Insurers making big investments in technology gain a competitive edge

Insurance buyers are seeing faster quotes and improved customer service as insurers push to upgrade their policy administration and billing systems. However, the cost and time involved with switching to new systems has left some insurers reluctant to bring their technology up to speed.

There has been a push in recent years for property/casualty insurers to invest in new policy and billing systems to update technology that often is decades old, experts say.

Each year, about 5% to 10% of all domestic insurers look at upgrading their systems, though not all of them decide to invest in the technology, said Donald Light, San Francisco-based director of the Americas property/casualty practice for Celent L.L.C., which is part of New York-based Marsh & McLennan Cos. Inc.'s Oliver Wyman unit. That level of interest has increased during the past several years, he said.

Customer service is a driving factor for insurers to look at upgrades, said Gino DiGregorio, partner in the insurance practice for North America for Dublin-based Accenture P.L.C. For instance, quotes for commercial insurance lines can be turned around days faster compared with policy systems that were developed 20 years ago.

“We think the best-of-breed carriers are (quoting) instantly or within 24 hours,” Mr. DiGregorio said. “So if you apply for a workers (compensation) policy, they'll issue it the next day. So it's a pretty dramatic change.”

Additionally, older policy and billing technology often requires information technology personnel to rewrite software programming codes to allow insurers to make underwriting or coverage changes, said Chad Hersh, a partner in the insurance practice at New York-based research and advisory services firm Novarica (see story below).

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That process can be labor- and time-intensive, and often hinders insurers from making policy changes that could make them more competitive, Mr. Hersh said.

“If you're in specialty lines, this stuff is absolutely critical, because you've got to be able to come up with new products that couldn't possibly have been foreseen by the older systems,” he said.

By updating the programming process and speeding turnaround times, insurers can become more efficient and ultimately offer savings to customers, experts say.

“As a policyholder, most typically the biggest benefit is in improved service levels,” Mr. Hersh said. “So more accurate quotes, more accurate renewal quotes, less paperwork. In many cases, a lot of things can be done online or done automatically.”

Mountain States Insurance Group Inc. of Albuquerque, N.M., hopes its new $6 million system will allow the company to better serve its customers. The company writes workers compensation, commercial auto, inland marine and other commercial lines, and has 6,300 enforced policies.

Mountain States President and CEO William Davis said the company had been using a policy administration and billing system that was nearly 40 years old. Changes to the system usually required Mountain States' IT professionals to rewrite the system's programming code.

“If we wanted to do any kind of new product rate changes (or) new forms, IT became a backlog and was an impediment to us doing those things,” Mr. Davis said. “We were very slow and reluctant to make changes to make our products more competitive.”

Last summer, Mountain States decided to install Accenture's Duck Creek commercial policy software suite, and the first part of the upgrade is expected to be complete by March. Along with making the company more efficient, Mr. Davis said the upgrade will allow Mountain States to provide electronic billing and email policy documents to customers — both of which previously were done by mail.

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Not all insurers are willing to make the investment to improve their technology, Celent's Mr. Light said. For commercial insurers, the process of upgrading can cost at least $2 million to $3 million and can reach up to $10 million or more, he said. Meanwhile, initial rollout time can stretch as long as 12 to 18 months, depending on how many lines of business an insurer writes and the number of states in which it works.

Additionally, insurers should be prepared to work with their technology vendor for years after installation as the system needs periodic updates, Mr. Light said.

“It's not just you buy a bright new shiny system and everybody's happy,” he said. “It really is a 10- (to) 15-year relationship.”

The time and cost are worth it for companies that want to make sure they're competitive in a changing insurance market, experts said.

“The cost of us not upgrading is far greater than any cost we'll spend on implementing a new system,” Mountain States' Mr. Davis said.