For insurance organizations that work with legacy systems, the key to meeting today's market challenges lies in moving to ﬂexible, distributed policy administration systems (PAS), claims administration systems, and billing systems. To achieve high business value from a successful PAS transformation, organizations need to look at fresh ideas to combat market pressures and make tough business transformation decisions.
System Transformation Projects are Prone to Failure
Policy administration functions and the supporting technologies present mounting challenges for insurance companies worldwide. These include long product development cycles and high processing and maintenance costs, with the simultaneous need to improve customer satisfaction. Many Property and Casualty (P&C) insurance carriers are modernizing their systems to keep up with the changes in the marketplace.
Modern PAS provide unmatched levels of reliability, availability, and security. They also provide ﬂexibility in the rollout of new products and the modiﬁcation of existing products, which makes for increased agility and reduced time-to-market. However, the transformation to modern systems presents formidable challenges that most companies fail to understand. More than 60 percent of system transformation projects fail, according to CIO.com.
A policy transformation project impacts all aspects of the organization—people, process and technology—and entails substantial investment. On an average, 27 percent of insurers’ budgets are spent on insurance-speciﬁc systems. Apart from ﬁnancial investments, policy transformation involves a commitment to lock in key business and technology talent. It also involves executives’ willingness to make tough business decisions.
In the context of these challenges, this white paper provides recommendations toward avoiding the pitfalls in the execution of policy administration transformation.
The success of system transformation projects in insurance organizations is typically impeded by the following factors:
Lack of clarity around business goals and drivers for the project
Lack of regular sponsor involvement
Unavailability of the right people in the right places
Not taking the time to go through a well- thought-out Request for Information (RFI) process
Inability to select an appropriate sourcing model
Inability to manage risks
Unavailability of a good communication and training plan for internal and external stakeholders
Making the Right Move
An eﬃcient system transformation process should take a holistic view of process-wide complexities, and deﬁne ways to address the challenges that arise with the transformation.
Deﬁne Business Goals
Insurance carriers must understand what drives the future proﬁtability of the business. They must also understand the wider business goals and constraints, and select solutions that help them become more agile—reducing time-to-market while adding new products or making changes to existing products.
When a carrier takes the time to understand the business case, product mix, and market dynamics, modern PAS can provide:
Improved experience for customers and users of the system—agents, underwriters, claims adjusters, and so forth
Improved operational eﬃciencies through automation, straight-through processing, and data pre-ﬁlls
A simpliﬁed single-customer view
More accurate risk assessment leading to improved loss ratio
To avoid too much customization, insurers need to look at how the system works out-of-the-box and only change a process/functionality if there are critical business reasons. Recreating the old way of doing business with the new vendor package defeats the purpose. It leads to over-customization of the product, which puts delivery at risk and makes upgrades complex and time-consuming.
Clear and Transparent Communication with Sponsors
Transparent communication on a weekly basis regarding the state of the program and risks is crucial to the success of the project. Communication helps identify the issues impacting the progress of the program.
Right People in the Right Places
Staﬃng levels in IT departments are expected to reduce through 2020. Insurance carriers must deﬁne the type of resources required, along with a suitable organizational structure and communication plan. Insurance CIOs need solution architects for making technology related decisions, business leads for business-related decisions, and PMO leads to understand scope, schedule, and budget,and help with system transformation.
Well Thought-out RFI Process
Towards a successful system transformation project, insurance carriers must:
Include skilled resources on their RFI team: Technical architects, business leads, PMO program leads, and business SMEs
During the RFI process, consider:
Whether the functionality meets business needs
Level of customization
Ability to configure
Ease of integration with other systems in the landscape
Upgrade path and complexity
Licensing model and costs
Typical duration and cost of implementation
Consider the time for site visits to customer locations where the vendor package has been implemented and is in production—perhaps the top two selected vendor packages
Ensure that these customers are similar in terms of size, lines of business, and complexity
Understand the challenges they faced, how the vendor partnered with them, and their thoughts on the success of the program
Select an Appropriate Sourcing Model
Insurance carriers need to identify a sourcing model that works best based on budget, organizational culture, and vendor expertise. Engaging external consulting/contracting help with a well thought-out methodology, models and tools will help make the right selection—one that will drive informed future IT investments.If budget and 24-hour development lifecycles are important factors, a blended model—where some developers work offshore—will bring significant cost savings and efficiency gains.
Another imperative is the adoption of a methodology for analyzing risks early in the development cycle and ensuring that milestones are reached. A phased implementation approach after the analysis will reduce the risk of failure. Most organizations select an LOB that provides the most value when it comes to a PAS implementation.
Insurance carriers must connect with a few key agencies before opening up the new system to their entire user base. They should favor technologies that tie together legacy and newer systems during the rollout.
Conversion—moving data (policies, claims, and so on) from the legacy system to the new system—can entail a significant risk. Decisions need to be taken on how to handle policies or claims, how much history needs to be ported, and so forth. It is a good idea to port policies into the new system at the time of renewal instead of converting the entire book of business in one go.
Organizations need to take a realistic look at their strengths and weaknesses while building a strategic architecture roadmap, reference architecture, and technology accelerators. Decisions need to be in congruence with the strategic architecture roadmap. Before starting on the transformation program, insurers must build the reference integration
architecture and make the associated tooling decisions, purchases (in an ESB or ETL tool, for example), and the associated training.
Stick to a Communication and Training Plan
A communication and training program might be successful from a technical perspective, but might still fail,if communication is poorly handled and user expectations are not managed through all phases of the transformation program. For example, if you plan on introducing a new predictive model with your PAS implementation, the support of agency managers and agents is crucial
It is also important to put a detailed communication plan in place to address all the stakeholders exposed to the new system: Agents, underwriters, agency managers, business users, and so forth.
Insurers must invest in a good training team to train all users of the system, and communicate with all the project team members on a regular basis—through weekly status reports, monthly meetings, and so on.
Smoothen your PAS Transformation Journey
Insurance companies can transform significant aspects of their operations through technological change. Companies should ensure adequate finances for transformation to new systems; According to a study, 45 percent of life insurers and 50 percent of P&C insurers have dedicated budgets for transformation
Over the next two to three years, organizations must reduce the cost of legacy system maintenance and identify ways to consolidate systems, eliminate high-cost systems, move to lower-cost platforms, reduce redundancy, and externalize the rules and processes hardcoded in legacy systems.
Carriers can streamline their business processes and simplify their architecture by investing in a modern distributed system. They must apply the savings from legacy system replacement and modernization to transformation initiatives aimed at building a competitive advantage. The need is to clearly articulate the business goals of the transformation program, with an understanding of the linkages between business drivers and the technological capabilities derived from the new system.
About the Author
Roopesh Poojary is the Practice lead in the Insurance vertical at Coforge. He has over 17 years of leadership experience in IT Delivery, Enterprise Architecture, Program Management, Process Improvement and Services Management. With 12 years of experience in the insurance domain, he has successfully led several large core system transformation/replacement programs.
Roopesh has done his Master’s in Business Administration and Finance from Indiana University in addition to a Bachelor’s Degree in Engineering.