Novarica Research Documents Insurers’ Experience with Core Systems Replacements and Finds Business Capabilities, Not Cost Reduction, Drive Projects

May 5, 2010 (NEW YORK) – Novarica, a research and advisory services division of Novantas LLC focused on markets, operations, and technology for insurers, published new reports today that document the experience of US insurers that have undertaken core systems replacement projects over the past 10 years.

The reports, US P&C Policy Administration Projects: Averages and Metrics and US L/H/A Policy Administration Projects: Averages and Metrics present data and analysis on project scope, duration, resource utilization, cost, and business impact of implementing a new policy administration system based on a study of over 30 US Insurers.

Among the reports’ key findings:

  • Most recent policy administration projects seem designed to deliver capabilities or replace an unsustainable system, not necessarily to reduce costs dramatically.
  • Insurers have been most likely to use internal resources for testing and conversion, while relying on vendor resources more heavily during deployment.
  • Average project lengths are 1-3 years, but some focused P&C projects have been as short as 6 months.
  • Software license fees average less than 10% of total cost for life/annuity/health projects but closer to 25% for P&C projects.

“We estimate that one in three property/casualty insurers and one in five life/annuity/health insurers are currently planning, evaluating, or conducting core policy administration system projects,” said Matthew Josefowicz, director of Novarica’s insurance practice and co-author of the report. “These reports are designed to help insurers understand what their peers’ experience has been.”

In addition to the quantitative metrics, the reports also provide insights into challenges and best practices.

“Insurers can take four steps to increase their chances of success in these highly complex projects,” adds Novarica principal Chad Hersh, co-author of the reports and a leading authority on insurance core systems vendors and projects. “One, clearly define your business goals and tie them to organizational goals; business ownership, not just sponsorship, is key. Two, use high-level requirements to find the right vendor and set the project direction, and an iterative approach to developing more detailed requirements later. Three, carefully evaluate vendors for both product fit and organizational capabilities, and four, focus on program management and change management as well as project management.”

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Novarica provides information, insights, and perspective on markets, operations, and technology to financial services and insurance executives.
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