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Insurers Now Have Modernization Options When Package PAS Systems Don't Fit

Rules-based, configurable policy administration systems have proven themselves in the market. But packaged solutions aren't right for every insurer. Fortunately, other, more flexible alternatives to legacy systems offer new options to carriers that need to modernize their core capabilities.

National Western Life's IT team also gravitated toward contemporary technology, seeking to avoid ending up with what Hydanus terms a tired, second-generation policy administration system. "Why end up in a position where everybody says, 'All this effort and investment should have taken us further'?" he poses.

Hydanus decided to collaboratively build a bespoke system with critical partners that could bring both advanced technology and a market track record. He cites Exton, Pa.-based iPipeline as core to the company's retail sales automation as well as FAST's component-based development framework.

Hydanus distinguishes National Western Life's relationship with FAST both in terms of the highly collaborative nature of the work between the carrier's IT staff and business partners with the vendor and also how FAST's toolset differs from the approach of rules-based, configurable policy admin systems. "In essence, a rules-based system says, 'Here are 500 dials; turn those dials and your system will behave in a manner consistent with the settings,'" he relates. "The FAST approach says, 'Forget about that: Describe to me the application functionality in a layer model, describe the user database and the orchestration in an externalized manner, and the 8x tool [which National Western codeveloped with FAST] will build the application.' It really is a highly customized, componentized and novel approach."

Hydanus also stresses that National Western Life's modernization effort goes beyond policy administration. "Certainly that's the core, but the project includes all new-business functionality through claims, reinsurance, repetitive payment, etc.," he says. "The project also includes working with other partners to integrate actuarial support and financial solutions."

National Western Life is executing the project through the agile development methodology, which Hydanus says allows flexibility in prioritizing deliverables while strictly controlling scope. "We have determined that we could 'nudge' deliverables and the budget as needed, but we have ruled out playing with the final go-live date of Jan. 3, 2012," he reports.

AEGIS Insurance Services (more than $1 billion in annual written premium), an East Rutherford, N.J.-based specialty P&C insurer that writes specialty lines business for energy industry clients, had gone through several attempts to replace its underwriting system, simplify its IT organization and deliver new product speed-to-market enhancements, relates Stephen Smith, the carrier's information officer responsible for underwriting and claims. Then the company's IT organization spent about half of 2010 studying system options and found itself favoring Duck Creek (Bolivar, Mo.) and Camilion (Toronto), according to Smith.

"We didn't look at the very large systems -- because we're not admitted and don't follow ISO and ACORD standards, a lot of the big packages were overkill," he explains. "We looked for something we could wholly customize to our business model."

Toward the end of its investigation, AEGIS was leaning toward Camilion but hit a stumbling block. "When it came down to it, we were doing too much customization [for our unique needs]," Smith relates. "Configurable systems are still standard packages across multiple customers, so whenever there's an upgrade there are unknowns that could impact your organization."

AEGIS thought of its systems challenges as fundamentally a problem of process change and automation, and as such began to look at business process management solutions, Smith says, noting that the carrier explored Cambridge, Mass.-based Pegasystems' offering and saw its potential for simplifying the AEGIS IT organization. "We took a look at the tools stack and saw that we could do much more than simply modernize underwriting," he says. "We saw the potential for leveraging a single tool across the entire enterprise."

AEGIS is now about halfway through a roughly $5 million transformation effort that began with its underwriting capabilities, according to Smith. The carrier is up and running with its directors and officers (D&O) business following an eight-month project and anticipates going live with the rest of its underwriting capabilities before the end of 2012, he reports.

Smith stresses that the initiative is not a case of using BPM to put an attractive front end on legacy capabilities. "This is a pure rip-and-gut; we are doing everything in the Pega system -- quoting, rating, binding, endorsements -- soup to nuts," explains Smith. "We're also fully integrated with downstream systems, including our [Hopkinton, Mass.-basec EMC] Documentum content management, our [Microsoft] Great Plains billing system and Siebel CRM [from Oracle]."

When Agoura Hills, Calif.-based Pacific Compensation Insurance Co. was founded in 2002, the company purchased an IBM AS/400-based policy system delivered via a hosted solution in support of what PacificComp CIO Joe Cardenas calls a "zero footprint" approach to IT functionality. "Nowadays this kind of approach is usually called 'cloud,' but our term, zero footprint, is more descriptive because it includes different formats, such as software-as-a-service [SaaS] and platform-as-a-service," Cardenas explains.

The original system was enough to get PacificComp up and running, but the longer-term plan was to phase it out in favor of a superior system that could also be delivered on a zero-footprint basis, Cardenas relates. "It was just an old system, difficult to operate and clumsy," he comments. "The functionality wasn't bad, but in order to drive larger volumes we needed to replace it from a usability standpoint."

PacificComp, a subsidiary of New York-based Alleghany Corp. ($985.4 million in 2010 revenue), decided to implement new front-end underwriting capabilities and began working with FirstBest Systems (Bedford, Mass.). "Instead of treating FirstBest as a regular front end, we saw it as replacing more than 90 percent of our legacy system," Cardenas says. "So instead of simply putting this component here, we're going to strip the guts out of the existing system."

The carrier's legacy system remains in place largely because it's not worth the cost of taking it out, though it is little more than a shell, according to Cardenas. "Starting in 2004 we started taking little bits of functionality out of the legacy system, and in 2009 we started to get aggressive once we saw that we could get all the users off the system," he recalls. "We shut off all access to the system in August 2010, and it was FirstBest that made it possible."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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