By Anne Freedman
The impetus for some is that their core systems are so old they are unable to bring new products to market in a timely manner or even make seemingly simple changes in a reasonable amount of time. And, for many, performing predictive analytics is just a dream for them.
Replacing or upgrading legacy systems is notoriously difficult to do. There are multiple commercial lines; different state regulations; thousands of forms for billing, claims and policy administration; and interfaces with numerous third parties --and that's before you layer in the data and analytics.
Or before the insurer decides whether to convert years and years of data or just access it through a data warehouse.
"If it was really simple, then all insurers would do it," said Deborah Smallwood, founder of Strategy Meets Action, a Boston-based research and advisory firm focusing on the insurance industry. "If a company is doing a core system replacement, it's very expensive. They take a really long time to do.
"It's more than open-heart surgery. It's like replacing the heart and lungs," she said. "It's the core system that runs the company and everything runs around it."
Nonetheless, about one-third of insurers are thinking about upgrading their core systems within the next year or two. About one-third are in the midst of doing some type of modernizing, which can be a three to five year journey, and about one-third are doing nothing, she said.
Unless back-end systems are incredibly old, however, it is possible to get the innovations insurers want by adding front-office enhancements, such as portals or dashboards, to help with policy administration, pricing and predictive models.
According to SMA research, 56 percent of insurers plan to increase IT spending in 2013, compared to 40 percent in 2010.
Budgets are expected to increase an average of 2 percent, but 5 percent of the insurers plan major budget increases of 10 percent or more.
At the same time, though, 10 percent of insurers plan significant budget decreases --cuts greater than 10 percent.
At Liberty Mutual, the company recently rolled out two dashboard features to help customers, agents and brokers better track exposures and reduce claims costs.
Both are enhancements to the company's RISKTRAC online system.
"Our emphasis is on how do we provide the information they need in order to manage their business, primarily around loss, and how do we give them actionable information as soon as possible," said Frank Radack, manager of the Customer Loss Information Group for Liberty Mutual.
One of the new dashboard features allows users to upload exposures that are "most meaningful to their business" to identify loss trends at a granular level, he said. The exposure could be any type of business driver, such as hours worked, miles driven, sales, payroll, etc.
One customer, a large manufacturer, recently sent a note to the CEO saying it was the "single most effective and efficient tool he has seen in over a decade," Radack said.
The other enhancement is predictive models integrated into the dashboard, to allow users to identify and intervene in claims earlier than in the past, with the aim of ultimately lowering the cost of the claim.
"Our challenge is to provide information to the user that is meaningful, timely and in a manner that it can be used effectively," Radack said.
Thus, Liberty Mutual solicits suggestions and feedback from its customers, agents and brokers about "where enhancements will deliver the most value," when staff build the business case for innovations, as well as while the project flows through prototype development and roll-out of the finished product.
The company also ensures users know the various highlights of its new systems.
"We spend a lot of time on communication [with clients, agents and brokers] and have a dedicated user support team" Radack said.
One of the key errors some insurers commit when seeking to use technology to automate processes and add value is not taking the time to think through what it is they really need and want.
"You need to be able to open your mind to utilize new technologies," said Ben Chandler, CIO of IDP Insurance Data Processing Inc., in Wyncote, Pa.
"The way you have been doing something for the last 20 years doesn't mean that's the right way to utilize the new technology, so that it acts like the old technology," he said.
Companies must rethink their processes, he said.
Too often, said Joe Friend, IDP's senior vice president of sales and marketing, companies will begin technology upgrades without even consulting with their own management teams to ask "what actual things are needed in a new system to be competitive in the marketplace. They should do all of that upfront before they start to build the system."
At ACE, the global insurance carrier, thorough understanding of what brokers and underwriters needed was crucial before building ACEAdvantage.net, an online platform for international travel package policies for small to middle-market U.S. businesses and organizations.
Consulting with brokers on every account, the team was able to convert a two-and-a-half page paper application with about 60 questions on it to an online tool consisting of seven questions. It takes no longer than 10 minutes to input information, get a quote and issue a policy with a core coverage of $1,250. Prior to the online roll-out, that coverage was $2,500.
The development cycle took about six months. "We did it remarkably on time and on budget," said Tim Benson, senior vice president, ACE Multinational Group.
"This system is a front end on top of three or four ACE systems," he said. "There were challenges we had to overcome to make the platform a viable tool for the marketplace."
In creating the tool, the developers wanted to empower brokers to be able to sell the policy without individual underwriter expertise, he said. But brokers don't frequently see requests for international risk transfer and it "can be a little bit intimidating."
"It was a big challenge to take underwriters and force them to think differently about their product and how to approach it in an online fashion so it would work directly from the broker," Benson said.
Logging into the system, the broker inputs the insured's name, which accesses information from Dun & Bradstreet and automatically populates the company information into the tool.
It prequalifies the customer information, provides appropriate risk levels, sets up billing information, generates a policy number and prints out a 126-page policy.
The tool also provides drop-down menus offering more information on base coverage and limits, as well as providing enhanced coverage, such as higher limits for general liability with products liability or greater employee protection, such as kidnap and extortion.
The biggest competitor for this product, Benson said, is the "non-buyer. They simply decide they will not buy coverage and they move on," either because of price or complexity.
With the ever-growing popularity of YouTube, it's no surprise Travelers leveraged that trend to launch a Risk Control On-Demand product in April that utilizes video as part of its consultative services.
The tool is designed to help Travelers' customers better manage risk exposures. Customers can upload a video clip of their operations, and by using virtual communication, Travelers offers the same type of consulting as they would during an onsite visit, according to the company.
Based on the video using screen-share technology, Travelers analyzes exposures, outlines possible solutions and provides available resources, when appropriate, such as technical bulletins or training opportunities.
"This technology will help to extend our reach beyond customers who have utilized onsite consultations and other online resources," said Tim Howe, vice president of risk control at Travelers.
Travelers currently offers seven Risk Control On-Demand services focusing on slip-trip-and-fall prevention; post-injury management; driver training; industrial hygiene analysis; ergonomics; contractual risk transfer; and metal halide lighting.
Such upgrades are only possible when companies are working with systems that are capable of linking to front-end enhancements, but some systems are decades old and don't even operate in real time, Smallwood said.
And all companies, regardless of size, have a wish list for their IT departments, she said. At mid-tier companies, that list could have 25 to 50 items on it. At larger companies, the list could number into the hundreds.
"It's not even about how much money they have," Smallwood said. "It's how much bandwidth they have to do everything that is needed."
In some older legacy systems, said Mike Kulp, head of Xuber, U.S., the insurance software business of Xchanging plc that recently relaunched in the U.S. market, "the effort to figure out how it does what it does is so difficult they don't know how to tackle it."
"Multiple legacy systems create workflow inefficiencies, added costs and lost market opportunities," he said.
Integrating systems and interfaces so information can be transmitted back and forth between the insured, agent, carrier, reinsurer and third parties "is a huge problem on the commercial side," said Michael Jones, Xuber's vice president of sales.
And carriers, said IDP's Chandler, are "rarely realistic" about how long a conversion or upgrade will take. Companies also rarely hire more staff when they begin such projects, trying to wedge the work in with the responsibilities of their regular staff.
"That is a very big challenge," he said. "That's a time challenge for them and for us because it makes it harder for us to stay on schedule if they don't have availability of staff."
While mobile applications are a priority for personal lines insurers, they are not as much of a focus for commercial insurers, Smallwood said, although there is some movement in that regard for internal use or to assist underwriters in working with agents or brokers.
Many companies, she said, are "doing pieces and pockets of things," noting there is "lots of activity" associated with predictive modeling in underwriting and claims.
The core systems are usually integrated with "lots and lots of little systems that either fit into these systems or take data out of these systems."
"It's very complex," she said. "It's a journey and you are never really done."
ANNE FREEDMAN is senior editor of
Risk & Insurance®. She can be reached at firstname.lastname@example.org.
June 1, 2013
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