Like many of its competitors, Nationwide Insurance’s (NI, part of Columbus-based Nationwide, $14.7 billion in annual premium) quest to update its policy administration capabilities was motivated by longer-term concerns rather than an urgent need, according to Seth Flory VP, Business Transformation Office and head of the PolicyCenter implementation program. “We had come to the conclusion that we had to do something — that doing nothing was not an option,” he recalls. “It wasn’t that our current problems represented the ‘burning platform,’ but rather how potential deficiencies would be manifested in two, three or five years.”
The carrier envisioned a classic incremental legacy modernization program that leveraged packaged systems for ancillary capabilities and included the externalization of hard-coded rules for product rating and underwriting, according to Flory. “The plan was heavily focused on risk mitigation,” he adds. “This is the project that no one wants to do — there is no easy alternative.”
The Path to Package Systems
For some time, the insurer had been moving to packaged solutions wherever viable, for example for incentive management and ERP systems, according to Jim Korcykoski, NI SVP and CIO. The insurer broke new ground in the industry by deciding to license a package core insurance system. NI announced its selection of Guidewire’s ClaimCenter in Jan. 2011.
Positive experience with ClaimCenter encouraged NI to consider the packaged system option for policy administration. The carrier began studying the maturity of dozens of packaged policy administration offerings during 2010, but after that research effort it remained unconvinced of their viability for an environment as large as Nationwide’s, according to Korcykoski. However, NI had to weigh concerns about packaged systems’ maturity against the downside of the legacy modernization alternative. Implementing a packaged system within a Tier-One environment was unheard of so far, but wouldn’t likely be for long.
“We anticipated that most of the market could move in the direction of rules-based packaged systems and that we could find ourselves at a disadvantage,” Korcykoski says. “We didn’t want to be in a position of having to start over when we finished modernizing.”
Robust Viability Assessment
Influenced in part by its success to date with Guidewire’s ClaimCenter, NI decided in late 2011 to see whether the vendor’s PolicyCenter offering could stand up to the insurer’s needs. “Making a decision without industry precedent required us to conduct an extremely robust viability assessment of the software,” comments Flory. “Everybody here has been amazed how much time we spent up front kicking the tires to get to the threshold of confidence we set.”
Korcykoski identifies three basic questions about the packaged system that NI needed to answer in the affirmative:
1. Can we use it?
2. Should we use it?
3. Should we do it now?
“We needed to know that it could do what we needed it to do, whether it would scale to the level we need, and whether it would give us the business agility we would need in the future,” he glosses. “The criteria underlying the conclusion that we needed to do something were speed-to-market, agility and total cost of ownership.”