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April 25, 2019

Choosing a Policy Handling Application

Summary:

Choosing the right policy handling application may unlock significant value; the wrong one may impose a strategic constraint for years.

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Choosing the right insurance policy handling application may unlock significant value, but choosing the wrong one may impose a strategic constraint lasting years. As such, it is good practice to take the decision on what application to progress in a structured manner. This article proposes a series of elements to consider.

Policy Only vs. Integrated:

Choosing between a solution for policy handling only and a solution that offers policy handling capabilities together with other modules such as billing, claims and rating is a question of analyzing the existing capabilities of the insurer to determine what needs, or may in the future need, updating and what does not.

  • If the insurer wants to improve its capabilities in areas other than policy handling, then an integrated solution could be considered. The options in this case are to either implement the policy solution and the relevant module/s at the same time, or first implement the policy solution as a minimum viable product (MVP) and then implement relevant modules later. The thinking is that implementing multiple components from the same suite may be simpler than implementing components from different solutions.
  • If the insurer is confident that it has strong capabilities in all areas other than policy handling, and that in coming years it will not need to upgrade these capabilities, then there may be a case to pick an insurance solution that only has the policy handling module.

Public Cloud vs. Private Cloud vs. Hybrid Cloud vs. On Premise:

Focusing on hosting for the policy handling application, the key options are:

  • Public cloud, where the application is hosted on a cloud owned and managed by a third party. Advantages of this approach are lower maintenance, high scalability and high reliability.
  • Private/enterprise cloud, where the application is hosted on a cloud owned and managed by the insurer in question. Advantages are high flexibility with regard to configuration and security.
  • Hybrid cloud, which combines elements of private and public clouds. The key advantage is that the host insurer can choose to maintain highly sensitive assets on private cloud and the rest on public cloud.
  • On premise, where the application is hosted on infrastructure owned by the insurer. The main advantage is that, because data is not being processed on a cloud, a number of regulatory restrictions do not apply.

See also: Awareness: The Best Insurance Policy  

The decision on what hosting approach is best for the insurer can then inform the choice of policy handling solution in two ways. First, validate for each application being considered whether it was natively developed for the preferred hosting approach or whether it was adapted to that hosting approach. For example, an application that was originally developed as on-premise only may have been “ported” to be deployable on cloud. Second, analyze what success other insurers had in implementing each insurance application with the preferred deployment approach.

Customer-Facing vs. Non-Customer-Facing:

A front-to-back insurance policy handling solution has both a customer-facing front end, such as a web front end, and a non-customer-facing engine for the processing of policies; a back-end-only solution lacks the former.

  • If the insurer does not wish to transact through new customer-facing channels, then a back-end-only insurance solution may be desirable. Validate that the existing channels can be effectively integrated with the prospective back-end-only application.
  • If the insurer wishes to implement new web quote and purchasing capability, then it may be beneficial to select a solution that already encompasses the relevant functionality. Examples are applications that have a pre-built web front end that is already integrated with the back-end policy handling engine.

High vs. Low Automation:

High-automation policy handling solutions have labor-intensive tasks, such as issuing renewals and rating quotes, handled automatically; low-automation solutions, the opposite. Although it could be thought that greater automation is always advantageous, that is not always so. The appropriate level of automation depends on the type of business being transacted.

  • High-volume, low-value business, such as travel, is well-suited to automation. Because transactions are highly standardized, it is more efficient to have the application run them automatically than it is to have handlers do the work.
  • Low-volume, high-value business, such as directors and officers, on the other hand requires, significant personal interaction with brokers and clients, meaning that a low-automation solution is appropriate.
  • For anything in between, case-by-case analysis should be done. Following that, candidate insurance applications should be analyzed to determine whether they natively include the relevant automated transactions.

Data Migration vs. No Data Migration:

The migration of one or more mature books of business from a legacy application to a new insurance application is in many cases the underlying business case for the implementation of the new insurance application, but that is not always the case.

Where one or more books of business are to be migrated onto a new insurance application, analysis should be performed on what capabilities the application has with regard to policy data migration. Specifically:

  • Does the out-of-the-box application allow for the creation of migration records?
  • Have other insurers performed policy migrations into the application, and did they succeed?
  • Does the solution have an integration layer that can be used as part of the extract/transform/load (ETL) process?
  • What level of customization would be needed to enable manual data migration?

See also: Understanding New Generations of Data  

Key Takeaways:

  • An integrated solution encompassing modules such as billing, rating and claims may be adequate where the insurer wants to improve those capabilities.
  • The choice of hosting approach, focusing on either cloud or on-premise, may influence the choice of policy handling solution.
  • Where the insurer wishes to introduce new customer-facing channels, selecting a solution featuring out of the box a front-end, customer-facing solution may be advantageous.
  • More automation is not always best; low-volume, high-value books of business may require lower levels of automation of core transactions.
  • If there are books of business that are to be migrated into the prospective application, analyze what capabilities the application has with regard to data migration.
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About the Author

Damiano Pietroni is a consulting manager with a focus on insurance and a student in the executive MBA program at the University of Oxford.

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