Insurance Transformation | Exploring Off-the-Shelf Software Solutions

Insurance companies, in the age of digital transformation, see opportunities in replacing legacy IT systems with third-party software solutions.

This third in our series of articles about digital transformation in the insurance industry looks at third-party software solutions for replacing legacy general ledger, policy administration, claim administration, and other software systems. Many companies use complex and inflexible systems dating back years.

Read the Insurance Transformation Series

• Recognizing the Need and Opportunity
• Adapting a Legacy System

Build a Solid Foundation First

When considering off-the-shelf software solutions for core insurance functions, conduct upfront brainstorming and alignment sessions to establish a solid foundation before evaluating vendor solutions.

This crucial internal first step creates clarity around software features, functionality, and criteria for evaluating solutions. This also solidifies goals and objectives among stakeholders, creating stakeholder alignment early in the process.

The Groundwork for Evaluating Software Solutions

Before looking at slick advertising or listening to smooth sales calls, take a step back.

Begin with these high-level topics, action steps, and questions to paint a picture of what success looks like. This helps minimize distractions along the way. Vendor demonstrations, project decision points, and challenges introduce the risk of deviating from the initial objectives.

A strong foundation helps maintain focus and keep the project on track.

Problems that software could solve

Identify and prioritize the most pressing pain points to solve.

• What are you expecting the off-the-shelf solutions to provide?

The appetite for transformation

Outline expectations regarding the pace of change.

• How much change can the organization absorb?
• What actions must happen for a successful change?

Set boundaries

Establish guidelines regarding vendor solution options.

• Are you keeping the number of vendors supporting your business to a minimum, or are you fine with many best-of-breed, one-off solutions (i.e., the tradeoffs between generalist vendor solutions and best-of-breed solutions)?
• Do vendors have to meet specific upfront qualifications for consideration?
• Will you use a request for proposal (RFP)?

Define your approach to future-state business processes

Establish guidelines for your future-state business processes and create a shared understanding among stakeholders.

• Will you adopt standardized business processes based on industry best practices included in off-the-shelf solutions?
• Will you expect significant customization to support your existing business processes?

Identify required regulations and standards

Outline the must-have regulations and standards for your organization.

• Are there requirements, such as industry-standard policy forms and endorsements, the off-the-shelf software must support?
• Are there regulations that impose requirements on the solution, such as reporting certain claim activity to third parties?

Understanding What to Expect from Off-the-Shelf Solutions

Insurance operations are complex and comprise many interdependent systems forming an enterprise solution.

Off-the-shelf solutions range from generalist solutions covering multiple subject matter areas to narrowly focused products for niche services.

Typically, generalist software solutions revolve around the core insurance operations such as policy administration systems (PAS) and claims administration. Ancillary systems supplement these core systems with billing, digital disbursement or payments, document management, and business intelligence solutions.

Leveraging an off-the-shelf solution versus modernizing a legacy system offers insurers “quicker” digital modernization. A quicker installation will not mean tomorrow. Complex transformations take time to do correctly. A sobering statistic cannot be underestimated: 70% of major projects fail.

Depending on the off-the-shelf solution, the progress on digital transformation may be multi-faceted. For example, a high-performance policy administration solution may include features to support an improved customer experience or provide business intelligence and reporting capabilities. Similarly, a claims administration solution may have digital disbursements and enhanced payment options.

In some cases, the additional features and functions will be in the form of add-on components which may involve further development or additional licensing. This is still an advantage over modernizing legacy systems, as most legacy systems do not support today’s digital experiences and advanced business intelligence requirements.

Benefits of Off-the-Shelf Insurance Solutions

Out of the box, high-performance software solutions deliver standard benefits beyond your current legacy system. Some of these are general benefits that follow modern software trends, and others will be specific to the solution type.

General Benefits

Common Insurance Software Benefits

• • Adoption of insurance industry best practices – A well-established off-the-shelf vendor solution typically incorporates common core capabilities and industry best practices based on validation and refinement across the insurance industry.

 

• • Increased agility – Many off-the-shelf vendor solutions include configuration options creating flexibility to meet rapidly changing business needs, such as spinning up a new product line. This is not to imply that introducing a new product line will be quick, especially given any outstanding business decisions. Still, off-the-shelf solutions can minimize the barriers previously in place with legacy systems.

 

• • Continued modernization and reduced maintenance efforts – Vendor solutions typically provide regular maintenance updates incorporating new features based on industry needs or changes in regulatory requirements.

 

• • Boosted consistency across processes – Many legacy systems were built with a focus on data entry versus the business processes around the data entry, which allowed for user inconsistencies. A modern off-the-shelf insurance software solution incorporates more of the process into the user experience, creating more consistency among individuals using the system.

Potential Benefits Based on Solutions

More specific benefits come from the type of solutions being evaluated and implemented. The following list outlines some of the core and ancillary solutions available for insurers to consider, along with a few examples of potential benefits of off-the-shelf solutions.

Policy Administration Solutions

• Consolidation of policy administration functions under one system – Many insurers have multiple legacy policy administration systems, each requiring maintenance and support. A comprehensive PAS solution allows for migrating all products into one system, reducing business and IT support, minimizing training, and creating consistency across product lines.
• Built-in underwriting – Robust policy administration solutions incorporate rules and rating engine functionality into the system workflow, offering automated underwriting and straight-through processing while maintaining the ability to escalate to an underwriter when needed. Also, some vendors provide flexibility to use their vendor-supplied engines or alternative third-party solutions that hook into their policy administration solution.
• Increased reporting and visibility around policy administration activities – Modern off-the-shelf systems provide insight into activities to support improved analysis and decision-making, which boosts consistency, accuracy, and efficiency across your sales force and underwriting staff.
• Improved customer service – Off-the-shelf systems support real-time processing and allow a quicker resolution to customer questions, quote requests, and policy issuance.

Claims Administration Solutions

• Improved policy coverage verification – Systems typically offer improved coverage validation for a particular claim based on the policy effective dates or details such as policy coverages and limits. Options can range from simply importing relevant policy information into the claim system to more automated steps leveraging system-defined coverage verification rules.
• Increased claim reporting and visibility around claim activities and payouts – Modern off-the-shelf systems provide insight into claim activities supporting improved analysis and decision-making to boost consistency, accuracy, and efficiency across claim staff.
• Streamlined claim processes – Systems can incorporate triaging claims handling that range from low-touch to high-touch processing based on anticipated complexity or other classification criteria.
• Reduced claim leakage – Each previously identified benefit supports faster claim processing and improved customer service. Typically, claim payouts increase the longer the claim remains open, so delays naturally lead to additional claim leakage.

General Ledger, Accounting, and Finance Solutions

• Increased information flow across the organization – Modern general ledger systems support improved information flow and proper segmentation of information access to share information in a controlled manner.
• Improved reporting – Modern reporting tools and a well-designed financial data model support easily building and maintaining ad hoc and regular recurring reports for internal and external audiences.
• Streamlined general ledger, expense management, and accounts payable processes – General ledger systems today incorporate robust allocation rules engines, automated journal entry features, and import tools to reduce manual effort.
• Faster period close cycle – When coupled with the benefits above, off-the-shelf systems incorporate additional automation and process workflows to standardize and boost the efficiencies around the financial close steps.

Agency Management Solutions

• Improved visibility into the customer – Off-the-shelf solutions can provide a more holistic view of policyholders through customer relationship management (CRM) features and consolidation of information from multiple sources.
• Improved visibility into the sales and performance metrics – Real or near real-time dashboards and reporting features offer opportunities to review and assess agency and agent productivity for improved decision-making and management.
• Improved commissions management and tracking – Some off-the-shelf solutions provide functionality for managing commissions, including calculations, payment disbursements, reporting, and maintenance of commissions processing.

Other Insurance Software Solutions

In addition to the list above, here is a quick rundown of some other systems, opportunities, and potential benefits for consideration:

• Billing solutions
  • Flexibility to introduce additional billing plans and payment options
  • Consolidation of customer billing across product lines
• Digital disbursement and payment solutions
  • Ability to pay individuals or organizations through digital channels
  • Ability to offload all payments, regardless of type, to a vendor for handling physical checks, electronic payments, or payment cards
• Document management solutions
  • Ability to consolidate document repositories into a single solution
  • Flexibility to introduce document workflows providing automation around manually intensive processes
• Customer experience and customer relationship management solutions
  • Ability to provide new or improved digital experiences to customers
  • Improvements to information flow and analytics around customers
  • Improvements to tracking of customer interactions to support improved customer service
• Employee and talent management solutions
  • Improvements to payroll, time tracking, recruitment, and other employee management features
• Business intelligence and reporting solutions
  • Improvements to reporting and information sharing across the organization through dashboards, consolidated views of information across functional areas, and ad hoc analysis capabilities

Vendors provide software benefits in unique and nuanced ways. Each platform requires thorough evaluation to avoid assumptions, understand its capabilities, and understand how features integrate into your operation.

Jumpstart to Digital Transformation

Organizations pursuing improved digital services such as customer self-service features or mobile platforms may benefit from vendor-provided functionality. In many cases, the vendor provides these via add-on features or frameworks serving as building blocks for a specific insurance company’s implementation. Leveraging these features may provide additional opportunities to accelerate your digital transformation journey.

Also, the effort to implement off-the-shelf solutions solves the problem facing many insurance companies with legacy systems – experienced business and IT staff retiring. Knowledge transfer has likely occurred through informal mentoring and training or via ad hoc questions over time, with little understanding of the reasoning behind some of the work.

Adding business team members to process and design decision-making builds ownership and supports buy-in during the transition. The technical staff builds technical and business knowledge.

When implementing solutions with robust digital services, this rebuilding of business and system knowledge also grows internal familiarity with the opportunities around digital services. This gained experience serves future projects well, providing an additional boost to your digital transformation journey.

Customizing Off-the-Shelf Solutions

Insurance companies can experience a quantum leap when implementing third-party software solutions achieving never-before-seen agility, flexibility, and opportunity.

While software vendors design presentations to appeal to all the features on your wish list, the path to getting everything on that list is not always a straight one. Modifications to the off-the-shelf system may be a part of the solution.

There is a balance to strike with the level of modifications implemented with an off-the-shelf solution. The gains in agility diminish as the level of adjustments increases. Even if you have the same vendor across your policy and claims administration systems, do not assume that changes in one system translate easily to the other system.

For example, changes to a highly customized policy administration system to support functions or features for a particular line of business may require considerable adjustments within the claims administration system to support the change. Significant modifications require additional work, extending the project timeline and increasing costs.

Key Terms for Modifying Off-the-Shelf Insurance Software

Two terms are used to describe adjusting an off-the-shelf solution to support an insurer’s requirements. When evaluating vendor solutions, these terms are worth noting to best understand hidden ongoing costs.

• • 1. Customization describes changes made to the vendor’s underlying system that modifies the software beyond its original design. These changes typically require ongoing maintenance, particularly during system upgrades.
    2. Configuration describes changes applied to the system through planned extensions, plug-ins, or configuration points within the vendor’s system. The system’s original design supports these changes and should reduce the work required for upgrades.

Although the distinction between the two commonly used terms is real and worth noting, each represents a change to an off-the-shelf solution. The level of customization and configuration applied impacts upgrades, ongoing maintenance, and agility, with customization taking the biggest toll.

Systems Architecture for Third-Party Insurance Software

Choosing third-party software involves more than selecting a system with the necessary business features and functions. Systems architecture can also greatly influence the value obtained from a third-party solution.

Anticipating the following system and technical considerations upfront and before full engagement with vendors supports the vendor selection process and implementation. Also, setting system architecture direction early minimizes the amount of project churn while waiting on decisions.

Operating on Internal Servers or in the Cloud

Deciding whether you want the system running in your data center or within the cloud impacts solution options. Many off-the-shelf solutions may only support a cloud implementation, often narrowing your options. Vendors with internal and cloud service solutions may have different maintenance and enhancement processes for each environment.

For example, a vendor with both platforms may devote more attention to their cloud-based offering. In some cloud-only solutions, vendors manage the configurations, reducing the need for local support services. On the flip side, this arrangement may reduce agility.

Disaster Recovery and Data Redundancy

Insurance companies understand disasters and mayhem. Consider the unthinkable. Given the benefits of the cloud, many organizations may assume that all cloud solutions offer robust data recovery and redundancy solutions. The architecture and licensing can vary across off-the-shelf cloud solutions, potentially leading to confusion or overlooked expectations.

Some solutions appear sound based on upfront vendor discussions and evaluations. Dig into the details and nail down technical specifications to understand if the solution meets your demands.

For example, some cloud-based implementations rely on daily backups with a 24- to 48-hour service level for disaster recovery events, with higher service levels requiring additional costs. Your team should define minimum requirements upfront to properly evaluate any vendor’s solution.

High Availability

Cloud-based off-the-shelf systems strive for high availability for their software with close to 24×7 system uptime, excluding routine maintenance. The reality may be different. Even with high uptime solutions, internal constraints may limit your system uptime.

For example, a new system may face downtime if it involves a legacy integration point with system downtime for nightly batch processing. Creating a solid vision for your system availability requirements helps when evaluating solutions and designing integrations.

Implementation Partners, Vendor Consultants, and Independent Project Leadership

Implementing off-the-shelf software solutions often requires help from vendor-certified implementation partners. Understanding the roles and responsibilities of the implementation partners, vendor consultants, and internal teams leads to project success.

For example, implementation partners and vendor consultants often provide product and industry knowledge. These insights combine with your company’s industry and institutional knowledge of processes, integrations, and reporting.

Also, an independent project management consultant represents your interests. This role serves as an independent vendor-selection specialist avoiding financial entanglements with software companies.

By coordinating across multiple parties and focusing on your interests first, this role ensures client expectations are set and achieved across all involved. This independent implementation partner also identifies gaps, drives results, and facilitates information flow across all stakeholders.

With each of these roles in place and working in a cohesive manner, you have the building blocks for a successful project. An internal person may fill the project leadership role if provided with all the proper support and necessary resources to succeed. Projects often fail with even the slightest gap.

TAC4 provides independent project leadership, including vendor selection and management. Our Projenomics® approach leads to 100% success. Contact us.

---