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Policy Systems: Center of the Universe

Robert Regis Hyle | March 23, 2016

While many insurance carriers view their policy administration system is the center of the universe, Werner Kruck, chief operating officer for Security First Insurance, believes today’s world demands that insurers look closer at the consumer experience, the agent experience, and all the data points that have to be managed beyond the policy system.

“The policy administration system manages contracts, and everything insurers did with them in the past is just as important as it ever was,” says Kruck. “But today, everything we are building outside the policy system connects to that system, so the quality and capability of the policy system now affects your whole environment. If you can't get data in and out of the system, you can't manage apps on smartphones, portals or third-party information—and you can't move the information across systems. It’s the central part of our operation.”

Ben Bomhoff, vice president of enterprise systems for Florida-based Security First Insurance, explains older systems lack the ability to make modifications quickly and easily, which is a challenge for insurers that need to get a new product to market quickly and accurately with the features customers want today.

“Getting a new product out quickly is just one challenge. We also ran into issues when we started doing things outside the core system, such as developing mobile apps,” says Bomhoff. “Our customers need to connect reliably and quickly. We learned from our customers, measured their behavior, and identified areas where we needed to do better. When we looked for a new policy administration system, we needed something that would allow us to configure quickly; get new products and features, such as billing, enabled quickly; and be able to use web services to connect with consumer-facing applications we’re developing with our user experience development partner.”

CSAA Insurance Group is another carrier that has gone through a significant technology transformation and today thinks of itself as a 100-year-old, $3 billion startup company. CSAA Insurance Group began selling insurance to AAA club members in Northern California nearly a century ago and has grown from its humble beginnings to the point where the company does insurance business with 22 AAA clubs in the U.S., selling personal lines auto and homeowners insurance products in 23 states and the District of Columbia. With 2.6 million policies in force, Robert Valliere, vice president of service for CSAA IG, defines the company as a super-regional.

Like many insurance companies, in the course of 100 years CSAA had acquisitions and built new systems. That’s where the startup part comes into play. Before embarking on a new policy strategy, the insurer had nine policy administration systems, four claims systems, and three billing systems all in operation. In 2011, CSAA chose to change course and decided to replace all of its technology platforms.   

“We embarked on building a new policy administration system, a new claims system, a new finance system, a single telephony platform and a new website. We have been on a six-year journey to build everything brand new,” says Valliere. “We know to be successful we have to be great when customers need our help. We also had to get much better around allowing customers and our partners to help themselves. And we had to lower our operational costs. We knew we could not do what was needed to be successful with our legacy systems.”

 “When you think about the demands or market forces that drive insurers to invest in new policy systems, product development and speed are two of the biggest reasons,” says Frank Petersmark, associate vice president of Novarica. “You can't do those things with an older system. You have to enhance product capability to pursue new opportunities.”

Petersmark reports that it is difficult for insurers to consolidate markets. The same goes for acquiring and integrating software solutions. “Think about product development flexibility,” he says. “If some niche market opens up that might work out, you can't take two years to do that. Insurance doesn’t work that way anymore. The longer you are on legacy systems, the more your cost associated with keeping those systems up and running increases. The scale has tipped, even if it's not market driven. It's more about spending huge percentages of the IT budget to keep things running.”

Data accessibility, business intelligence, analytics, and having a policy system that can acquire that information are going to be drivers for a while, adds Petersmark. “It remains true that new systems help to shift costs for operations to more productive areas. Those are all valid drivers for insurers to look at when considering a new policy system,” he says

Lessons Learned

One point Security First Insurance learned as the company moved into more customer-facing applications is that the skill sets that are great for policy administration systems—such as keeping transactions accurate—are not necessarily the same skill sets that define user experience and design. This is why Security First looked for more than just a policy system.

The insurer is in the process of implementing a new policy system, which they expect will go live for new policies and renewals on July 1, but Kruck adds Security First Insurance also works with PointSource for much of their consumer-facing interfaces and the technology outside the policy system; Pitney Bowes for personalized video content; and Integritie, which manages the carrier’s documents.

What grabbed Bomhoff’s attention was the configurability of a new policy system, which allows carriers to configure their own system, define their own products, define a rate book, put in rate calculations, and create billing plans.

“You create these through a configurable interface so once it's in place you aren't coding anything new,” says Bomhoff. “This will allow us to introduce new products faster and expand quickly to geographical areas where we want to be. Older systems need a lot of hard coding, which creates timing issues.”

Also of great value to Security First Insurance is the system is built on web services, so data and functions can be exposed easily to the insurer’s external customer-facing applications, such as a mobile app and insured self-service portal.

Problems Faced

Kruck contends many insurance organizations are run by people who rose to the top from sales or accounting and don't have a great familiarity with technology systems. They often develop business strategies and then go to the IT department to seek a solution.

Kruck himself does not have a structured systems background, but he believes he is enough of a “tech junkie” to understand technology is a major part of the landscape for strategy.

“We do not set our strategy and then look at the impact technology will have on it,” he says. “Many times it's reversed. We try to wind the technology into our strategy. Companies where the leadership understands technology have fewer issues with alignment.”

Bomhoff is appreciative that Security First Insurance recognizes the importance of technology in business. “As a company, we understand technology will change the landscape,” he says. “It's not something we worry about; it’s something we embrace to see what we can do to benefit from it—for ourselves, agents, and customers.”

IT departments have limitations as well. Bomhoff has a strong technology background and has seen first-hand how system development has changed over time. Security First Insurance has adopted the agile development methodology, which requires the company to collaborate extensively across business units. Expertise in user/customer experience, branding, and developing a cohesive experience for customers across applications does not come from IT.

“We’re good at system development, testing, and execution, but pleasing a customer is another skill-set,” he says. “If we have an organizational structure that doesn’t break down the barriers of traditional operations and business units, it will never work. Security First Insurance has a very good structure in place that allows marketing, which oversees user experience design and development, to work closely with IT and our external partners. Together we also work with our call center, claims, and underwriting subject matter experts to leverage internal expertise across each phase of development. Key to the agile and lean process, we build analytics into our consumer-facing technology so we can learn directly from consumer behavior and make highly effective data-driven decisions.”

To be price competitive against the top direct writers is difficult for regional insurers who distribute through an agency force. Valliere believes in order to compete with those direct writers CSAA IG needed to focus on significantly reducing its operational costs. CSAA IG saw getting to a single policy administration, billing system, claim system, and telephone system as the way to lower their costs without sacrificing the level of service AAA is known for.  

The first place CSAA IG put its focus was on the policy administration system. Of those nine policy systems, several were green-screens and having a solution which provided real-time processing was important. They sought out the help of solution provider EIS Group, whose platform has a modern technology stack that was scalable to meet the growing needs of CSAA IG. The insurer sought real-time processing in order to effectively do business in the digital world and allow customers to help themselves.

“The key element for us was going from nine policy systems down to one. Each system cost millions to maintain per year. From a pure economic standpoint we will save millions each year by moving to a single platform.” says Valliere. “But it was more than just cost savings.  We needed a user-friendly system to also improve the productivity of sales agents, the efficiency of service agents and allow customers to make changes by themselves,”

Consumer Expectations

For years most insurance business has been conducted with agents, but Kruck points out carriers increasingly are talking to customers directly and serving up information and transactions directly to them.

“Customer expectations are high,” he said. “No longer is ‘OK’ good enough. Those expectations aren't set by us; they are set by what the consumer experiences with everyone else they do business with. If your policy system has things it can't do or has never done but could add value to your customers, that's going to be a problem. That's what the industry is running into.”

Kruck believes change is going to accelerate throughout the insurance industry and Security First Insurance has anticipated it. “We pushed ourselves to adopt technology sooner,” he says. “We expect to be one of the companies that will help disrupt rather than react to disruption.”

If you look at macro trends over the last decade the notion of consumerism has taken shape. Rather than insurers and agents telling consumers what they'll get, the concept has flipped.

“Consumers are telling companies what they want and how they want to get insurance,” says Petersmark. “From a consumer expectation perspective, that’s a daunting task. “

Availability, accessibility, and the millennial market are all big drivers, adds Petersmark. Each year, more insurance agencies are being taken over by younger people who are looking for a change.

“The producers they are bringing in have the same expectations as the new consumers,” he says. “Younger producers don't have the patience to work with a carrier's legacy system. The third leg of the stool is IT talent. You are not going to keep people working on 30-year-old systems. Modern systems will be a competitive differentiator. If your systems are not positioned to the outside world—distribution to customers and consumers—employees are going to go someplace else.”

No Legacy

Kruck points out Security First Insurance has not had the legacy technology issues that other insurance companies have faced through acquisitions or trying to move business from three or four operating systems into one. “We sought to avoid some of the things I've seen in bigger companies as our company grows,” he says.

Security First Insurance has a business intelligence system and it makes reporting transparent. The insurer has been able to move the technology where it was needed without creating inefficiencies. Implementing a new system creates its own set of problems, though.

“Any time you change your policy system you freeze the business for 12 to 18 months to make the changeover,” says Kruck. “In the past, companies exported policy data from the old system and into the new system. We are using APIs to do that so the messy business of transferring from one policy system to another has been eased through technology.”

This allows Security First Insurance to get rid of some pain points. With an aggressive plan for the new policy system, transferring data was a deterrent to a successful implementation.

“Our hope with the new policy system is it will allow for sound execution in the policy management area and not limit us as we move forward,” says Kruck. “That's really the key.”

Bomhoff agrees there will be some immediate relief. The new system has more flexibility for customer service and billing capabilities, which are important to consumers. “Customers seek a new level of convenience. We had limited options with the old systems,” he says. “As soon as the new system is in place, we will be able to offer our customers better information and the improved features they expect from their insurance company.”

Reaching Potential Customers

CSAA IG sells to AAA members and across the U.S. there are 55 million such members in the AAA Federation. CSAA IG is one of three significant companies selling AAA Insurance, along with Auto Club of Southern California and Auto Club of Michigan. Between the three, Valliere estimates they sell to about 6 million of the 55 million-member market, so there is a large portion of the AAA membership that is looking elsewhere for its insurance needs.

“To be able to attract that segment and build on their relationship with AAA we needed to conduct business in a way that customers could help themselves—online, apps, interactive voice recognition platforms—and our legacy architecture made it hard to do that,” says Valliere. “We just were not competitive in that space. So we embarked on a technology transformation to meet those customer expectations. We realized customers not only wanted us to be really good when they need our help but also the option to help themselves.”

Each of the AAA clubs CSAA IG does business with have sales agents and act as an agency. CSAA IG is in close partnership with them as part of the AAA family, but CSAA IG’s older systems did not allow those agents to do much servicing. The systems were fragile, did not have a lot of system controls to prevent errors, and they were not user friendly, according to Valliere.

“I run the service organization and we get about around five-million calls a year,” he says. “One million of those come from agents with a customer who called them first for help. The state of our legacy systems forced the agents to call us for help; the new system from EIS allows the agents to easily complete the changes themselves which is better for the customer, the agent and CSAA IG.” 

Valliere oversaw the second phase of the EIS implementation. In the first phase they learned they had not committed enough business resources. CSAA IG quickly changed course because it knew it was incredibly important to have a strong business and IT sponsorship with equal accountability for the success of the project.

“It's an absolute. Any technology initiative has to clearly name the business and IT sponsors/owners because the success of the program, particularly a policy administration program, depends on being thorough, timely and consistent with the business requirements,” says Valliere. “It was so important to us that we established a business architecture department to improve how the business delivered system requirements. It was their fulltime job to work through the details to determine if it was something we should build in to the system or whether a people or process solution was the right path. We learned the hard way that it's not just business or not just IT; it's a joint accountability and excellence on both sides to have success in these system implementations.”

No Worries

Many carriers are fearful of such massive projects, but Valliere explains CSAA had clarity around the concept of being a 100-year-old startup company and a commitment to build everything new.

“We knew it would be costly and take time and that a lot of companies fail at this,” he says. “We were not worried if we could do it and we knew we had the resources and conviction to finish. Our worry was to minimize the impact of the transformation on our customers and our partners. This work doesn't come without pain, particularly with your agents and employees.”

Valliere points out the hardest part has been conversion or taking policies off of your legacy systems and putting them on the new platform.  “It is difficult because you generally have incomplete or out-of-date data and you are putting it in a system that requires more information than the legacy systems ever did,” he says. “Handling conversion well takes keen attention to detail and investing in significant data clean-up efforts to avoid impacting your customers.”

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