PAS Replacements Hitting Critical Mass
VENDORS GAIN EXPERIENCE
Insurers across the board have also seen how the vendor community has gained experience and implementation know-how with PAS rollouts, taking much of the risk out of the equation. That has also led to a shift in insurers’ attitudes about best-of-breed versus singlevendor strategies for their core system replacements.
It used to be that most insurers were inclined to a best-of-breed approach, where they purchased their PAS, underwriting and other core systems from different vendors. “A best-of-breed approach prioritizes business functionality and how it aligns with the organization’s specific needs,” explains Karen Furtado, a partner at the consulting and advisory firm Strategy Meets Action. Best-of-breed vendors tend to focus on a single type of core system, she says, and often have a deeper understanding of the process being automated.
But using more vendors can also make core system integration more difficult and increases the odds of a blame-game among the different suppliers when something goes awry. So, as confidence in the vendor community’s deployment skills has risen, Conlon says that today “Insurers are much more inclined to purchase a full suite of capabilities from the same vendor.”
That change in attitude played out during a six-year core system upgrade at the Pennsylvania Lumbermens Mutual Insurance Company. When the lumber, woodworking and building materials insurer began the project in 2011 with a PAS replacement, John Smith, the insurer’s president and CEO, favored moving forward with a single vendor. Joseph McGurrin, Pennsylvania Lumbermens’ Senior Vice President of IT, on the other hand, lobbied hard for a best-of-breed approach.
But that was then. “Right now, I could be swayed the other way, because of changes in the industry,” McGurrin acknowledges, pointing to the level of consolidation that’s taken place among insurance technology vendors and the increased number that now offer full core-system suites. “Best of breed isn’t best for everyone. It was best for us at the time,” mostly, he says, because Lumbermens operates in all 50 states and relies on a steady stream of regulatory updates from Insurance Services Office Inc. So it needed a policy admin and other core systems that were ISO compatible—a requirement that was better met by a mix of vendors.
Carefully defining the system requirements beforehand is critical to the success of any modernization effort, says McGurrin. “You need to have the right people at the table, and you need to ask all the questions.” During Lumbermens’ PAS upgrade, “This was an area where we ran into some problems,” he admits. “We came across something that was missed,” which led to a finger-pointing game with the vendor.
Speaking from experience, McGurrin says that insurers have to proceed from the understanding that “Things are going to go wrong. In any system modernization, you’re going to reach a point where something goes sideways. Whether it’s your fault, or the vendor’s fault doesn’t really matter.”
To minimize the fallout, he adds, “It’s absolutely critical to invest the time needed to carefully define your requirements, but always with the understanding that you can never capture it all. Something will always be missed.”
SMA’s Furtado likes to frame the upgrade process as “a journey that is more than a series of individual, distinct steps.” Instead, she says, an insurer’s modernization effort must take into account changing customer expectations as well as new, emerging digital technologies.
The insurance industry appears to agree. Citing a recent SMA study, Furtado notes that 61% of insurers are currently investing to become a digital insurer. “That’s an amazing statistic,” she says. In terms of the industry’s transformation, “that train has definitely left the station.”