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With Legacy Policy Admin Systems Reaching the End of Their Lives, Carriers Look to Get More Agile

Having reached the limits of what they can squeeze out of their legacy systems, P&C carriers are looking to take advantage of a recovering economy by replacing their policy administration platforms with more flexible, configurable technology.

Policy administration is perhaps the most core of insurers' core systems, and it's never easy to replace a legacy platform. But change is inevitable in the technology industry, and many property and casualty carriers understand that if they don't upgrade their policy admin systems now -- despite the risks involved with such large-scale projects -- and build a more agile organization for future growth, the competition will pass them by.

Novarica, which surveyed 122 insurance CIOs, including 99 in the P&C space, about their 2011 IT budgets and plans, expects policy administration projects to be a top priority this year for P&C insurers. The New York-based consultancy reports that tech budgets are expected to rise modestly in the P&C sector -- anywhere from 3.6 percent to 5.1 percent of premium, depending on the size of the company -- and that a majority of the IT heads at those 99 P&C insurers are focusing on some aspect of policy administration.

"Speed to market, product innovation, improved distributor service, improved business intelligence, improved internal workflow capabilities -- all of these are dependent on flexible and capable core systems," says Matthew Josefowicz, partner and managing director for Novarica. "On the P&C side there's a little more focus on distributor service and real-time ratings."

In addition, P&C carriers in both personal lines and commercial lines are feeling competitive pain in areas such as agility, product design, pricing flexibility and processing rules, according to Donald Light, a San Francisco-based senior analyst with Celent (Boston). "There are some significant inefficiencies in older systems in terms of being able to handle multiple channels," he explains.

Speed Is of the Essence

Speed to market was an important consideration for Madison Mutual Insurance Co. ($32 million in premium income) when it selected a new policy administration system, director of IT Ken Somogyi reports. The Edwardsville, Ill.-based P&C carrier currently is implementing San Jose, Calif.-based ISCS' SurePower Innovation policy administration and claims platform to replace an AS/400-based legacy system that is 30 years old.

"We were looking for a system that would be more efficient in bringing new products into the market," Somogyi says. "If we decide to move into a new state, we need something that we can move fast with."

SurePower, a Java-based platform, also is configurable, according to Somogyi, which is another plus. Rather than dig into code to make custom changes, he relates, Madison Mutual can make changes via a graphical user interface and save time and money on development and maintenance.

"Our current AS/400 system is almost identical to what it was 30 years ago," Somogyi continues. "My hope would be that in 30 years, [SurePower] has undergone enough upgrades and kept up with the current tech so that we won't need to replace it. If it's the same system we have today, my assumption would be that we made some mistakes along the way."

End-of-Life Arrangements

Gartner (Stamford, Conn.) analyst Steven Leigh admits that some observers might be surprised at the number of policy admin revamps going on given the continuing economic malaise and the scale of the projects. But a lot of companies have platforms that are "nearing the end of their natural life," the Denver-based analyst explains. "System consolidation is really important from a cost-reduction perspective," Leigh adds. "A company might have 20 different systems running on different technology platforms that require a different development skill set, different testing methodologies or tools. The complexity is really overwhelming. Going to a new platform is going to be expensive, but it might be less expensive overall if you can retire other policy systems."

Capitol Insurance Companies, a Madison, Wis.-based commercial insurance writer with $200 million in premium, didn't have 20 policy admin systems, but it did have two -- one for workers' compensation and one for all other lines -- when it turned to Eagan, Minn.-based Wyde's Wynsure platform in 2009. "We really were looking to put in place a consolidated system that would help us move forward with a couple of other initiatives that deal with upload and download of data to our agency partners and with some automated underwriting," says Alan Ogilvie, the carrier's VP. "They all come back to the same objective, which is for us to provide our insured and our agent partners with customer service."

Consolidating on the Wynsure platform has allowed Capitol's IT staff to work more collaboratively, Ogilvie says. "Our employee programmers can work one day on a policy item and the next day on a claim item because they're working in the same language," he explains. "We don't have to be so siloed in the programming support for our systems."

The Changing Face of Technology

In fact, a major factor driving the increase in policy administration system replacements is the changing face of technology -- and technology organizations. Many legacy mainframe systems are written in COBOL, a language that is not taught widely in universities anymore. In addition, these COBOL-based systems are not as adaptable to the multiple platforms from which employees and agents want to access the policy administration system. Further, the development community at large, according to experts, more easily supports a language such as Java.

North Carolina Farm Bureau (more than $1.6 billion in assets) selected CSC's Java-based Exceed policy platform in 2010 because the P&C carrier is transitioning from a COBOL code base to a Java environment, says Linda Squires, senior executive, operations and information systems, NCFB. The Raleigh, N.C.-based insurer's legacy system was 25 years old, she adds.

"CSC was looking at moving to a Java environment, and that's where we wanted to go," Squires continues. "It's platform-independent and it provides more robust functionality; and recruiting COBOL programmers is not easy."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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