Building the Case for Policy System Replacement
Our current difficult economic environment has not diminished insurers' interest in addressing the challenges posed by legacy core systems. In surveys conducted by leading analyst firms covering the insurance sector, such as Novarica, replacing aging policy administration systems has been the most commonly cited top priority project for property and casualty carriers in 2009. While the need is widely acknowledged, building the business case to proceed with the major undertaking of replacing one, or more, policy systems has sometimes posed a challenge. There are a number of areas where significant hard and soft benefits can be realized from a new underwriting and policy administration system.
Business Agility
In some of my conversations with insurer business executives earlier this year, I was struck by a disheartening sense of déjà vu. These experienced, resourceful managers had assessed the challenging, dynamic market environment their companies are operating in, and identified a range of possible strategies and actions to compete effectively and improve results. Regrettably, far too many of their ideas were still being thwarted by limitations imposed by inflexible legacy systems. Gaining the business agility needed to offer the right products efficiently, and in a manner agents and customers expect, is a critical imperative.
Think about how many
project requests have been shelved as infeasible, and their benefits foregone, because the time and effort
to implement them in your current environment
was prohibitive.
As part of their research into product development best practices and speed-to-market, analyst firm Celent developed a product portfolio freshness model that demonstrated notable increases in revenues and profit for insurers able to reduce cycle time for bringing new and enhanced products to market. Introducing new offerings, or updating existing coverages and rates, can be done much more rapidly with a modern, configurable policy administration system. As an indicator of the opportunity, think about how many project requests have been shelved as infeasible, and their benefits foregone, because the time and effort to implement them in your current environment was prohibitive.
Improved Underwriting Effectiveness
Traditional policy systems offered little support for the underwriting activities at the heart of an insurer's business. Much of the underwriter's work was conducted in a world characterized by shuffling through volumes of paper and flipping between disparate support systems. With combined ratios rising above 100 again in many lines, opportunities to reduce loss ratios are compelling. Some organizations have estimated as much as 20-25% leakage in underwriting decisions.
Automating business rules can help reduce leakage by ensuring consistent application of underwriting guidelines and best practices. Seamlessly integrating underwriting automation with the core policy system lays the track for frictionless straight-through-processing to bring on high quality new business more cost effectively. For more complex commercial lines where human judgment is still essential, an online workspace attuned to underwriters' activities and needs enables the experts to more productively underwrite larger volumes of business. Business rules automation offloads routine evaluation checks, while seamless integration with internal and external information sources cuts the time required to assemble a holistic picture of an account that's key to sound decision-making.
Increased Sales and Service Productivity
Some of the most readily apparent cost savings opportunities spring from the myriad of inefficiencies often inherent in current sales and service processes. Keying of data from paper applications or supplements, duplicate entry, hot-keying between systems, and manual workarounds for legacy system limitations all impose an unnecessary expense burden. Moving to a highly usable system that presents an easily accessible, comprehensive view of an account and policies equips representatives to more quickly and efficiently respond to customer and agent requests. Celent research into the experiences of early adopters of modern policy systems found reductions in staffing costs ranging from 10% to 30% in new business policy processing as well as agent and policyholder service areas.
IT Savings and Increased Strategic Impact
Configuration leveraging rules and tools is proving to be not only faster, but also to require less effort than programming changes to legacy code. Celent has found reduced application maintenance and system operation effort to be a strong source of cost savings for insurers who have implemented modern policy systems. With fewer IT resources dedicated to routine business updates, an insurer can elect to re-focus IT efforts on more strategic initiatives. The shift to a current technology platform also addresses the mounting operational risks associated with skill shortages that will only be exacerbated with the looming retirement of more COBOL era developers in the years ahead.
Neil Betteridge is responsible for PolicyCenter product marketing at Guidewire. He can be reached at nbetteridge@guidewire.com.
To access the research mentioned in this article, visit:
Celent: http://www.celent.com/149.htm#Property/Casualty
Novarica: http://www.novarica.com/research.shtml