Slow and Steady Wins the Up­grade Race

Penn­syl­va­nia Lum­ber­mens me­thod­i­cally up­dates its pol­icy ad­min and other core sys­tems

Digital Insurance - - STRATEGIES - By Elliot M. Kass

Iits knownSix coret me­dia Lum­ber­menswasn’t yearsas sys­tems. COBOL.or gee-whizago, deep-di­ve­when Mu­tu­alIt was dig­i­talthe an­a­lyt­ic­s­the In­surancelum­ber an­ti­quated tech­nolo­gi­esthat and Com­pa­nyled wood­work­ing­soft­warethe like to Penn­syl­va­ni­adrones, up­grade lan­guage in­dus­tryso­cial spe­cialtyall team its re­al­ized­core in­surer sys­tem­sthat de­cid­edthey were would COBOL-basedto in­vest­not re­mainin a new and vi­able pol­i­cy­its man­age­ment­much sys­tem, longer. in­creas­ingly“The sys­tems dif­fi­cult were to 20 sup­port,” years-old re­call­sand be­com­ingJoseph McGur­rin, Penn­syl­va­nia Lum­ber­mens’ Se­nior Vice Pres­i­dent of IT. “We knew we had only so much time be­fore the peo­ple with the skills to main­tain them be­gan to re­tire.” That in­cluded McGur­rin him­self, who will be re­tir­ing at the end of this year. Af­ter 35 years with the com­pany, “I was the only per­son left who knew ev­ery sys­tem, all the in­te­gra­tion and how they all talked to each other—and that was not a good thing.” Rec­og­niz­ing this, John Smith, Penn­syl­va­nia Lum­ber­men’sCEO,and project com­plete­pushed be­fore to pres­i­dent­the McGur­rin un­der­take mas­sive and re­tired.But the 122-year-old in­surer also de­ter­mined to pace it­self and not bite off more than it could chew. “A big bang is a BIG BANG,” says McGur­rin, “and it has the po­ten­tial to be­come a big mess. So, we de­cided it would be far more pru­dent to re­place one sys­tem at a time.” Work­ing with Smith and the rest of the ex­ec­u­tive team, McGur­rin de­vel­oped a five-year trans­for­ma­tion plan, be­gin­ning with Lum­ber­mens’ pol­icy ad­min­is­tra­tion sys­tem.


“We started with pol­icy first,” McGur­rin ex­plains, “be­cause that was the most la­bor-in­ten­sive and man­ual process we

had.” The new sys­tem took a full year to de­ploy, go­ing live in 2012, but it be­gan pay­ing div­i­dends al­most im­me­di­ately. By elim­i­nat­ing the dou­bleen­try and re-key­ing that the old COBOL-based sys­tem re­quired, the in­surer was able to re­duce the size of its data-en­try staff and move 15 peo­ple to other po­si­tions. The new sys­tem also made it pos­si­ble for the prop­erty un­der­writ­ers to share data with the ca­su­alty un­der­writ­ers, re­sult­ing in a 25% to 30% jump in their pro­duc­tiv­ity. The in­surer was also able to cur­tail its pol­icy print­ing and mail­ing re­quire­ments for a net sav­ings of at least $150,000 per year. Those sav­ings were mul­ti­plied when Penn­syl­va­nia Lum­ber­mens af­fil­i­ated with the In­di­ana Lum­ber­mens Mu­tual In­sur­ance Com­pany in 2013, and four of

the lat­ter’s legacy sys­tems were con­sol­i­dated into the new pol­icy ad­min sys­tem. This elim­i­nated a slew of hard­ware, de­vel­op­ment and main­te­nance costs. That led to some much-de­served in­dus­try recog­ni­tion, and in March of 2015 Penn­syl­va­nia Lum­ber­mens re­ceived the Ce­lent Model In­surer Award. Pol­icy ad­min­is­tra­tion is Lum­ber­mens’ most im­por­tant core sys­tem be­cause, even though the mid­size spe­cialty car­rier has a rel­a­tively nar­row scope of op­er­a­tions, it writes poli­cies in all 50 states and man­ag­ing the as­so­ci­ated reg­u­la­tory is­sues is a mas­sive un­der­tak­ing. Prior to the up­grade, re­main­ing in com­pli­ance with all the req­ui­site forms and rate struc­tures was a ma­jor busi­ness chal­lenge, and one

of the new sys­tem’s great­est boons, McGur­rin says, is that all rates and forms are now up­dated au­to­mat­i­cally. McGur­rin cred­its the pree­val­u­a­tion work done by the ex­ec­u­tive team prior to the start of the project with pol­icy ad­min sys­tem’s suc­cess. While he al­lows that it’s im­pos­si­ble for an in­surer to de­fine ev­ery re­quire­ment be­fore­hand, he warns about “scope creep” and that “What­ever you don’t cap­ture at the start is go­ing to cost you more down the road.” Tak­ing the time to clearly de­fine the new sys­tem’s busi­ness ob­jec­tives was also an op­por­tu­nity to unite the var­i­ous stake­hold­ers and in­volve the un­der­writ­ers and other key users in the project. These users then be­came a “train the trainer group,” help­ing to set a base­line

and clar­ify train­ing re­quire­ments for the larger user pop­u­la­tion. McGur­rin is also adamant about the im­por­tance of test­ing through­out the im­ple­men­ta­tion process. “Rely on your high-end users, and test, test, test!” he ex­claims, not­ing that this was also crit­i­cal to the project’s suc­cess. Fol­low­ing the pol­icy sys­tem’s roll­out, Lum­ber­mens con­tin­ued its mod­ern­iza­tion ef­forts with new billing and claims sys­tems and now an up­graded busi­ness in­tel­li­gence sys­tem that’s due to be com­pleted this year. And al­though he won’t be there to over­see them, McGur­rin says the in­surer is plan­ning fur­ther ini­tia­tives that take ad­van­tage of its new core sys­tems’ dig­i­tal ca­pa­bil­i­ties, such as pre­dic­tive mod­el­ing and drones for its un­der­writ­ers and ad­justers. Com­plet­ing a sys­tem over­haul on this scale is not easy, he ad­mits. “It’s tough,” he says. “It’s hard work. At one point, dur­ing the last up­grade, my pres­i­dent just wanted to know if he could fi­nally tell the board that we were up and run­ning. ‘I don’t know how the hell you do it,’ he told me, ‘but just keep do­ing it.’ And now he’s happy and I’m go­ing to be able to re­tire on a good note.”

Joseph McGur­rin Jr. Penn­syl­va­nia & In­di­ana Lum­ber­mens Mu­tual In­sur­ance Com­pany

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