PAS Re­place­ments Hit­ting Crit­i­cal Mass

Digital Insurance - - STRATE­GIES -


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.”

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