Technology in the life insurance policy administration spacehardly a leader in the race to the cutting edgeis nevertheless moving forward as carriers reluctantly acknowledge a need to update their systems to accommodate the modern era of straight-through processing, experts say.

“Theres a climate of systems consolidation in the life industry and its being driven by mergers and acquisitions,” says Darren Klausner, vice president of systems, Life and Annuity Division, for Computer Sciences Corporation, based in Dallas. He adds that a “second generation” of policy administration systemslegacy batch systems with a low cost of ownershipis “coming to an end,” because such systems are hard to maintain and “not very open.”

Today, says Klausner, carriers are beginning to migrate to third-generation systems that can work more easily with other software programs and platforms. The newer systemsbased on COBOL and Java programming languagesalso are easier to maintain, he adds, although they are still mainframe technology.

While these newer systems have advantages, Klausner also points out that “the cost justification to convert to them is strangling the industry right now, so that enters into the equation.” He says some carriers are selling books of business to reinsurers and “getting out of those businesses altogether,” rather than invest in a new technology platform. Still, he insists, “top insurers are making bets on third-generation technology.”

According to Michael Roe, president and CEO of Edison, N.J.-based Navisys, “Everyone is aware that companies are reluctant to replace legacy policy administration systems. Unless theyre in pain, they wont do it,” turning instead to options such as outsourcing.

Nonetheless, Roe says companies are “aggressively converting off of a set of older Assembler-based admin platforms onto another set of more modern, proven and scalable platforms.” (Assembly language is a basic-level programming language common to most computers.)

The conversions, says Roe, are being done to consolidate acquisitions and simplify back-office environments, as well as to move beyond older, more limited systems. “Companies are merging and looking at their strategies. Theyre asking, What do I need to grow? How do I respond to the marketplace? Administration systems play a big part in that,” especially as regards to newer technologies such as straight-through processing, he explains.

Roe also points to the rise of what he calls a “component-based approach,” in which “a company doesnt need to rip out everything it has. They can do [the conversion] in pieces.” Such an approach, he argues, allows companies to add “chunks of capability,” such as a revamped new business system or a product-line by product-line update of older systems.

“It lets them attack the function where they have the most pain,” says Roe. “If theyre successful, they can build on that.”

“Insurance carriers are in trouble financially. Theyre expected to cut costs and theyre trying to think about synergizing all those policy administration systems,” states Ric Young, vice president and chief marketing officer for Adminserver, Chester, Pa. “I see people trying to be more strategic, rather than tactical.”

According to Young, that strategic thinking involves moving away from smaller “baby steps” policy administration projects that may boost ROI in the short term to “thinking about how [to] improve customer service.” He notes that attempts to do so via CRM technology failed “because the vendors didnt really understand our industry. They grossly underestimated the complexities with synergizing policy administration systems.”

As a result, however, “Insurers are very jaded toward [policy administration software] vendors because of what happened with CRM,” says Young. “Selling them now is a long haul; its like heart surgery for these guys.”

Still, insurers are driven to cut their total cost of ownership for their legacy systems, he says, and synergizing policy administration operations and systems remains a promising avenue. “What were fighting is the fear left over from all those failures,” he adds.

Looking to the future, Klausner notes that the Java-based technology involved with many current policy administration products is “getting easier” to the point where it is almost ready to use “coming out of the box.” Java is a programming language designed to generate software that can run on all hardware platforms. Citing what he says is much migration to Java-based policy administration solutions because of these open-source capabilities, Klausner adds that he doesnt see “a mass movement to .NET,” a competing platform from Microsoft.

Klausner also believes the future will see “more BPO arrangements where software for policy administration will be hidden behind the outsourcer.”

Roe predicts that by 2008, “a high percentage” of life insurers will have replaced at least a portion of their policy administration environmentand that more companies will do a partial replacement than an entire overhaul. He cautions, however, that buyers must look ahead to create “a holistic environment down the road” as they replace pieces of their systems.

Young foresees development of a single application that “does it all. The rules engine is the secret sauce, the new technology that allows carriers to change the software with very little effect on their products.” The problem in selling such an application, he adds, is “we need to prove to carriers that it will work with their products.”


Reproduced from National Underwriter Edition, December 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.