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

An effective business case for a policy admin system investment focuses on the positive written premium and combined ratio impact on business results. Focusing on products should be at the heart of the business case. Evaluate the shortcomings of your current insurance products in the marketplace and identify the changes that could have won any lost opportunities or improved risk selection. The focus should be on those that have not been implemented due to constraints present in the current policy admin system. These changes will form the heart of the benefits that will be quantified in a solid business case.

The RFP should focus on flexibility and risk reduction. Flexibility allows continuous improvement of products; a vendor that cannot demonstrate changes on the fly should raise a red flag. Risk management should be another theme in the RFP, including how many implementations the vendor has completed -- a vendor with 200 policy administration implementations is a far lower risk than one with a few dozen. Finally, reduce risk by ensuring that the vendor provides customizable, comprehensive bureau rates and forms (ISO, NCCI) out of the box.

More on Making the Business Case for Policy Admin Replacement:

Predicting and analyzing the differences in earnings that result from improvements to written premium and combined ratio (or other similar measures) through product changes forms the heart of the measurement analysis. Forecast these changes throughout the useful life of the system and create a cash flow timeline reflecting both the investment and positive cash flows. Use this to calculate the net present value of these cash flows, and move ahead if the NPV is positive. Ultimately, success is measured by the total improvement gained over the life of the system.

Michael Witt is VP of Product Development at Duck Creek Technologies (Bolivar, Mo.)