A diagnosis of the policy admin system
Jan 01, 1970
Over the last several years, insurers have spent a considerable amount of money on policy administration systems (PAS). It would be reasonable to assume that there has been measurable progress in the operating levels of the insurers. However, despite large spends on these systems, there has been minimal improvement in loss and expense ratios. And truthfully, the improvement that has occurred has not had a beneficial effect on revenues.
Additionally, these new systems don’t do much to help improve core risk information, analytics and underwriting effectiveness. In many cases, the issues of poor collaboration between underwriters, agents and other stakeholders persist. Underwriters continue to spend almost 70% of their time on low-level tasks, such as searching for and aggregating information. As important as rating/pricing models are, the systems still operate on traditional, structured data, remaining mostly oblivious of data now available (big data).
It amazes me that despite empirical evidence to the contrary, PAS spend and implementations continue to outrank underwriting workbenches which are proven to bring greater efficiency, more risk information and to improve underwriter effectiveness. Consider the facts below.
- Only 30% of the policy administration projects are completed on time, within budget or meet all original benefit requirements.
- 50% of the projects suffer cost overruns, are unable to meet deadlines or do not meet benefit requirements.
- 20% of the projects are cancelled or abandoned because they are unable to meet cost or scheduling commitments or customer expectations.
The average length of replacement projects is 4.25 years. Not only is this disruptive to the business, but also comes at an opportunity cost. Causing near and long-term business disruption and absorbing resources.
Policy administration systems offer no flexibility for aggregating and analyzing data and for improvement in underwriting effectiveness. This often leads to additional spend by the company, that is, if the funds are available after the implementation.
There may be instances when a PAS is needed. However, I have found this to be the exception. To be more competitive in the existing and upcoming digital environment, insurers should bring greater focus to determining where technology investments will be made. More thought needs to be given to improving underwriter efficiency and effectiveness to allow for better customer service.
Source: Performance of Policy Administration System – PwC Research Report