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It's no secret that insurance carriers, brokers, buyers and agents want fully automated policy administration.

But it's also no secret that many carriers, especially large commercial carriers, have yet to move their policy administration to a completely automated reality--the Web--that reflect today's technology.

For the past 18 months, Lexington has not only been automating policy administration in the "back office" area, but also automating the underwriting process around policy administration. The company is doing both using a Web services approach.

"We're combining the two to get the efficiencies it can bring," Otfinoski says. "In our case, policy administration was disjointed, all over the place."

Lexington says it is also extending the Web distribution channel to its brokers, who would traditionally employ thetelephone, a fax machine or e-mail. To get there, Lexington built a Web portal that allows its brokers--Austin & Austin, Black Ink Insurance Services, Target Insurance Services and IBSC/PMIA--to come online and execute a transaction.

When it comes time to bind a piece of business, the broker's data enters a policy processing engine that maps the data to forms, generates those forms and sends them out to the broker or agent. "It even sends the data to our back-end corporate reporting systems, which then route that data to the appropriate regulatory agencies," Otfinoski says.

Right now, Lexington continues to distribute its policies on paper, but looking ahead, Otfinoski says the day will come when agents, brokers, commercial buyers and risk managers can go online and download the polices, in a PDF format, for instance.

Industrywide, Otfinoski says the level of automation and policy administration really depends on the segment of the business. On the personal lines side, using the Web has become the norm on how to do business. But on the commercial side, it's used mainly for the lower end of the market, which means small- and middle-market businesses.

"It's starting to take place on higher-end business, but Fortune 500 transactions remain exceedingly complex," he says. "So policy issuance and underwriting are still done the old way."

"When you get to the excess and surplus world, I believe you'll find that we're one of the few heading in that direction," he adds.

John Roller, chief operating officer at Duck Creek Technologies, a Boliver, Mo., provider of rating and policy administration software, says that nearly all of today's policy administration solutions remain "legacy," or older solutions, where the data is locked up in a mainframe computer.

"Even with all that has been available, everyone's still using them," Roller says. "There are very few with any Web interface or even a Windows desktop into those systems. And even when they do use desktop applications, companies are having trouble pushing what they have out to a Web service-type of interface."

Roller says that commercial lines carriers lag way behind their personal lines peers on the policy administration automation front. Policy administration systems for specialty lines are not served "in any capacity" by the Web, he also says.

Why is the legacy system still the dominant system in policy administration? Roller says it's because insurance, by its nature, faces a large number of data processing challenges. The entire industry remains tied to legacy systems--often I.B.M.-based--because there has been no reason to change.

"It's tough to take on all that data," Roller says. "And if it's not broken, and it seems to work, companies will stay with it, even if it's not as efficient as newer technology can make it."

That means it's simply not worth the risk to move to more innovative systems. Whereas the banking and life and health insurance industries have been able to move a little more quickly, the property-and-casualty industry is unique in dealing with state-to-state regulatory requirements.

"As a result, every implementation is a unique implementation," Roller says. "There are no standards, no off-the-shelf solutions. By comparison, there aren't too many ways to do banking."

At Duck Creek, the policy administration solution is strictly a Web services solution.

"What we try to tell insurance folks is that the paradigm needs to shift, just as it has in any hard-line manufacturing business," Roller explains. "You have to streamline your business process, including forms, rating, underwriting, policy administration."

With the Web, carriers can manage a process from a single spot, so their ability to deploy products is improved.

"Today, if you want to make a product change, you have to go to three systems to make a product change," he says. "That's because most carriers have a separate functioning system for rating, policy administration, billing. What we believe would make a difference is to find a way to manage all those processes in a single area and business functionality works off that product definition."

Lexington, a Duck Creek customer, began thinking along those lines nearly two years ago with a pilot project involving a business unit. When they got a solid "proof of concept" from that effort, Lexington used the technology elsewhere. Today, there are eight or nine products built using the Web, and more in the pipeline, says Otfinoski.

"At first, we started out with new business, but we then added the capability for midterms or renewals," Otfinoski says. "Now we use the Web for full life cycle policy processing--from cradle to grave, so to speak."

Otfinoski adds that the biggest ROI comes on renewal processing because now the data is only entered once. "It updates the data and streamlines the renewal process, from days to minutes," he says.

HELP FOR AN AGENCY

HBW Insurance Services Inc., an Atlanta-based MGA/program manger that writes about $140 million in annual premium every year, has relied on an outside application provider since August 2000, when it was a much smaller company writing about $4 million in annual premiums.

From 2000 on, the MGA rapidly increased its policy production, as its workforce grew only modestly. Using software for the property-and-casualty rating and policy production process from a Naperville, Ill.-based vendor called INSTEC, the MGA also established relationships with more carriers.

But that brought with it stricter compliance requirements, and tighter enforcement of consistent underwriting practices.

In July of 2003, HBW moved to INSTEC's latest offering, called QuickSolver Package 8, which has automatic bureau updates that reflect regulatory compliance for general liability, property, inland marine and, in 2004, builder's risk.

HBW, which uses an in-house account management and workflow management system, needed the benefit of regulatory and filing updates integrated into its own system as well as other third party applications.

"Basically, what INSTEC does for us is provide rate rule form maintenance," says Brian Henn, vice president, administration, at HBW. "It constantly keeps up with revisions as ISO sends them out. We couldn't dream of doing that on our own."

As an MGA active in several markets, Henn adds, an application like the one from INSTEC allows HBW to have different rate, rules and forms, and to adapt to the revisions as they are changed within different markets.

"That helps us issue policies on time and quickly, but correctly too," he says. "We need to tell our markets we are in compliance because we issue policies with their name on them."

HBW also plans to distribute policy forms and underwriting worksheets in the popular PDF format, attached to e-mail for distribution.

"The least amount of effort expended by HBWIS staff to put out all policies in a quality manner contributes to our growth," says Henn. "Periodically adopting this degree of software change, with the added challenge of multiple integration points, has to work well. Sometimes, I can't believe that it does, but it does."

TOM STARNER is a freelance writer based in Philadelphia.

January 1, 2005

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