Keys to Successful Policy Administration System Upgrades

All IT professionals have a horror story about a system upgrade gone wrong. Since most policy administration systems (PAS) have a 12 – 18 month upgrade cycle for major releases, there are plenty of opportunities to misstep. To address this dynamic, a consistent claim of modern PAS vendors is that multi-tiered architectures and other technical designs ease the pain of upgrades as compared with legacy environments.   However, up to now, objective data concerning upgrade metrics was difficult to collect. How long does it really take to upgrade a PAS? Do modern systems live up to the levels of ease that vendors cite? Historically, have insurers experienced any difference in outcomes when using vendor or third party system integrator staff versus internal staff to execute the upgrade?   In order to close this gap, Mike Fitzgerald and I surveyed 44 North American insurance carriers to provide answers to these questions as well as to understand major challenges faced and overcome. The report reviews carrier’s experiences in policy administration upgrades. It examines reasons for doing upgrades, staffing strategies, scope, time and budgets inherent in upgrades and provides advice from carriers on challenges to prepare for and advice to assure a smooth successful process.   Here are some of the key findings from the report.
  • Most carriers doing upgrades do a point upgrade and generally, these are successful.
  • All upgrades to modern systems in the survey group were successful, supporting the expectation that these platforms reduce the pain related to ongoing updates.
  • The most frequently reported reason for taking an upgrade is “to gain new functionality” and the second most common driver is “current version no longer supported”.
  • Only 10.7% of insurer respondents used their own employees without assistance from vendors or third party companies. The most common uses of vendor services for upgrades are for coding, configuration and testing.
  • Most upgrade projects (64.3%) meet their delivery deadline.
  • Some carriers actually came in below budget on their upgrade, but the vast majority, 60.7%, came in on budget.
Many carriers report that they have not upgraded their PAS either because they are homegrown, or, more frequently, because these are new installations. This places a particular importance on the lessons that can be learned from other carriers’ experiences as the new installations prepare for their first upgrades.   For many carriers upgrades are a big deal. They take months of effort, tie up a lot of staff, and can frustrate business partners. However, done well, they go smoothly and can add new functionality, upgraded configuration tools and deliver significant benefits.

Key European GI Policy Admin Report published

The European Insurance team has been working hard over the Spring and Summer to produce one of our key reports Policy Administration Systems for General Insurers in Europe 2011. It’s a topic of great interest to insurers wanting to replace their core underwriting system, and vendors wanting to have a view of the competitive landscape. This report uses Celent’s ABCD vendor view, which is a standard representation of a vendor marketplace designed to show at a glance the relative positions of each vendor in four categories: Advanced technology, Breadth of functionality, Customer base, and Depth of client services. The report also has the first four PAS systems XCelent Awards for Technology, Functionality, Customer Base, and Service. Since the first report in 2005, activity level has remained high among both insurers and policy administration system vendors. In the two years from January 2009 to January 2011, over 130 insurers had licensed a new policy administration system. Since 2007, the UK market has seen seven new entrants primarily from the United States. This adds to an already crowded space. And of these vendors, most (50%) are small with less than 10 clients and under $10 million in annual revenue. So the vendor market remains fragmented and challenging for the insurer buyer to navigate. Recent acquisition announcements of Accenture/Duck Creek and Sapiens and IDIT are not surprising. We can expect further consolidation in a tough market. Look out for the upcoming European PAS deal trends report which will explore this trend in more detail.

The Whipcar use case for policy admin systems

As we all know, legacy IT systems are the major stumbling block to new initiatives from our business folk. And I was reminded once more this week how the business can ask some pretty crazy stuff from IT. Here in the UK, there is a new business called Whipcar, which is a crowd-sourced rental car model.

Reduced to it’s basics, you rent a car from a street near you through this intermediary website. The model is about leveraging spare capacity in the existing car market by renting the car out when it’s not needed. This works well in large metropolitan cities such as London when a car is seldom used on a daily basis. With Whipcar, you can “sweat your asset” for the periods when you don’t need the car. One of the principles is that you are likely to be more careful with your neighbours car than with some faceless global car rental company and so the rentee has little to worry about. But insurance is still a requirement.

So how does insurance work? As the car owner, you will already have a car insurance policy in place. Whipcar has negotiated an agreement with a London Market insurer to provide an overlay to that insurance policy whilst the car is being rented out. This is a unique product (variable time for the policy, insurered value variable, billing requirements variable) that would test any current policy admin application.

So my challenge to you is this. You may be well down the path of legacy simplification or modernization, or you may be still considering how best to approach it. I would propose that in ascertaining if your target (or new) application stack is fit for purpose, the small case study of Whip-car is an interesting little use case scenario. Let us know how it goes.

Blurring the lines: Business Processes instead of Core Systems

As Catherine discussed in her post on Monday, Celent is in the midst of writing several 100-plus page policy administration reports. Aside from the sheer size of the task, an added complication this year is the difficulty defining what the term “policy administration” even means. Each time Celent reports on the topic, the scope of policy administration grows, until it seems to cover all of a carrier’s core systems. This is all part of a positive trend in the space (even if it makes Celent’s job a bit more difficult). Each year it becomes harder to bucket projects and systems into discrete categories. More and more policy administration vendors include billing and claims as part of their solutions, agent portals tie directly to underwriting, rating and product configuration intertwine with rules and workflow, and insurers think about projects as reaching across the entire infrastructure. The lines are blurring across systems as the focus shifts from individual systems to business processes. Why has this shift begun? It’s partly an opportunity brought about by technology. With many vendor systems and insurer infrastructures embracing a service-oriented architecture, it’s easier to orchestrate a true functional flow across multiple areas of the business. But, more importantly, it’s a change in mindset. Carriers who focus on business processes rather than systems build better, more lasting solutions. There are two major processes that stand out. The first is new business automation, which follows a submission from the agent entering data into a web portal, to a set of automated underwriting rules, to human review and approval, to the generation of policy documents, and on to the policy administration and issuance. The second is the product definition lifecycle, in many ways the opposite of new business automation. The product definition lifecycle follows the business users who define and alter insurance products by designing the product data, modeling rates, building underwriting rules, and creating production document templates. For different insurers there are different steps, but the singular point is that no one system can truly modernize the business if entire processes cannot be redesigned. Some technology-leading insurers have approached this by working with vendors who provide end-to-end solutions. Others have taken a best-of-breed approach and integrated across multiple systems themselves or with professional service partners. While the technology is important, it’s the new approach that matters most. By thinking in terms of cross-enterprise processes, insurers see their relationship to vendors changing. It’s not enough to provide a specific set of functionality; instead any new system must fit into its place in a larger operation.

Celent’s War and Peace – An epic in the making

If you listen carefully you will hear the crunching and churning of the cogs and wheels of Celent’s most ambitious bi-annual report – the policy administration report. It’s hard not to be overcome by superlatives when describing this research. This year, we’ll publish 7 reports, each likely to run well over 100 pages in length. Given their complexity and multiple moving parts, we run them as projects imposing deadlines upon all in our path. This year’s global reports will involve six senior analysts, one editor, and two junior staff who assist with the administration. Each report takes about four months from issuing of the RFI to the vendor to publication.

You may wonder what we do in those four months. We contact around 160 vendors, receive approximately 130 completed RFIs. And then the work begins. For each vendor, we schedule a follow-up call and a 1 hour demo. For each established solution, we schedule 2-3 customer references. Extrapolate that out and we’re talking over 90 hours of demos, 180 customer references, and enough emails to clog a high-speed ADSL connection!

The demo of each full-profiled system is a requirement we added in 2007. The vendor is given an hour to run through a very tight script focusing on usability and functionality for brokers, internal staff and IT. It’s tricky to know what to cover in this hour and just as challenging for the vendor to get their message across in this limited time. My colleague, Donald Light, had a terrific way of explaining to vendors how to approach this:- “I sometimes use the analogy that you (the vendor) has put us (the analysts) in the cockpit of a new commercial jet — your job is to show us the controls and instruments and explain how they will make flying the jet better — we do not take off and fly the plane.”

So what’s new this year? Four years ago, we introduced our ABCD grid — a visual representation vendor in four factors (technology, breadth, clients, and depth of services). This year, we’ve revised that methodology to better reflect capabilities in a more objective manner.

We’re also very excited to be producing PAS reports for Asia for the first time. We have in the past published a report on China but this time we will look broader across the region for both sectors. We expect several vendors from Europe and North America to appear in this report alongside some interesting local players.

So, if you head is spinning at this point, I invite you to sit back, and relax as Celent undertakes the critical the task of creating a navigation tool for the insurance core systems market. All things going well, expect to see the North American P&C and European GI reports to be published in May this year. Asia reports and the companion Life/Health/Annuities/Pensions will be published in summer.