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Policy Administration Rationalization Doc


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A Rational Approach to PAS Replacement

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Policy Administration Rationalization Doc

  1. 1. Justifying back office systems Considering the business case Discussion Document with ABC Insurance Company
  2. 2. Key points covered <ul><li>What are the back office systems challenges? </li></ul><ul><li>What factors are forcing change? </li></ul><ul><li>How are companies responding? </li></ul><ul><li>Can the costs be quantified? </li></ul><ul><li>What are the lessons learned? </li></ul>
  3. 3. Typical architecture Customer Distributor Client Front End External data sources Policy database Corporate data warehouse Agency database FRONT OFFICE MIDDLE OFFICE General ledger <ul><li>finance </li></ul><ul><li>valuations </li></ul><ul><li>commissions </li></ul>Financial database BACK OFFICE MIS Workflow New Business system Transaction systems
  4. 4. What are the back office systems challenges? Do you keep current systems or consider other options? Current System Pros Cons Attributes Operational - Reliable - Inflexible - Well understood - Poor integration Costs - Original costs written off - High maintenance costs - Predictable and controllable Future capability - Some improvements possible - Slow time to market - Bolt on new - Product not customer focus - Changes resourced internally
  5. 5. What factors are forcing change? Factors forcing change competition from new entrants technological advances regulatory and legislative changes changing customer needs and perceptions market consolidation
  6. 6. How are companies responding? Company responses develop new flexible products focus on understanding customer needs improve time to market develop new distribution channels reduce costs adopt and adapt new ways of doing business
  7. 7. How is the tension between life system stability and change managed? T E N I S O N <ul><li>System stability </li></ul><ul><li>Familiar capability </li></ul><ul><li>Known costs </li></ul><ul><li>Need to change </li></ul><ul><li>Customer needs </li></ul><ul><li>Innovation </li></ul><ul><li>Cost pressures </li></ul><ul><li>Competitor pressures </li></ul>
  8. 8. How does one address the shift in values of doing business ? T E N I S O N <ul><li>Old Paradigm </li></ul><ul><li>Size </li></ul><ul><li>Role clarity </li></ul><ul><li>Specialization </li></ul><ul><li>Controls </li></ul><ul><li>New Paradigm </li></ul><ul><li>Speed </li></ul><ul><li>Flexibility </li></ul><ul><li>Integration </li></ul><ul><li>Innovation </li></ul>
  9. 9. What are your legacy system options? <ul><li>3 options worth considering </li></ul><ul><li>- Continue adapting and ‘bolting on’ </li></ul><ul><li>- Complete replacement of core and integration with existing </li></ul><ul><li>- Create a ‘wrapper’ - the client-centric solution </li></ul>
  10. 10. Continue adapting your legacy systems? <ul><li>Pros </li></ul><ul><li>- Well understood applications </li></ul><ul><li>- Stable </li></ul><ul><li>- Manageable and predictable costs </li></ul><ul><li>- Allows out-sourcing? </li></ul><ul><li>Cons </li></ul><ul><li>- High on-going costs </li></ul><ul><li>- Poor customer focus and slow time to market </li></ul><ul><li>- Limited flexibility </li></ul><ul><li>- Limited opportunity to improve or replace business process and technical platform </li></ul><ul><li>- Limited management information </li></ul>A low value solution
  11. 11. Complete replacement of core and integration with existing? <ul><li>Pros </li></ul><ul><li>- Lower expense levels </li></ul><ul><li>- Customer focused </li></ul><ul><li>- Product flexibility </li></ul><ul><li>- Reduced time to market </li></ul><ul><li>- Opportunity to upgrade or replace technology </li></ul><ul><li>- Opportunity to improve or replace business processes </li></ul><ul><li>Cons </li></ul><ul><li>- Development time-scales </li></ul><ul><li>- Costs of both package and resources </li></ul><ul><li>- Experience of managing large complex projects </li></ul><ul><li>- In-house capability to support new platform </li></ul><ul><li>- Complexity of converting existing business </li></ul>
  12. 12. Create a ‘wrapper’? <ul><li>Pros </li></ul><ul><li>- ‘Quicker’ win deliver in manageable slices </li></ul><ul><li>- Delivers service and cost benefits early on </li></ul><ul><li>- Manages complexity </li></ul><ul><li>- Reduces risk </li></ul><ul><li>- Tactical customer focusing by “linking” legacy systems </li></ul><ul><li>- Stable starting point for future development </li></ul><ul><li>Cons </li></ul><ul><li>- No reduction in or improvement of: </li></ul><ul><li>- Maintenance costs </li></ul><ul><li>- Time to market </li></ul><ul><li>- Product flexibility </li></ul><ul><li>- Greater, but still limited, opportunity to improve or replace: </li></ul><ul><li>- Business processes </li></ul><ul><li>- Technology platform </li></ul>
  13. 13. What other options are there? Replacement of core and integration with new Adapt and bolt on Create a ‘ wrapper’ Justify current systems Out-source or partnering agreement Use of third party administrator All variations on a theme
  14. 14. What questions need to be asked to decide? <ul><li>What is your company’s current position? </li></ul><ul><li>What does your company want to achieve? </li></ul><ul><li>Which option will best achieve the company’s aims? </li></ul><ul><li>What resources are available to the company to achieve this? </li></ul>
  15. 15. Can the costs be quantified? Total costs depend on size of organization and complexity of products Project Stage Replacement Create a of core “wrapper” Project start-up 5% 5% Project definition 5% 5% Project work 70% 70% Project closure 5% 5% Other Costs Hardware costs 5% 5% Software costs 10% 10% Business disruption ? ?
  16. 16. Certain benefits need to be taken on faith <ul><li>Some can be quantified </li></ul><ul><li>- Reduced acquisition and maintenance costs </li></ul><ul><li>- Reduced product launch costs </li></ul><ul><li>- Improved process efficiency/staff productivity </li></ul><ul><li>Some are more subjective and difficult to quantity </li></ul><ul><li>- More product flexibility and faster time to market </li></ul><ul><li>- Improved customer service </li></ul><ul><li>- Better understanding of customer needs </li></ul>
  17. 17. What are life insurance customers actually doing today? <ul><li>At least looking hard at complete or partial replacement </li></ul><ul><li>Trying to get the architecture right before anything else </li></ul><ul><li>Justifying the business where possible </li></ul><ul><li>- The product base (some) </li></ul><ul><li>- The process base (almost all) </li></ul><ul><li>Focusing short (and medium) term effort on: </li></ul><ul><li>- Improving the user interface </li></ul><ul><li>- Front-ending the legacy systems </li></ul>
  18. 18. <ul><li>Decision to replace current systems to provide a better platform for the future </li></ul><ul><li>Multi-million dollar IT-led project </li></ul><ul><li>Project spent 2 years defining requirements, architectures, test planning, standards, methodologies, assessing packages </li></ul><ul><li>Almost no benefit delivered back to the business quickly </li></ul><ul><li>Estimated time scales and costs escalated </li></ul><ul><li>Project cancelled - since started again with new package supplier </li></ul>Some examples - Company 1 A major US Insurer Replacement Systems Experience
  19. 19. <ul><li>Modification to ‘package’ bought from another insurer </li></ul><ul><li>Development by internal staff working with major development partners </li></ul><ul><li>5 year development plan, budget around $100 million </li></ul><ul><li>Delivered new product development tool, new client front end, policy administration and links to workflow - further functionality in future phases </li></ul><ul><li>Decided to leave legacy systems in place </li></ul><ul><li>Went live with first product in January ‘99 </li></ul><ul><li>Perceived to be a success </li></ul>Replacement Systems Experience Some examples - Company 2 A major US life company
  20. 20. <ul><li>Targeted complete replacement </li></ul><ul><li>Tendered to number of package suppliers </li></ul><ul><li>Developed in partnership with supplier </li></ul><ul><li>Project management carried out by company </li></ul><ul><li>Three year development plan, budget around $50 million </li></ul><ul><li>Integrated client front end, policy administration, linked to workflow, imaging and call centre </li></ul><ul><li>Successfully converted legacy data to new system </li></ul><ul><li>Seen to be success </li></ul>Some examples: Company 3 A small US life operation Replacement Systems Experience
  21. 21. From Roswell Group’s experience ... what are the lessons learned? <ul><li>This is a major undertaking for all life companies </li></ul><ul><li>Costs for complete replacement seem (mostly) to be in the $50 - $100 million range - larger companies with comprehensive product mix </li></ul><ul><li>Time scales are normally between 2 - 5 years </li></ul><ul><li>Some smaller companies can deliver replacement for around $10 million with a simpler product range </li></ul>
  22. 22. <ul><li>... at the planning stage </li></ul><ul><li>A company must be clear about its current and future strategy </li></ul><ul><li>Focus on the future, and justification of the business, is a real help </li></ul><ul><li>The effort involved probably demands partnership </li></ul><ul><li>Service and cost improvements are possible by tackling just the front-end </li></ul><ul><li>It is possible, and possibly better, to leave the legacy systems in place - particularly to support older products </li></ul>From Roswell Group’s experience ... what are the lessons learned?
  23. 23. <ul><li>... at project inception </li></ul><ul><li>A clear vision of what is to be achieved is vital </li></ul><ul><li>The project must be well structured with a strong management team and sponsor </li></ul><ul><li>Complexity must be recognized up front and tackled in a timely and controlled manner </li></ul><ul><li>Some early benefit to the business is (at least tactically) useful, sometimes essential </li></ul><ul><li>Manageability demands a staged approach </li></ul>From Roswell Group’s experience ... what are the lessons learned?