There are many challenges facing insurance carriers in today’s economy. As the pace of the marketplace becomes increasingly rapid, agility becomes a primary factor in remaining competitive. It is difficult to predict what changes will be necessary in the near future. Will these coming changes be minimal or drastic? How will the current structure respond? Companies that master change better will ultimately be more successful. The quality of customer service and responsiveness are often the difference makers for customers. How can there be assurance that customer service will be first rate? There are heightened demands on compliance and legal issues. Companies that have answers to these questions are confident that they will remain competitive in the days to come.
In the midst of these challenges, carriers have been forced to become experts in managing information. Companies with technology of the past find themselves at a disadvantage as business decisions are often oriented by IT constraints. Carriers that have the ability to maintain consistent processes with advanced, flexible technology have a distinct advantage over carriers that are mired in technology constraints. Outsourcing is sometimes used to help mitigate difficulties and costs; however, this often amplifies client response times. Moreover, carriers are forced to deal with issues such as a constantly changing volume and associated workforce.
One of the key factors in adapting to change is the ability to handle the corresponding information technology demands. Insurance carriers are best served if they are able to focus on their business, namely serving their customers and covering risk for a competitive premium. Each application’s main purpose is to respond to customer demands. The fact of the matter is that customers do not want to deal with insurance. They recognize insurance as an important commodity they need to have, but do not want to spend much time managing it. It is paramount that the ease of doing business for customers is simple. Carriers that make owning insurance products difficult for their customers will lose them, and carriers that make insurance ownership effortless will keep them. Nonetheless, it is possible to deal with these issues by making it easy for customer service representatives to easily and quickly access information to respond to any need.
To illustrate this point, imagine a car dealership that separates expertise for each part of their business. Their sales force would be first divided by groups pertaining to model of vehicle; let’s say one group for compact, one for midsize and one for full size. Each group would then be further subdivided into employees who had expertise in each particular model, for example electronics, engine specifications, additional options, pricing, and even interior and exterior colors. A customer who desires information about several models, or even one specific model, would have a painful experience. There would be no continuity of the process and it would take a very long time to gather the information necessary to make an informed decision. This would not only be irritating to the customer and take their valuable time, but would be very costly and time consuming for the dealership as well. Now imagine a dealership across the street that has the same offering of automobiles. In this case, their employees have a thorough knowledge of all models. Customers who visit this location experience much better customer service by being able to access all information from one source in a timely fashion. Shoppers at this location would have a much higher level of customer satisfaction. This method of organization would save money for the dealership, and their employees would have the necessary tools and skill sets to do their job well. In short order, business would decrease at the first dealership and increase at the second one. Even many returning customers to the first dealership would end up taking their business elsewhere for the simple reason that people want to go where it is easy.
In the course of this pursuit, carriers often lose focus on what is important and start to concentrate on varying means to that end. These types of ancillary activities are overwhelmingly related to information technology and system architecture. In this day and age where information is king, it is important to establish a firm foundation to the overall technology approach. Information technology can either be a burdensome weight or a competitive advantage. Companies that have a chaotic approach to technology are saddled with problems while companies that have the most consistent and simplified methodology are the most agile.
There are many challenges within a carrier’s key business functions, including customer service, rating/quoting, policy administration, product management, billing, payments, accounting, agency management, commissions, claims administration, and reinsurance. Many insurers have separate systems that handle each of these activities, and many more have multiple systems that perform similar processing, depending on specific product line. As business expands through new product offerings, acquisition, or even by changes to state or federal regulations, often the most convenient and rapid technical answer available is utilized. For carriers that do not have a strong, flexible foundation, this quick-fix approach leads to varying ways of resolving these needs. For companies obtained through acquisition, it is tempting to continue its new business on its current application. For completely new product offerings, it might seem easy to purchase or build a new system to solve this specific need. Similarly, new systems are often implemented to handle a specific functionality that has become an Achilles heel. This is often the case with agency management, commissions, or claims, but can also extend to any processing that has become arduous.
It is tempting to employ these point solutions because they quickly apply a band aid effect to where it hurts. However, as part of the implementation, they are forced to be integrated within the overall system architecture. Carriers that implement varying solutions for quoting, policy administration, billing, commissions, and claims are faced with many challenges. Each solution that handles a specific product and/or specific functionality will need to coexist. What results is often a very complex overall system architecture with many varying systems that need to communicate. In many cases data are redundant between systems, resulting in a need for additional interfaces and processes to minimize this redundancy. If these complexities are not mastered properly, they will have a definite and negative impact on a carrier’s ability to serve their customers. Customer service representatives should not need to log in to multiple systems in order to retrieve information that pertinent to an agent or to a customer. Currently, many carriers require the information to be retrieved from multiple systems. Others may require an inquiry to be sent out with the information provided the following day. In cases like these, carriers often lose customers. Even worse, some agents pull their business and take it to a competing carrier.
Carriers that consolidate all product lines into a single approach have a distinct advantage. Customer service representatives are able to obtain answers to questions quickly by providing access to all needed information in a single system. All of the customer’s business can be seen in one location without the need to cross-reference. This is critical in the endeavor of a carrier to respond quickly and accurately to meet all market needs. Customer maintenance, such as a change to reflect a simple change of address, is required to be made only one time in one location in relation to all of a person’s business. This not only eliminates data integrity issues, but also helps carriers respond quickly and accurately to their customers. Direct access to information should not stop there. With all information easily accessible, carriers should offer a web portal for agents, customers, and even guests to read product literature, obtain quotes, and make appropriate changes. This access should be real-time and not be reflective of the prior day. This consolidation can also be a valuable asset from a marketing perspective as a summary screen can be quickly viewed for additional opportunities.
A compounding consequence to this approach is the fact that systems that provide key business functions also coexist with many other systems, such as a general ledger, imaging solution, or check writer. There are dozens of these supplementary systems that are needed. Within the overall technical structural design, each of these systems is required to communicate with key systems. For example, billing, commissions, and claims will each need to link directly with a general ledger. This link will send a variety of information in each direction, and in most cases there will be several links depending on need. From this viewpoint, it is easy to picture how this can be complicated exponentially if there are many key systems. Take, for example, a life carrier. If there are separate systems for each of their functions, it will bring complexity. This is compounded if each product is administered on a separate solution, such as life, disability, and accidental death and dismemberment. Further, there could be multiple systems for very similar product lines, such as whole life vs. term, or individual vs. group.
Why is this so important? For many reasons! First and foremost, a carrier needs to respond quickly to their customers with useful and pertinent information. From the example above, a customer who has three products – for example, life, disability, and accidental death and dismemberment – will want answers to their questions quickly and accurately. Imagine if this customer has one billing question and one policy question. In their mind, they simply have two questions. However, if there is a separate billing system for each product, this would require a separate inquiry into each of six systems! A customer would be left on hold for a lengthy time while a customer service representative takes the time necessary to gather this information. Worse yet, the customer might be required to gather all of the information themselves as they are transferred around the organization in the pursuit of the answers they seek. In these cases, they are more inclined to take their business elsewhere. A similar scenario could be provided for agents with more dramatic consequences since agents can take an entire book of business with them.
More generally, the overall customer approach is another important concern. With multiple systems there is no unique customer approach. With varying views into the customer information, the customer focus is lost. Each system has a distinct way of accessing information. Once obtained, it is often incomplete. Carriers that have mastered the ability to combine all client information make this much easier on their customer service representatives by enabling them to find all the detail they need. This, in turn, helps to create happy customers.
Secondly, possessing many point solutions results in business units that do not follow a consistent set of processes. Procedure decisions are often made by the limitations of each respective system. As a result, these units become silos within the organization. Employees in each particular unit are unaware of how other units operate. These differences can vary by functionality and also by product line. For instance, some carriers might have a specific unit that only handles disability claims, following their own specific processes and using their own specific system. If a life claim occurs for a customer who is already receiving disability benefits, often the communication between the business units that handle these claims is not ideal. Other challenges between business units exist as well. For example, a late premium payment to a separate billing system needs to be considered in the calculation of a final benefit claim payment. Clearly, these issues would not exist if all products and processes are handled by one solution. Information would be much simpler to obtain. Even if the management of these activities were handled by independent business units, accessing the information and understanding the processes would be vastly improved.
A further result of managing numerous systems is the considerable number of system updates that are required. Each package solution typically will provide a release at least once per year, sometimes more often. Even though not every release may be necessary, it is generally recommended to maintain reasonably close to the most current version. With many systems providing similar functionality, it is time consuming on the technology staff to keep up. Each release typically requires at least two months of testing with trial runs before being deployed to production. It needs to be well orchestrated including all elements of end user training as well as in-depth analysis to ensure that all existing communications with external systems remain operable. Existing interfaces that are affected need to be customized before the new release is implemented. Visibly, this is time-consuming and expensive on an IT department. Carriers that minimize their number of systems have an advantage because they are able to update fewer systems and drastically reduce software maintenance costs.
Also worthy of consideration is the maintenance effort required when changes are made to existing products, either as a result of changing regulations or by new product design. This is often the case if a new limit, coverage amount, or deductible is added. These changes are often required across product lines, necessitating a change in multiple systems.
Managing multiple systems that provide similar functionality can also make executive-level reporting quite a challenge. Earlier in my career I was assigned to work with a team of three tasked to create an executive reporting solution for a large carrier. When we arrived onsite, we found that the carrier had a desperate need for executive-level reports. The carrier had over 180 systems that had level of involvement in their insurance business and data. In many ways, they had a very difficult time even knowing what data they had. Our job was to create interfaces from each of these systems into a database. For this to be useful, each piece of data had to be normalized. Each interface was set up on a periodic basis and required in-house maintenance on a go-forward basis.
Once this was accomplished, we were tasked to create many reports that group information in various ways so that executive-level decisions could be made about their business. This was a company that was truly struggling with their own technology. They spent more energy on technology than they did on their business. If they were able to consolidate systems, it would incredibly simplify the reporting process. First, an external reporting application would not have been created and would not have to be maintained. Second, many reports would simply not be required. In the course of creating their reports, it was apparent that many reports existed for the simple reason that information could not be easily consolidated into a single view. Therefore, if consolidation occurred from an application standpoint, they would have the ability to access the data directly in the system.
On a related topic, the single system approach makes it easy to aggregate any type of financial information. For billing it is easy to combine invoices if desired, even if, for example, a customer had two distinctly different types of policies. Similar correlations can be made for claims and commissions. Carriers can provide agents with a single check for all commissions across product lines for any desired period along with all pertinent detail.
In spite of the aforementioned negatives to having multiple systems, many carriers find themselves in this situation. While none initially set out with this objective, nonetheless it is the case. Why is this? Some reasons have been mentioned above, namely new acquisitions, the introduction of new product offerings, or changes to existing federal and state regulations. However, there are additional reasons. Some want to go in the direction of different technology or want to try a system that offers more flexibility. Sometimes a packaged solution will be accompanied by business expertise that has been embedded into it. Perhaps company management determined that modifying an existing system would be more costly and time consuming than introducing a completely new application. Other times there might be political issues at play or an effort to circumvent system ownership issues. Lastly, a particular system might be conceived as providing a distinct business market advantage.
All of these reasons for adding additional systems are noble and in the best interest of the carrier. In a vacuum, each time this decision is made it does not seem like adding one additional system, whether a package or a custom-build, will require much additional time and cost. By itself, this is true. However, this decision is often made a few times per year over the course of many years by various business units. Over time, what results is a very complex technical architecture.
Insurance carriers should be able to use information technology as an advantage to focus on growing their business rather than becoming software experts. There are enough challenges within the business of insurance (i.e. support of new and existing products, changing business volume and workforce, customer relationship management, regulatory compliance, etc.) without taking on unnecessary challenges. As business grows, scalability becomes an important dynamic. Due to the design of many systems, they have reached the maximum amount of information and processing that they can handle. Each system should be periodically checked to ensure its adequacy for the increasing business volume. Systems should have a solid structure that does not require a change based on growing business. For some systems, there is little left that can be done without either overhauling the foundation of the system or merely replacing it with another solution. With newer technologies, most modern solutions have reduced or eliminated scalability issues. Rather than requiring a system overhaul, usually additional information can be handled simply by adding supplementary servers.
In their quest to simplify their overall technology, one of the first questions a carrier should consider is the flexibility of their current systems. Can they adapt to new lines of business? Can new products be added by the business staff, or do they require changes to code by developers? In general, are the systems business-driven, or technology-driven? Are current and future business decisions made by the IT constraints? Can information be accessed easily? An ideal solution should be able to handle all of these concerns. Carriers can gain efficiency and drastically improve the ease of doing business for themselves and their customers with the right application. The system should be as hands-off as possible by maximizing automation. An application should have the ability to automate workflow in a smart way that routes work based on each specific policy administration circumstance. For example, policies that are above a specified limit should automatically be routed to senior-level underwriters with the appropriate security levels needed for action. When complete, whether approved or not, built-in logic should automatically send the policy to the person or role with the next defined action. This edifice would pay for itself in a short amount of time. Extra communication would no longer be required as this would eliminate the need to find that specific employee who is the only one that knows about a particular system. Every carrier seems to have one of these employees that appear to be the only fount of knowledge on some very special topics. Having large amounts of certain knowledge tied up in one resource due to the complexity of the system administration is poor. Carriers can be placed in a precarious situation if one of these key people leaves or even takes an extended vacation.
If a carrier has a solution for commercial lines, consider if it has the flexibility to add personal lines. Also, can it handle liability, workers compensation, specialty lines, and umbrella? Additionally, consider its ability to handle all aspects of the policy life cycle. Can it handle commissions, claims, invoicing, and reinsurance? When considering these questions, it is important to think broadly and not specifically. If a carrier has offers for both individual life and individual property and casualty products, often they will presume that nothing is common. However, much is in common. For one, customer and broker information is the same. Further, billing, accounting, and commissions will have many similar characteristics. The more that products and functionalities that can be brought together in a single system, the better off a carrier will be in their quest for simplification and customer service. The greater the amount of consolidation is achieved, the simpler the systems architecture will be.
When determining if systems are more business or technically oriented, observe the process by which users currently make changes and how they are made. If a new product is offered, a business user should have the ability to create new products in the application. This applies to all product attributes such as deductibles, rates, benefits, state variations, and the like. For the most part, this should be done without the need for customization of the application, and therefore should also not require a new release of the software. As a result, business users are free to make decisions based on business reasons and not by technical limitations.
We previously discussed the importance of customer service representatives’ ability to respond to customer demands. This logic can also be applied to other in-house personnel. A billing manager should have access to contract data easily without the need to go to another department and wait for a request to be fulfilled. Model systems should provide an authorized read-only view into data that is pertinent to other users. In the case of disability, case workers often need to examine situations to see how issues such as social security implications should be addressed. These roles should have a direct view into the information that is required to make appropriate decisions.
One item that drastically varies from carrier to carrier is time to market. This typically ranges anywhere from two months to two years. State insurance departments control much of this timing, so having the ability to respond rapidly upon state approval is critical. Products that hit the market first have a distinct advantage over those similar products from carriers that lag behind. Since a product can only be introduced once, swift and reliable technology support becomes significant. Advanced solutions should be able to handle new products in just a couple of months, including testing. They should be configured by business analysts who know the products. Some changes, such as minor variations by state, should take virtually no time at all.
Compliance poses its own set of challenges. The consolidation of all data from various sources into a single repository in a format specified by regulatory bodies statistical agents and bureaus takes time and expertise. Once the data are available and reliable, they should be analyzed for consistency. From there, reports are created based on compliance requirements. Again, this process is simplified for carriers that consolidate their entire book of business in a single solution; the consolidation and analysis for consistency is not required. These carriers can simply report off the current system.
For Sarbanes-Oxley requirements, there are several sections that are focused on accounting, auditing, internal controls, and financial reporting. The following sections are focused on information technology and related processes:
Section 302 – Corporate Responsibility for Financial Reports
Section 404 – Management Assessment of Internal Control
- Section 409 – Real Time Disclosure
Without the proper technology, meeting these demands can be challenging. The ability to rebuild any release at any time is critical. Changes are acceptable, but the integrity of all history must be maintained, ensuring the ability to reproduce any build at any time. Therefore, it is increasingly important that any system have the ability to automatically save each modification with a date/time stamp and user identification. Ideally, the system should save not only the configuration of the application at each point in time, but also the corresponding data elements.
Further it is necessary to show that there are requirements for project management, change management, and processes that follow a strict procedure. The procedure and all supporting documentation must be producible at any given time. Similarly, information technology processes should be automated so that auditors can easily review. To achieve this, systems should clearly separate roles and provide clear definitions to the type of access to the application of each role.
When an insurance carrier requires a new solution, what are the main things that should be considered? In short, a new system should have the ability to replace the maximum number of current systems and have the flexibility to grow with the business as it expands into new markets. Say, for example, a carrier runs 50 business processing-related systems. By the time the new system is implemented, there should not be 51 systems. The new system should replace as many as possible by implementation into production, and then continue to replace additional systems on a go-forward basis.
In summary, agility is one of the primary factors to remain competitive. To reach this objective, insurance carriers should have a strong, flexible system that can respond to changing needs and get out of the business of being a good plumber and mechanic. Simplicity should also be a primary goal so that the number of current systems can be dramatically reduced. Lastly, the focus should be on insurance services to be better able to respond to customer needs. With this vision, insurance carriers will be better positioned to proactively respond to the constantly changing needs that today and tomorrow will bring.
Steve Franklin is the Vice President of U.S. Operations for Wyde Corporation and has more than fifteen years of insurance systems experience. Steve’s previous experience includes the management of several custom builds and implementations across the Life and Property and Casualty sectors. Steve’s most recent experience was with CGI for seven years and also has prior independent consulting experience. Steve joined Wyde over two years ago and has been instrumental in growing Wyde’s business in the United States.