The Insurance Policy Administration System (PAS) just turned 50. Quite an accomplishment. But, is its long-term future guaranteed? Some recent developments and comments are suggesting that the Policy Administration System in its current, singular form might have served it purpose and that the future may belong to a more hybrid environment. We’d really like your thoughts.
In 1962, IBM launched the first insurance policy administration system, the Consolidated Functions Ordinary, 1962 . Chris Doggett, CEO of Adminovate recently penned a column in Insurance & Technology marking this anniversary. In addition to celebrating how far we’ve come, Doggett made an interesting argument that while we’ve progressed in many ways since, we have lost some of the value of the early systems’ elegant simplicity. He writes:
“In a noble attempt to improve the user experience, I would argue that today’s solutions have created a user interface that often decreases productivity, increases the amount of training needed, and complicates customer service interaction — hardly a good recipe for ease-of-use and process efficiency. …
“While I do not assert that we need to embrace the revival of monochromatic green screens, I must admit that there was business efficiency and an elegant simplicity to their design. Users carried out processes with a series of logical keystrokes, and system screens guided users from the beginning through to completion in a linear approach. Once these steps were learned, users could process rapidly and effectively.”
It should be remembered that there are at least 3 generations of ‘legacy’ insurance systems. Those of the 1960s were replaced by ‘integrated packages’ in the late 1970s. By the end of the 1980s, the ‘client-server’ model was the required model for new systems . This structure was displaced in this century by web-based offerings which are considered ‘current’ generation. Each of these generations brought new functionality, more complexity and, typically, higher base costs.
As technology continues to increase its rate of change, staying perpetually ‘current’ would be an organizational and financial challenge for any insurer. Insurance & Technology’s Anthony O’Donnell recently wrote a column entitled, “Is their Still a Need for Policy Administration in Insurance?” in which he cites several sources who suggest that the risks involved in full core replacements are motivating insurers to look at alternatives to full core system replacements.
O’Donnell quotes Karen Furtado from the analyst firm SMA, saying: “This doesn’t mean that PAS have lost their importance or that insurers aren’t addressing capabilities associated with them. What it does mean is that the days of policy systems having to be all things to all people are becoming history.”
Components are being used in some cases to supplement PAS functionality. These components may have other characteristics which are not found in the traditional PAS model. Some insurance products and processes are becoming more complex, requiring completely unique systems for underwriting and servicing.
For example, the introduction of Pay-As-You-Drive automobile insurance programs based on sophisticated monitoring of vehicle and driver behaviour using Telematics, will change how automobile insurance is rated and administered. Telematics schemes require systems external to policy systems to monitor telematics devices, aggregate data and model results. A number of vendors active in the Telematics business are recognizing the needs for insurers and have begun introducing offerings, which include historical data, to allow insurers rapid entry into this new business segment.
As insurers begin to examine other insurance schemes based on dynamic data management (perhaps driven by social media or other ‘big-data’ sources), we may see a proliferation of point solutions emerging, which could permanently supplant portions of policy administration systems, such as. rating and data storage capabilities.
This construct is somewhat hypothetical at this point, but the vendors are not. They see the insurance industry in the same why as IBM did in 1962: still big and in need for automation. The market will be judge of the future, but in the meantime, we’d like your thoughts. Do you see factors which ultimately threaten the venerable Policy Admin System? Leave a comment below. And we’ll pass your birthday wished along to PAS.