The New Core System Equation
Seeking to quickly launch new lines of business, carriers have begun deploying multiple policy admin systems.
Driven by demands for more flexible product development and faster speed to market, P&C carriers are stepping up their new policy administration system deployments. “Initially, there was the claims wave,” says Amy Sherman, a principal with Deloitte Consulting. “Now the carriers have begun working their way through the PAS wave. After a little bit of a lull around 18 months ago, we're definitely seeing an uptick in the velocity.” Market research by insurance industry advisory Strategy Meets Action bears this out. New core system installations dropped from an annual high of 143 in 2014 to a low of 91 in 2016, owing in large measure to the years' long timeframe required to implement a new policy administration system. But last year, per SMA's findings, a new buying cycle began and new core system purchases were up 13 percent, encompassing both standalone policy systems and suites. This latest wave of new PAS deployments is primarily aimed at helping insurers set up new lines of business, according to Karen Furtado, an SMA partner, who notes that it's no longer uncommon for a carrier to have multiple policy admin systems. These insurers may already have a core enterprise PAS in place, but time-to-market considerations will induce them to bring in additional policy systems to support new business lines and product offerings. “Quick-to-win, built-to-purpose core systems are hot,” Furtado says. “Insurers are rethinking how core systems can support their businesses.” The SMA advisor cites workers' comp provider Cake Insure as an example. The newly established distribution arm for Pinnacol Assurance, Cake opted to deploy its own PAS, rather than try to support its business model with its parent company's legacy system. In other instances, a carrier may be going through a prolonged five to seven year implementation of a new PAS, but can't afford to hold back on new business until its enterprise-wide solution is fully baked. Under these circumstances, the insurer may opt to roll out a dedicated policy system to move into new markets and support new products. ”From a timing standpoint, sometimes it simply doesn't work for a carrier to synch up its enterprise PAS with a new product that they are trying to get to market,” Furtado observes. The emergence of managing general agents is also driving new PAS deployments, she adds. “During the past two years, MGAs have increasingly purchased their own policy admin systems,” Furtado reports. “Previously, they typically would have used the systems of the carriers they represent. But with the program and specialty businesses just absolutely booming, they've turned to the policy admin market to get the level of systems support that they need.” Multiple PAS deployments is definitely a trend, especially among the larger carriers, confirms Deloitte's Sherman. “They're sitting there saying, `I want to be nimble. I want market agility. I've got a new cyber-risk product, and I would rather start fresh,'” in order to get that product—whatever it is—out to the market quickly. In this, they're abetted by the latest PAS offerings. These integrated product suites support a much broader range of capabilities within a single software framework, explains Martina Conlon, a senior vice president and P&C practice leader at the
“Now the carriers have begun working their way through the PAS wave. After a little bit of a lull around 18 months ago, we're definitely seeing an uptick in the velocity.” Amy Sherman, Deloitte Consulting
insurance industry consultancy Novarica. And because these features are pre-integrated and supported “out of the box,” Conlon says that carriers can frequently implement the full core suite, including business intelligence and reporting functions, as well as customer and agent portals, with a single roll out. “Being able to deliver all of these capabilities in one shot is a big win,” she notes. “The reporting capabilities help carriers run their business more efficiently; the analytics provide insights and help them automate more, and the portals facilitate a better and more efficient experience for customers and agents.”
Five business imperatives
In its 2018 report on P&C policy admin systems, Novarica identifies five key objectives behind insurers' new PAS implementations:
1. Accelerating product development to aggressively pursue new market opportunities, such as micro-policy rating and direct-to-consumer offerings. 2. Increasing product flexibility to meet new customer requirements, such as the growing demand for usage-based auto policies. 3. Reducing the cost of operating and maintaining legacy systems, which currently account for more than 75 percent of many insurers' IT budgets. 4. Lowering the total cost of core system ownership, which often means migrating from older systems that require extensive customization to new systems with embedded configuration tools. 5. Improving data access to support new business intelligence and data analytics applications.
But underlying everything is the urgency insurers feel to improve their customers' experience. “It's a hyper-competitive market right now,” says SMA's Furtado, “and insurers feel they have to own their users' experience.” This more than anything else is shaping insurers' requirements for the new policy systems they deploy. At the top of their features checklist are open APIs that allow them to provide multiple front-ends that support a variety of user experiences. “Insurers may want to present different user experiences to different segments of the market,” says Furtado. “If they work with independent agents, some of whom are very specialized, for example, an insurer may want to provide a different interface with a different view for each of the products and programs it rolls out. So the flexibility to provide different front-ends for different types of agents and customers is absolutely critical.” But if a flexible API is most carriers' top buying criterion for a new PAS, the ability to export and utilize its data runs a close second. Says Furtado, “No insurer will even consider purchasing a policy system without ensuring that they can access and export the system's data into a data repository or analytics engine of their choosing.” Novarica's Conlon agrees, noting that the data is needed to fuel new artificial intelligence applications, which are poised to have a huge impact on the insurance market over the next few years. “AI-based data ingestion, machine vision and machine learning applied to sales, underwriting and claims could be revolutionary,” she says. “The vendors that embed these capabilities in their offerings will trigger a change in the market.”