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Carriers Roll Out the Policy Admin Red Carpet

Daniel Joelson April 1, 2008

In times past, policy administration implementations were often anything but pretty. Much time and money was wasted as insurers watched vendors fumble about and try to learn on the job how to iron out kinks. “As technology was developing and companies were trying to implement new and different things, you were always living with that reality,” says Kevin Costello, president and COO of Sparta Insurance Co., a Hartford, Conn.-based property/casualty insurer. “I spent a lot of time flying places to work out problems with vendors going through R&D phases or implementation struggles with their own product, and [then watched] that impact our business.”

While some frustrated insurers have taken to suing vendors, others have simply moved on. Many of the new customers of Hartland, Wis.-based AQS Inc., a provider of solutions to commercial property/casualty insurance sector, come to the firm on the heels of policy administration system implementations gone awry—of both packaged and tools-based software—and sometimes following multiple failures, according to company representatives.

Indeed, for insurers, implementing a policy administration system can be a crapshoot. “We have seen several instances of messes that topped well over $100 million that never got off the ground,” says Chad Hersh, senior analyst in the insurance practice of Celent LLC, a Boston-based research and consulting firm recently acquired by Oliver Wyman, a subsidiary of New York-based Marsh & McLennan Cos. Of policy administration implementations, he adds: “We have seen others that were under $1 million that transformed the company.”

Chad Hersh

Hoping for the latter, insurers have been feverishly embracing modern policy administration systems, nearly doubling such implementations in the last few years, Hersh says.

GOOD TIMING

In fact, carriers have found this technology to be particularly seductive in the current environment, and for a number of reasons. For one, the number of policy administration providers entering the market has swelled, particularly those targeting property/casualty firms, and the stiff competition has led to lower prices.

Suppliers also are tending to bundle solutions, and those that do not provide multi-component solutions often look to partner with other vendors to offer carriers a holistic solution. A snowballing effect also is afoot, as insurers race to keep pace with competitors’ improved policy administration systems. “There is a strong push toward keeping up with the Joneses,” says Hersh. “When your competitors are starting to get operational efficiencies from it, it is critical that you keep the cost structure they have. Otherwise, you can’t price your products competitively.”

Additionally, insurers have gravitated toward Internet-based solutions, and vendors are scurrying to market with systems based on service-oriented architecture (SOA) or Web services. For insurers, this has made policy administration system implementations easier, and integration simpler.

Many system implementations haven’t disappointed, giving insurers major cost savings and strong returns on investment, Hersh says. The hope for improved speed to market has been a critical driver for companies like Monterey, Calif.-based Capital Insurance Group (CIG) to implement new solutions.

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