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Are Insurers Outgrowing Policy Admin Basics?

Daniel Joelson November 1, 2008

Many a carrier has embarked on ambitious projects only to have overlooked a critical issue: Will their policy administration system be able to handle the big leap forward? While hindsight is 20-20, and no insurer can pinpoint exactly how much it will expand in two to three years, much less in 10 or 15, carriers do have many strategies at their disposal to avoid the resultant problems.

Those lacking the necessary foresight face grave headaches indeed. Some are obligated to jettison their long-time policy admin system because of its failure to scale. Replacement projects can take 18 months or longer for insurers, which are forced to embrace band-aid solutions in the interim, according to Jeff Goldberg, senior analyst in the insurance practice of Boston-based Celent.

Carriers that find their modern systems floundering "suddenly are dealing with weeks of turnaround, when the whole reason to spend millions of dollars and 18 months on an implementation was to avoid that kind of issue," he says. Some systems that simply cannot handle the policy load either slow down or crash altogether, triggering the carrier to filter business manually and push clamoring customers onto its Web site.

"Bringing a system into production that is not ready from a scalability standpoint is nothing short of disastrous," explains Phil Ehlen, CTO of the P&C division for Falls Church, Va.-based Computer Sciences Corp. (CSC). "I typically see the failure occurring before one gets into production, and what that results in is lost money and lost time."

Those costs "massively multiply" when the problem is discovered after production begins. Top officials who make such ill-fated decisions also are destined to pay lofty consequences, he adds. At the same time, "an inability to quickly react to market changes may translate into loss of market opportunity and brand tarnishing," says Marc Dutton, managing director of FJA-US, Inc., a New York-based insurance technology provider of life and health policy admin systems.

Further, the higher operating costs resulting from scalability failures may erode the firm's competitiveness and market share, he adds.

Scalability woes also lead to bitter acrimony between the insurer and its vendor, which can spill into the courts. However, insurers are increasingly showing greater prescience. Over the past couple of years they have become more aware of the need to build scalability assurances into their contract with the vendor, notes Patrick Hatfield, a partner in the law firm of Locke Lord Bissell and Liddell. Insurers also have awakened to the reality that while they could take scalability somewhat for granted in the past-when older Cobol-based mainframe policy admin systems built for long-term use reigned-today, with modern systems, they can not.

With carriers feverishly embracing modern policy admin systems in recent years, issues of scalability inevitably jump to the fore. Though a modern distributed services-oriented architecture system offers rich benefits, installing a new policy admin system always is fraught with risk, explains Goldberg.

For more information on related topics, visit the following channels:


Enterprise Technologies

Insurance Network

Policy Administration

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