September 02, 2011

Policy administration system replacement is one of the most ambitious -- and risky -- projects that an insurer can pursue. But even before the daunting systems replacement effort, IT and line-of-business executives have to develop a business and financial plan for the project and get buy-in for the effort at the highest levels of the company. How can insurers build an effective business case for modernization what should carriers include in a request for proposal and, ultimately, how can they measure the success of a policy admin system implementation? --Peggy Bresnick Kendler

The drive to replace the policy administration system comes from both the business and IT. Old policy admin systems are expensive and inflexible, and they are no longer effective tools to underwrite risks in today's dynamic insurance market. Systems that can respond quickly to changes in underwriting requirements, support internal processing automation, efficiently support the distribution channels and provide a framework for future growth are key to addressing the need to replace the system.

The new generation of policy administration systems that are designed on modern architecture principles deliver flexible frameworks that support insurance business growth and product expansion strategies. Carriers can gauge the success of a policy administration replacement system when the business no longer sees IT as a bottleneck to underwriting insurance risk and rather looks at IT and the new policy administration system as an opportunity to gain market share.

The business case to replace our policy admin system was quite simple: The cost of manpower to maintain the current legacy system is significant. The cost of systems infrastructure to support our legacy systems is not trivial, and the ability to reduce our systems footprint was an immediate cost savings. In addition, the case to have a new policy administration system that will reduce our processing and manpower costs along with the ability to take advantage of shifting marketing opportunities quickly through flexible tools and quick time to market were also significant components of our decision process.

More on Making the Business Case for Policy Admin Replacement:

The cost effectiveness needs to be demonstrable with the first foray of products launched on the new platform. The savings from the first iteration are plunged back into the development process. So the compounding effect on savings becomes a financing force behind full implementation. Neither the business nor the strained budgets can allow for dual costs of legacy and new systems to coexist for a long time. The cost of new systems should increase at a much slower pace than the pace at which the cost of maintaining legacy systems is decreasing. This financial detail creates a self-sustaining environment and is a good indicator of a successful implementation.

Measuring and reporting periodically cost savings as well as project expenses and promising that from the proposal stage is another key success factor in making a good case for policy administration system implementation. Full transparency in the way IT operates and manages its finances is not only assuring to the business but a recommended practice for large-scale implementations such as a policy administration system.

Alfred Goxhaj is CIO at Philadelphia Insurance Companies (Bala Cynwyd, Pa.)