Legacy Lessons Learned
Strong executive sponsorship, getting staff buy-in and learning when to say "no" are key when beginning a large claims system replacement project.
Insurance Networking News, October 1, 2011
Few systems are as likely to have as big an impact on insurers' bottom lines as claims systems. According to a study published in July by Novarica, among P&C carriers almost 70 percent of revenues are spent on claims, and of that, about 20 percent go toward managing the claims process.
Well-implemented claims systems can pave the way to greater competitiveness and growth and streamline claims processes, meanwhile providing valuable underwriting data and information needed to meet regulatory requirements and spot fraud. Carriers, it seems, are well aware of this: Novarica says more than 30 percent of insurers surveyed recently put claims among the top three projects they're focusing on this year.
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Yet, three-quarters of claims solutions are still running on some sort of legacy system, according to Chad Hersh, a partner with Novarica's Insurance Practice. These systems, some of which date to the early years of the Reagan administration, create administrative bottlenecks that can slow new product rollouts or changes to existing products. Hard-coded processes are difficult to change without a system overhaul, and legacy systems limit the online business capabilities customers have come to expect. Finally, pulling information off legacy claims systems is often a clunky undertaking, and by the time the data's ready, it's already old, Hersh says.
Consistent information
Although there are many possible justifications for replacing old claims systems, companies that have actually made the move usually have done so in response to a specific limitation in their old systems. In the case of XL Insurance, it was mostly the need for consistent information across the organization, according to EVP and Global Head of Claims Paul Tuhy.
XL Insurance sells commercial P&C and specialty lines for corporations and professionals. The company operates in about 40 locations worldwide and has approximately 3,700 employees. Last year's gross written premiums came to a little more than $4.4 billion. In the past, much of XL's growth has come through acquisition, and when the carrier began looking at new claims solutions, it was using five major legacy systems.
"We were operating in different silo structures up until maybe six or seven years ago, when we became a global claims operation," Tuhy recalls. "It really hit home that we didn't have any way to aggregate data without manual intervention. Even then, because of the different legacy systems, data definitions were different. While we could come up manually with what we were looking for, it was a lot of work." XL needed enterprisewide agreement on claims data fields, and then a way to aggregate data.
XL chose Accenture's Claim Components as the basis for its new claims system and worked closely with that company's consultants on implementation and customization. At one time, 120 people worked full-time on the project, which began in 2008 and, says Tuhy, is on track for completion this October.
Despite the scope of the implementation, "the IT piece of this was actually the easier part," Tuhy continues. "The challenge, really, was people management, change management." XL operates internationally and each country's claims processes differed due to differences in business cultures, regulations and currencies. Tuhy wanted to keep customization from getting out of hand, so he held a series of meetings with subject-matter experts from all over the world to find some high-level common denominators.
"We walked them through the basic core system that we acquired from Accenture, and we said, 'This is what the system currently has. We're going to customize it, but we're going to customize it for what we actually need.'" Tuhy recalls. The pleasant surprise was that once the group got past some variations in terminology, the real differences in requirements weren't so overwhelming. "It seemed like a really big challenge at first. If we hadn't brought all those people in, we would have struggled with it." Where companies get into trouble, he says, is when they assume everything has to be very specific.
Scalability, easy access
Narragansett Bay Insurance (NBI) grew from the ruins of another company and inherited its legacy systems. The privately owned carrier offers homeowners products in Rhode Island, Massachusetts, New Jersey and New York. It's grown from $12.8 million in gross written premiums in 2008 to $60.3 million last year, and is on course to hit $120 million in 2011, according to CIO Mike Anselmo.
The company replaced its claims system, along with the rest of its core systems, in 2009 and 2010, in what it called Project APEX. "We needed to come into the modern age," says Bob Khosropur, chief claims officer. The new system had to be Web-based for easy access by authorized employees, agents and independent contractors. Given NBI's rapid growth, scalability was important. Another goal was straight-through processing.
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