Modernizing policy administration in the insurance industry

Modernizing policy administration in the insurance industry

2 Modernizing Policy Administration in the Insurance Industry

As the markets show signs of recovery, insurers are broadening their focus from survival to efficiency and profitable growth. Across the globe, insurers will continue to face softer demand for insurance products, and many insurers will have the challenge of transforming their operations with leaner profit margins. While the case for change is strong, the appetite for historically large transformation programs will continue to wane. The winners will be those organizations who adopt a pragmatic view of transformation, effectively leveraging past investments while charting an incremental course towards fully enabling their business for the new economy. This economy will be marked by consumers accustomed to information on demand, comfortable with rapid change, and squarely focused on the market of me. These traits combine to present insurers with a complex set of challenges some old and some new. By using data and software more effectively to enhance their product offerings, service and distribution channels, our clients have the ability to translate their policy modernization initiative into a differentiated value proposition. By using data and software more effectively to enhance their product offerings, service and distribution channels, our clients have the ability to translate their policy modernization initiative into a differentiated value proposition. By adopting a pragmatic view of modernization, insurers are able to compete and grow in the new economy ; however, it must be recognized upfront that transforming a policy system is a significant undertaking which presents substantial risk. The size of the effort is frequently underestimated, and as a result, insufficient timelines and budgets are often allocated initially. What most often drives these estimation shortfalls is not the effort required to configure new rules or rating engines, the time required to design and build or enhance a front-end, or to implement billing plans or print capabilities. Rather, it is failure to recognize the complexities associated with the extraction of years of business rules, which have over time, been embedded in core systems or replicated in newer platforms. Whether they be custom developed in-house or highly customized package-based systems, over the years, these legacy policy administration systems no longer represent vendor supported software. They have morphed into large custom applications which dramatically increases the risks associated with a modernization initiative. So the question becomes, how do insurers modernize a core component of their value chain without mortgaging current business or sub-optimizing the future? Accenture believes the answer to this question can come only after 3

determining whether the initiative will be viewed as a point solution or a technology platform change. A point solution is limited in scope, usually intended to satisfy a limited product for a single department or geography and is tactical in nature. A platform change is a significant technology transformation that is intended to allow for consolidation of multiple systems, provide a growth platform for the future, serve multiple product sets and distribution channels, and represent the future primary policy administration capability for the enterprise. upon closer examination, insurers will find that all vendor success stories represent point solutions and none can claim a successful platform change at the scale needed for Tier 1 carriers. As an underlying principle, Accenture believes a point solution will never successfully morph into a technology platform change. Having witnessed a long history of abandoned programs both custom and packaged across the industry, we are confident such a transition is not possible as the solutions to meet the needs of different lines of business, jurisdictions, channels, products, etc. involve radically different designs and technologies. Further, this point solution approach almost always necessitates a big bang deployment approach, which drastically increases both the odds of system failure or, at a minimum, results in significant customer retention issues associated with the process of canceling and rewriting policies. Virtually all Tier 1 insurers have stepped away from big bang implementation plans. By performing an evaluation of the policy administration software market, insurers 4 Modernizing Policy Administration in the Insurance Industry

will find numerous vendors are able to credential themselves using prior implementations. It will be important for insurers to determine whether the implementation was a point solution or a platform change. As validated by market analysts such as Celent, many vendors have the ability to showcase numerous successful implementations. However, upon closer examination, insurers will find that all vendor success stories represent point solutions and none can claim a successful platform change at the scale needed for Tier 1 carriers. Policy Administration is all about rules. Whether it is called logic or rules maintenance, the volume of rules necessary to implement a policy platform change is daunting and complex. It is not that the individual rules themselves are extremely complex. In fact, most are not; rather complexity comes from the volume of rules that combine to define a single product. It is not uncommon for a single product to be constructed of five to six thousand rules. Extrapolate this by the number of products which makes up a carrier s portfolio of offerings and it is easy to see how quickly the collection can grow into the hundreds of thousands when measured in terms of next generation definitions. And while a given rule may be simple, that does not imply it is easy to maintain. For instance, a simple validation rule can only be maintained if it is traceable, that is, it can easily be located and the impact of changing it can be readily identified. Policy Administration is all about rules the volume of rules necessary to implement a policy platform change is daunting and complex. During discovery, insurers will find that nearly all vendors have an elegant method for implementing rules. This is why almost all vendors will look good in a proof-of-concept, yet struggle with the actual implementation their schemas quickly become overwhelmed by the sheer number of rules and the combined complexity of the relationships between them. The issue is not how elegantly they implement a few rules in a pilot; it is whether they have the industrial strength to support insurers hundreds of thousands of rules over an extended period of time. By design, rule engines are superb at processing complex rule sets, with today s market leaders operating at a level of efficiency that transcends solutions available half a decade ago, and these rules engines may be a portion of the overall solution. However, these same solutions are not adept at managing rules at the level of detail which may be required by an insurer. If the organization plans to operate on a vision that will someday include multi-national or multi-cultural implementations, the shortcomings of many solutions will become even more readily apparent. It has become clear that configurability is a key element of any solution because configurability allows for the modification of system rules, data elements and attributes in rapid fashion. However, if not careful, configuration can serve as a trap which steals long-term value. To avoid this trap, configuration should only be utilized when the process being enabled is variable. As a basic premise, if the process or data is commonplace, written code will perform better. There is no point in consuming valuable program resources by creating configurations for common industry practices, rules or data. Beyond the pre-implementation reasons to carefully select configuration opportunities, excessive configurability generally leads to poor performance and scalability both of which are identified as two of the top reasons that policy modernization programs often end in failure. Furthermore, configured or otherwise extended data should be leveraged sparingly. Otherwise the ability to feed vital policy data into insurers analytics engines will be challenged. Many vendors try to position the phrase we can configure it as being synonymous with the application does it this is not accurate and should be looked upon with great caution. If the function point does not exist, it must be designed and tested regardless of whether it is coded or configured. Since design and test consume eighty percent of development regardless of whether deployed in an agile or iterative environment excessive configuration ultimately steals value with little upfront or long-term return. The potential to configure, while extremely important and valuable, does not replace or equal the existence of a well thought out design and execution plan. It has become clear that configurability is a key element of any solution However, if not careful, configuration can serve as a trap which steals long-term value. Based on the above, insurers who have thoroughly investigated the landscape of policy administration vendors have reached the same conclusion no single vendor can supply a full solution. The domain is simply too large and complex for a single vendor to be excellent at everything. In fact, it is clear that no single software vendor is even good enough at everything to support insurers as they translate their policy modernization initiative into a differentiated value proposition. 5

The lack of a single software solution, coupled with the risks of a big bang implementation, causes most insurers to seek an incremental approach to replacing their system(s), which in theory, will mitigate some of the risks associated with large transformation initiatives. At a minimum, this approach reduces board-level thresholds which, at times, can introduce funding authorization challenges that can be dilutive to the innovation process. For clarity of definition, we suggest that insurers operate with an understanding that when speaking of policy modernization, increments are often defined as: Steps along the modernization journey which are guided by an overall roadmap. Requiring between 8 and 14 months to implement. Within an annual budget of approximately $10M. Involving approximately 2,500 to 5,000 workdays. Capable of delivering perceptible business benefit that creates the credibility necessary to continue with the next increments. Often, large sections of insurers legacy policy systems serve the organization very well there is little business case to replace these functions. It is also clear that significant portions of the legacy policy administration environment must be preserved for some time to come. These systems are deeply integrated into a wide variety of other essential applications and they cannot be decoupled easily. Further, many components of today s environment most likely should not be part of the modernization journey. Often, large sections of insurers legacy policy systems serve the organization very well and represent functions that are not part of the problem ; therefore, there is little business case to replace these functions. The desire for an incremental approach combined with a lack of single-solution vendors and the need to preserve some legacy functions has lead the industry to begin to focus on a component approach to policy replacement particularly amongst Tier 1 insurers focused on a platform change versus the deployment of multiple point solutions. To become operational, this component approach requires a component schema that decomposes the domain into functional applications that match up well to the business problem and can then be selectively served by the vendor community. While this approach improves the 6 Modernizing Policy Administration in the Insurance Industry

probability of implementation success, we are convinced that pausing at a level which simply decomposes the business problem into components is not sufficient. For insurers to emerge from their policy modernization initiative ahead of the market, these components must further be layered into separate strata of functionality that are loosely coupled in such a way that the ability to rapidly adapt to future market requirements is maintained. Over the past decade, as a result of teaming with clients through their policy transformation discovery phases, we have continued to witness firsthand the lack of a viable market ready shrink wrapped platform change solution. As a result, Accenture entered the software policy market. Guided by what we believed at the time was, and still remains, a unique vision for enabling policy system modernization through a componentized set of offerings, we set a course focused on positioning insurance executives to be in a position to answer yes to a number of reflective questions including: Have we made fundamental changes to our underlying cost structure? Are we now able to respond rapidly to changes in our customers needs, and where necessary, innovate? Have we overcome the constraints caused by rigid legacy systems? Were we able to sustain our base and achieve market growth throughout our transformation journey? Rather than invest in the development of a turnkey, end-to-end solution which most likely would fall prey to the issues and challenges outlined above our course of action focused on the enablement of five primary layers: an architecture layer, a data layer, a product development layer, an application layer, and a user interface or channel layer. At a high level, these layers are defined as: An architecture layer which supports configurability in layers such that core processing is separated from business logic and isolates changes to single areas within a system. The architecture layer must naturally plug and play with systems supporting any number of interactions internal and external to an insurer and be capable of handling large volumes of transactions soon to be associated with rapidly evolving delivery channels such as direct and aggregators. Next generation solutions will deliver this on low cost, high-scale servers and provide extensibility through configuration without sacrificing performance. 7

A data layer which inherently supports a common definition of customer, product information, location and building information. Whether sourced from existing data stores or leveraging Accenture s data model, this data should be structured to provide a single view of the truth, be accessible regardless of language or geographic boundaries, and include rich support of third-party data to normalize and enrich information in the system. A product development layer which is clearly separate from the application layer. This product configuration layer must have the ability to manage large volumes of rules, provide full traceability of those rules for maintenance, and provide a single point of maintenance for common product logic. The product configuration layer must also include robust impact analysis capabilities, as well as deployment and version control capabilities that are independent from the applications that reference the product logic. An application layer that is very specific to the business domain is an essential element of our overall model. Policy processing involves complex transactions. By way of example, matching coverage to subjects of insurance, processing endorsements or renewals, or managing complex transactions are all functions that must be well-designed and independent of product rules or user interface presentation. The user interface and the channels which consume them are virtually becoming disposable. IO (Input/ Output) devices, which are cutting edge today, will be moth-balled by the time insurers approach the end of their defined modernization journey. Tomorrow s devices are most likely not even in prototype today. As a result, insurers will need the ability to swap out the interface without re-writing all of the rules, processing logic, and attribute behaviors, which will have already been, painstakingly, massaged and extracted from today s legacy environments. Further to device evolution, traditionally, insurers used to design for company personnel and the occasional differences between independent and captive agents. Now, there are channels like aggregators which don t even require a user interface. The bottom line is new policy administration processing requires the ability to manage user interfaces and channels that are not yet conceived. Market leaders will be partially defined by those who are able to do this without revisiting core program logic or data characteristics. Further, we have invested in the development of numerous enablement assets such as our Rules Extraction Framework (REF) and our Insurance Data Migration Factory (IDMF) which support critical aspects of any policy modernization program. If not properly addressed, rules recovery and data conversion will drain investment away from modernization activities, which add sustainable long-term value. When leveraged by insurers, assets such as REF and IDMF not only serve to lower overall program costs, they also substantially lower program risk through the efficient and thorough recovery of business rules embedded deep within today s legacy systems, and vastly improve data quality during the transition to a new platform. As mentioned, Accenture entered the policy software industry nearly a decade ago. In doing so, our approach was to evaluate both the trends of the current market and the availability of existing value-added components of which we found many. We then set a course to leverage both our industry 8 Modernizing Policy Administration in the Insurance Industry

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Customers feedback on the functions and features of the [Accenture] solution was very good, with unanimous high scores for the functions of rating, premium accounting, business rules and product definition. One customer noted that the product factory is a tremendous tool for accelerating the process of creating new products and reducing time to market. Experience of customers around integrating with external data sources was described as easy and around making significant changes was excellent. With respect to Accenture s handling of the project implementation, references were agreed that project management, scoping and responsiveness were all excellent. Celent: European General Insurance Policy Administration Systems 2009 knowledge and software factory capabilities to assist insurers with their transformation journey. Along the way, we have been fortunate to team with many industry leaders as they have experienced success along their policy modernization path. Too often, we have also had the opportunity to debrief with many who embarked on their policy modernization journey but, for a variety of reasons, lost their way in the process. We have learned a tremendous amount from these experiences and discussions. First and foremost, it is abundantly clear that a policy modernization effort represents a tremendous undertaking stocked with both risks and rewards. A close second is the recognition that, today, no silver bullets exist which will eliminate these risks or deliver these rewards. Accenture Policy Components continues to evolve, and while customer feedback is certainly strong [see insert], in order to serve clients as a successful software team, we need to work together to arrive at a shared vision. We fully intend to continue our investment stream, partnering with point solution providers when and where it makes sense and developing market ready assets where gaps exist. We would be delighted to have the opportunity to team together to redefine the policy administration systems environment. If your leadership sees value in the concepts shared above and is open to working with a team who views policy modernization in a nontraditional sense, we have the opportunity to come together in a leadership dialogue to adequately explore a truly unique relationship that benefits both organizations, as well as the local community. 10 Modernizing Policy Administration in the Insurance Industry

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Achieving high performance To learn more about Accenture Software for Insurance or how our product, policy and billing services can help insurers achieve high performance, contact us. Global Albert Juanals Accenture Software Policy Property and Casualty Product Line Director +34 93 227 1227 albert.juanals@accenture.com North America Joe Taborek Accenture Software Sales Lead +1 312 693 0574 joseph.taborek@accenture.com Europe, Africa and Latin America Albert Juanals Accenture Software Sales Lead +34 93 227 1227 albert.juanals@accenture.com Silvia Milian Product, Policy and Billing Offerings Lead +34 91 546 9523 silvia.milian@accenture.com Asia Pacific Glenn Rogers Accenture Software Sales Lead +61 39838 8355 glenn.rogers@accenture.com Alternatively, visit www.accenture.com/insurance. Copyright 2011 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 223,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US $21.6 billion for the fiscal year ended August 31, 2010. Its home page is www.accenture.com. Accenture Software combines deep technology acumen with industry knowledge to develop differentiated software products. It offers innovative software-based solutions to enable organizations to meet their business goals and achieve high performance. Its home page is www.accenture.com/ software.