focus and a priority. But when you look across the industry and you look across the technologies and a lot of the frontend processing that's going on, a lot has changed. So what I'm really doing with the question is, is really challenging the industry to relook at their requirements.

PS: Great. Now, what exactly then are traditional policy admin solutions and why are people still chasing them?

DS: Great question. A policy admin system is really a system that actually captures data. It captures policy and quote data, it rates, it produces quotes, and ultimately produces policies, and links up with document management system. And being the frontend system that collects all this data and it's really the source of all premium. It then feeds all the backend systems for billings, statistical reporting, filings and financials.

What these systems do is they process all the insurance frontend transactions so quoting, new business, endorsements, renewals, cancellations, rewrites, reinstatements, all those things. And as I indicated, it is the database and is the contract of premium record. What these systems have and part of their complexity and legacy is they have all the logic and all the business rules around all their products, definitions, their filings, regulatory, rates, forms.

So if you could imagine a company that has rates and processing in 50 states across multiple products, multiple lines, they become very complex systems. From a technology perspective, boy, back in the 80s we were writing IMS DB and DC systems then started to introduce DB2 but they were always -- they were actually one of the first online systems that had online processing versus batch but they were written and designed to automate the policy production department.

And what we've seen in the past couple of years is that vendors who support this actually moving it to the frontend, moving it to the underwriter, moving the data entry to the agents and disguising them as underwriting solutions, or agent data capture so that's part of the dilemma. The other thing about these policy admin systems, they're extremely expensive to maintain, they're very costly, most of them have embedded rules, embedded logic in either COBOL code, or PASCAL, or even FORTRAN in some cases so they are expensive.

And what ends up happening is the business will ask to fix that pain point so one of the pain points is these are cost for another pain point, sometimes there's even time to market because these systems are so old and have so many years of maintenance. When a business wants to introduce a new product, or a new change, or there's a new regulatory change, they end up being not timely and very costly so the pain point is non-responsive, not being able to be agile to some of the business needs.

And so what everyone quickly assumes is that need a new policy admin system. But what we're finding on the frontend is that in the meantime everyone is building connectivity to agents, they're building portals, they're doing straight through processing and underwriting and what we're starting to see is an overlay in terms of functionality, they're still chasing that policy admin system and then on the frontend they're building other capabilities that have similar functionality.

PS: Interesting. Now what are some of the new solutions being implemented and is there any overlap between them and the policy admin system?

DS: Well, there is a lot of overlap so I encourage carriers to really look at their business architect, and their business framework, and their strategies to try to figure out what they're doing. As I indicated, some of the solutions are underwriting workstations, underwriting the management systems, agent underwriting, connectivity.

And as we start to implement those systems, and those hot solutions as well that really improve the ease of doing business and the connectivity between agents and underwriters, we find that there's significant overlap and functionality and what we need on the backend on the policy admin side is a more scaled down version. Policy admin systems can take a year or 15 months to implement, they can cost millions and millions of dollars and what I'm suggesting is if you really start focusing on those underwriting solutions, then what you need is something a lot more scaled down.

PS: So then what advice would you give?

DS: Well, before you go and replace your policy admin system, I would encourage the business and IT to really take a step back and try to figure out what they're trying to solve. If they really want to create ease of doing business, and they if they really want to automate underwriting, and if they really want to create collaboration between the agents and underwriting, a policy admin system is not going to give you that, and to be really careful and really clear about what you need on that frontend.

If you've got a legacy policy admin system that is no longer going to be supported by a vendor in a couple of years, or if all embedded logic and it's really paralyzing you, then maybe you do have to replace it. And another option which I'm finding very fascinating, even in the 21st century, is that there's a handful of mid-tier carriers and large carriers that are actually building it themselves, that they're finding that they have figured out this overlap and they know they have to address the problem and they're just building it themselves and buying pieces and components.

PS: Okay. That's good to know. I recommend everyone listening to this today to go and checkout Deb Smallwood's excellent coverage on the insurance industry on ebizQ. And thank you so much for joining me today, Deb.

DS: You're welcome.

Announcer: This has been an ebizQ podcast.

[End of Audio]

1 Comment

Deb has echoed the sentiments of every IT and line-of-business executive I have spoken with about the evolution of IT architecture in the insurance sector. When the basic growth model is acquisition, and IT is told that the “risk of operational disruption? needs to be minimized along with time-to-completion for the acquisition process, CIOs are faced with highly complex legacy environments. Today’s financial meltdown is exacerbating the need for agility, improved affiliate collaboration and compliance. There are three main architectural alternatives that are being explored across the insurance sector:

1. Outsourcing – IT Outsourcing (ITO) and Business Process Outsourcing (BPO) strategies attempt to bypass the pain and suffering of core system replacement by having third-party experts do it.

2. SOA – This approach attempts to wrap legacy applications and expose their interfaces as services. New, XML-based canonicals from ACORD promise to help make this more feasible.

3. Process-specific orchestration – This pushes rule-based logic out from back-end applications and uses predictive analytics and workflow technology to automate processes with existing systems.

Many leading carriers are looking at combinations of these for all customer-facing processes, from new business underwriting to claims management. Insurance companies are beginning to value these kinds of architectural decisions in their diligence for potential acquisitions. Getting the right mix of these strategies right has never been more critical to customer loyalty and operational efficiency than in today’s volatile financial market.

Daryl Eicher
VP, Industry Solutions

The purpose of the SMA blog is create a dialogue around insurance transformation; launching a different perspective on linkage between strategy, process and technology choices and shifting the mindset from a technology driven approach with SOA & BPM to a business driven service-oriented thinking that creates agile and flexible new insurance business models. Look for a wide gambit of trends, research, case studies, and insights on making transformation a reality.

Deb Smallwood

"I grew up in the insurance industry and have experienced the shackles that ineffective business processes with misaligned monolithic technology solutions have placed on insurance companies...

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Karen Furtado

Karen Furtado brings a wealth of industry knowledge to SMA. She spent 25 years at CGI, focused in insurance. Her specific areas of expertise include product development, complex system implementations, vendor selection processes, project management and business and IT outsourcing services. Her passion is working with both technology providers and carriers to deliver high-value solutions for core issues facing the industry. Karen actively participates as an industry speaker.


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