Are Insurers Outgrowing Policy Admin Basics?
Insurance Networking News, November 1, 2008
Those lacking the necessary foresight face grave headaches indeed. Some are obligated to jettison their long-time policy admin system because of its failure to scale. Replacement projects can take 18 months or longer for insurers, which are forced to embrace band-aid solutions in the interim, according to Jeff Goldberg, senior analyst in the insurance practice of Boston-based Celent.
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"Bringing a system into production that is not ready from a scalability standpoint is nothing short of disastrous," explains Phil Ehlen, CTO of the P&C division for Falls Church, Va.-based Computer Sciences Corp. (CSC). "I typically see the failure occurring before one gets into production, and what that results in is lost money and lost time."
Those costs "massively multiply" when the problem is discovered after production begins. Top officials who make such ill-fated decisions also are destined to pay lofty consequences, he adds. At the same time, "an inability to quickly react to market changes may translate into loss of market opportunity and brand tarnishing," says Marc Dutton, managing director of FJA-US, Inc., a New York-based insurance technology provider of life and health policy admin systems.
Further, the higher operating costs resulting from scalability failures may erode the firm's competitiveness and market share, he adds.
Scalability woes also lead to bitter acrimony between the insurer and its vendor, which can spill into the courts. However, insurers are increasingly showing greater prescience. Over the past couple of years they have become more aware of the need to build scalability assurances into their contract with the vendor, notes Patrick Hatfield, a partner in the law firm of Locke Lord Bissell and Liddell. Insurers also have awakened to the reality that while they could take scalability somewhat for granted in the past-when older Cobol-based mainframe policy admin systems built for long-term use reigned-today, with modern systems, they can not.
With carriers feverishly embracing modern policy admin systems in recent years, issues of scalability inevitably jump to the fore. Though a modern distributed services-oriented architecture system offers rich benefits, installing a new policy admin system always is fraught with risk, explains Goldberg.
PREVENTING CALAMITY
Consequently, longevity is one of the characteristics that insurers such as Indiana Farm Bureau Insurance focus on when choosing a policy admin system vendor. "We are making 10- to 15-year decisions here at a minimum," says Greg Clancy, SVP and CIO of the Indianapolis-based provider of farm, auto, life, home and business insurance. The firm chose Exceed, a policy admin system from CSC, for its sizable automobile and home portfolios partly due to its proven scalability and because "CSC has such a big footprint in the insurance industry that they will be able to migrate the functionality to different technology footprints as time goes on," says Clancy. "They have the scale as a company to survive for the long term."
Such proven scalability-the vendor's largest client has 2,750 simultaneous users in production, its largest number of transactions per hour on a single production instance is 45,000, and 97% of its clients' measured screens have less than a two-second response time - has motivated the insurer to quickly get all of its P&C business billed out of Exceed Billing.
Greg Clancy
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