NORTH AMERICAN POLICY ADMINISTRATION SYSTEMS PROPERTY & CASUALTY, GENERAL, AND SPECIALTY LINES ABCD VENDOR VIEW Karlyn Carnahan and Donald Light January 2016 This authorized reprint contains material from a recent Celent report profiling North American P&C policy administration systems. The report was not sponsored by Accenture in any way. For more information on the full report, please contact Celent at CONTENTS Executive Summary ............................................................................................................ 1 Introduction.......................................................................................................................... 2 Policy Administration Systems: Definition and Functionality .............................................. 5 Report Method .................................................................................................................. 14 Celent’s ABCD Vendor View ............................................................................................. 16 Vendor Profiles .................................................................................................................. 19 Accenture plc: Accenture Duck Creek Policy.................................................................... 21 Conclusion......................................................................................................................... 29 Leveraging Celent’s Expertise .......................................................................................... 30 Related Celent Research .................................................................................................. 31 EXECUTIVE SUMMARY This report provides an overview of the policy administration systems available in North America for property & casualty insurance carriers. The report profiles 43 policy administration solutions, providing an overview of the functionality, the customer base, lines of business supported, the technology, implementation, pricing, and support. Some solutions qualified for profiles that include customer references and a Celent opinion of the solution. These solutions are also ranked in the ABCD Vendor View. Some solutions did not qualify to be ranked in the ABCD Vendor View, and those profiles do not include a customer reference or a Celent opinion. This report also names the winners of the XCelent Awards:  XCelent Functionality for the leading Breadth of Functionality score: Accenture  XCelent Service for the leading Depth of Service score: Accenture INTRODUCTION KEY RESEARCH QUESTIONS Which systems win What is a property Who are the Celent’s 2015 & casualty/general/ vendors in the Property & specialty policy North American 1 administration 2 marketplace by line 3 Casualty/General/ Specialty PAS system? of business? ABCD Awards? Significant innovation is occurring in product management and underwriting in the North American region. Carriers are looking to grow, differentiate themselves, navigate the regulatory environment, and do all of this efficiently. At the same time they are faced with an explosion of new technologies such as the Internet of Things, drones ,wearables, and big data to name only a few. As millennials become a larger proportion of buyers, customer attitudes and expectations are changing. Mobile and social are driving escalating expectations for customer service. Carriers are focusing their investments on initiatives to drive growth and efficiency. Underwriting is central to these goals as carriers drive to have the right products, priced well, processed efficiently with consistent superb customer service. Significant change has been happening in the processes of product development. Certainly many carriers still use legacy practices. They provide standard products with tiered rating. They use internal historical data combined with industry loss costs. There is a heavy use of ISO for Commercial lines, and many carriers require IT coding to make product changes. More recently some carriers are focusing on expanding their product set with more product innovation. Carriers are utilizing more complex rating schemes and using a wide variety of data elements in their rating algorithms. In commercial lines, carriers are generally moving to move standardized base products using ISO, and focusing their product innovation on endorsements tailored to specific industries. This is also resulting in an increased use of ISO using electronic processes, either ISO’s new product, Electronic Rating Service, or through electronic services provided by their policy administration vendor. Being able to take advantage of these trends requires the ability to rapidly make product changes, ingest third party data easily, and easily change business rules. Highly configurable product development environments are a requirement to deliver rapidly changing products. The most innovative carriers are focusing their product management efforts on unique products such as behavior-based products, or products with services embedded. Telematics is such a product. It bases the pricing of the product on the driving behavior of the policyholder and often includes additional services such as driver tracking, fleet monitoring or gamification platforms. Multivariate rating algorithms are being used, and product managers are using predictive analytics as a key tool in providing pricing guidance for books of business. Some carriers have dynamic business rules, or are using machine learning, to monitor the underwriters pricing behavior on a book of business and dynamically providing pricing guidance. Some use predictive analytics to assess the loss ratio going forward and adjust pricing real time. These kinds of advancements change the role of the product manager. Product managers have to add business rules management 2 Chapter: Introduction and analytics to their portfolio of skills. In add ition to providing oversight on individual policies or transactions, they now need to be experts in formulating and monitoring rules. Managing when and how often underwriters override rules, assessing the frequency and impact of the use of a rule, and dete rmining when to retire, modify or enact a new rule are all critical tasks in the new practice of rules governance. Just as product management is changing, so the practice of underwriting is also changing. The typical underwriting practice is for an indivi dual underwriter to gather a combination of customer - provided data and third party data such as financial information through an application and third party data calls. Physical inspections or photos are required on most properties over a certain value or in a particular fire zone. Data is generally entered manually by an underwriter or is uploaded from an agency management system into the policy administration system. The underwriter uses a combination of company guidelines and their own underwriting judgm ent to assess the risk and determine the appropriate terms, conditions and price. Fully automated underwriting is used only on the most standard lines such as personal auto. Cross - sell occurs when the underwriter remembers to offer additional products. Mos t correspondence is handled manually by the underwriter and documents are often stored in a document management system that is separate from the policy administration system, requiring an underwriter to search a separate system when looking for documents. Workflow is often depicted as screen flow in the policy administration system, or is handled in a third party system. Many companies still have challenges handling out of sequence endorsements. Most companies have some kind of automated renewal process for business that meets certain criteria. The typical process above can be quite costly as it requires substantial human intervention, and is prone to errors. Carriers are moving toward a more automated process, which can streamline cost and improve decision making. Carriers are providing pre - fill — pulling in third party data to prefill an application thereby reducing the data entry needs of the agent and/or underwriter. Fully automated underwriting is extending to more complex lines: Homeowners, BOP, and Workers Comp. Business rules and scoring are being used to provide risk assessment and pricing advice on more complex business. Carriers are using business rules to automate the cross-sell of standard products such as cross-selling commercial auto on a BOP policy, or an umbrella on a Homeowners policy. Easily changed business rules are a pre-requisite for offering these capabilities. As carriers fully automate the underwriting of a line of business, thy have to be able to rapidly an easily change a business rule as the business environment or regulation changes. The most innovative carriers are heavily using analytics in a variety of ways. Analytics have the most impact when used to assess risk quality and provide pricing guidance. Carriers have reported loss ratio improvements of 4-10 points when implementing this type of initiative. Analytics are also being used to minimize inspections or the ordering of third party data. Why routinely order a MVR? Carriers are predicting which MVRs are most likely to have violations in them and only ordering those thereby reducing their costs. In commercial lines, carriers use analytics to determine which accounts should get a physical audit versus a paper audit. Uber-like inspection services are being used, allowing carriers to significantly increase the speed of getting a photograph. In addition, carriers are experimenting with drones for property inspections. New sources of data are being used, including social media scores (using social media presence to assess risk). Other carriers use social media to assess a prospect’s risk profile and are driving cross- sell initiatives based on that risk profile. Sophisticated product recommendation tools are being created and automated cross-selling of unique products is occurring. Carriers must have the ability to create business rules and to have event and data driven workflow in order to automate these tasks. The automated delivery of customer communications is a key requirement, and some carriers are now using tailored video as a key component of 3 Chapter: Introduction their customer communications, using XML streams from the policy admin system to dynamically create videos to deliver information such as a welcome letter. To support these types of expansions, carriers have to have more capabilities in t he policy administration system. Business users expect a variety of improved capabilities. They want to improve internal workflow to support business process changes to improve efficiencies and reduce expenses. They are looking to improve consistency in ha ndling procedures, both to improve customer service and to avoid compliance issues. Carriers need to improve flexibility in managing rules to respond quickly to regulatory changes. As more carriers use predictive analytics, they want the ability to operati onalize predictive analytics through rules and workflow — especially to better assess risk and optimize pricing. They expect increased data accessibility as they add new data elements and look for new, unique insights in their data. In addition, they want a modern, intuitive user interface for their employees and agents. The IT organization wants everything the business wants as their goal is to enable the business to perform well. In addition, IT is looking for a platform to enable an agile IT department in order to facilitate great IT/business alignment. This means a highly configurable system with a variety of strong granular tools including tools to manage the testing and the release cycle. They want standards-based commodity technology that will allow variable staffing strategies. One of the biggest drivers of the system selection decision is the functionality. IT expects a minimal functionality gap with an out of the box template for every line, in order to speed up the implementation process and reduce customization. Inherent in all these demands is reduced technology risk — meaning a modern architecture that simplifies the carrier’s footprint and a track record of success in similar lines of business with similar size clients. Policy administration vendors have responded by enhancing functionality. Significant levels of research and development have been occurring in the vendor community. Vendors are investing as much as 50% of their revenue in product enhancements. Most have upgraded their system with a modern look, feel and navigation and a functionally rich UI. Configuration tools continue to become more user-friendly — and tools for the IT organization are more likely to be included. More and more vendors have deep partnerships with add-on technologies such as document creation, document management, analytics and reporting in order to simplify the application architecture for a carrier. Mobile apps are common, and most vendors can offer a hosted solution for carriers that want to outsource infrastructure management or obtain other managed services. With all these changes in the business and in the vendor community, it is no wonder that we continue to see policy administration replacement as a high priority activity in North America. 4 Chapter: Introduction POLICY ADMINISTRATION SYSTEMS: DEFINITION AND FUNCTIONALITY Key What is a property & casualty/general/specialty lines policy Research administration system? Question The primary system of record for property & casualty/general/specialty insurance business 1 operations, handling all transactions from the front end of individual policyholder management to the back end of billing and premium payments. They also store all product rules and definitions. DEFINITION In one sense, the definition of a policy administration system (PAS) is very simple — it is the system of record for all policies that an insurance company has written. At this most basic level, a PAS is a repository of policy-level data related to objects of insurance, coverages, limits, conditions, exclusions, duration of the policy, endorsements, and so forth. A permanent policy record is created at the time a policy is issued, and it includes the complete history of the policy through renewal, termination, cancellation, and/or reinstatement. In actual practice, an insurer uses a PAS — either by itself or closely integrated with specific point solutions — to execute a number of core processes, and relies on several types of supporting capabilities, as shown in Figure 1. All modern core policy systems provide basic functionality for the most standard processes of quoting, issuing, endorsing, and renewing a policy. However, there is significant variation in the way the solutions handle these functions. 5 Chapter: Policy Administration Systems: Definition and Functionality Figure 1: Policy Administration System Core Processes Desktop Quick Quote Automated Underwriting Data Services Data Upload Underwriter Assignment Forms Management Automated Renewals Reinsurance ACORD ISO Support Rating Rate Analysis Product Development Workflow Scheduling /Calendars Tools Document Creation Document Management Business Intelligence Source: Celent TRANSACTIONAL SERVICING FEATURES A variety of features are available to handle the day-to-day transactional activities of quoting, issuance, endorsements, renewals and cancellations. Underwriter desktop. A wide variety of tools are available to help the underwriter manage their workload. Underwriter desktops typically include an area where new business quotes, policies needing issuance or renewal, endorsements, and other assigned tasks are easily found. User interfaces can vary widely but often include features such as the ability to sort by clicking on columns, to filter columns, and to drag and drop and rearrange columns. All solutions include search, but some include sounds- like search, partial word search, Boolean search, or wildcards. Most systems allow underwriters to create manual diaries, tasks, and notes and to easily see their work in a calendar format. Many are integrated with email, allowing an underwriter to send an email from the desktop. Many include a policy or account summary that contains the most important information about a policy or account and is available at a glance from any location within the policy. Some solutions allow the underwriter to customize their own workspace, choosing which modules they want displayed, selecting a color scheme, or adding links to commonly used third party websites. Other capabilities such as configurable help text, hover-overs, and wizards can help an underwriter easily navigate through the task. Quick quote and full quote. Agents and underwriters often want to get a quick indication of risk acceptability and price and to compare the price of different options. Quick quote functionality allows a price to be generated with minimal data entry. The data entry screen contains only those questions needed to calculate a rate or to determine the basic terms and conditions of the policy. Sometimes the questions will include basic risk acceptability questions, but quick quote is not usually intended to handle the full underwriting of the policy. Many solutions include the capability for dynamic questions 6 Chapter: Policy Administration Systems: Definition and Functionality that expand and change based on the answers to specific questions, allowing the system to prompt the broker or underwriter to get more detailed information based on insured’s responses. Multiple versions of the quote can be generated to see the impact of different terms, conditions, and product choices. Some solutions handle the side-by-side quoting by opening separate windows. Some allow different quote versions to be saved. More and more are offering side-by-side quoting in a single window. Once a quote is generated, some solutions allow for multiple side-by-side views of different options. The user can change a deductible in version one, or a limit in version two. Some solutions use drop downs to show the different available options with the price difference for ach option shown next to the label within the drop down itself. Most solutions include the ability to create and display rating worksheets (a detailed listing of how the premium was calculated). Some have the ability to show simplified versions to the brokers, and detailed versions to the underwriters. Account capability. Some solutions can easily handle an account construct, showing all the policies and transactions associated with a single customer. Common information only has to be entered one time and rolls to the other policies on the account. Policies can be split easily into different accounts, or rolled up into a new account. This split/combine feature is especially desired by personal lines carriers managing divorces, marriages, and children leaving home. Complex commercial accounts often need the ability to look at an account by location across multiple policies. Some solutions can provide this level of granularity in rating and reporting. ACORD upload. ACORD applications are the most commonly utilized form of application in the industry. The data is commonly contained in the agents’ or brokers’ agency management systems. Rather than requiring the broker to reenter the data on the application, many systems have the ability to upload an ACORD application and have the data pre-populate the appropriate fields in the system, retaining a copy of the ACORD application elsewhere in the system. Data upload. Specialty and commercial lines policies often include large schedules of drivers, locations, vehicles or equipment. Many systems allow these schedules to be imported or uploaded from an Excel spreadsheet. Some systems require that the spreadsheet be formatted in a particular order. Some allow mapping of the spreadsheet as the spreadsheet is being uploaded. Data services. Underwriters rely heavily on third party data or reports from external data services. Most systems have some level of pre-integration with the most common data service vendors. Some require the underwriter to manually request the external data. Others use business rules to automatically send the data request and retrieve the data or report. Some can take the data retrieved and populate the specific field, others store the data as a record that the underwriter can review, and the underwriter can then enter the data into the correct field in the policy record. Automated underwriting. Many solutions have the ability to use business rules to automate the underwriting process. The solutions use business rules to determine if the transaction can proceed without human intervention, or if intervention is required, a task is generated for the underwriter to review and take action. Some solutions can handle basic yes/no questions only. Others can perform very sophisticated underwriting. The capabilities are heavily influenced by the level of sophistication of business rules and workflow capabilities. Underwriter assignment. While some carriers still assign work manually, more and more carriers are looking for automated support in the underwriting process. Solutions handle underwriter assignment in a variety of ways, for example the ability to assign policies/quotes to a team or individual using a round-robin capability, or the ability to assign to specific individuals based on specific criteria. Some solutions can assign a transaction very granularly, based on line of business, agent, geography, and workload. 7 Chapter: Policy Administration Systems: Definition and Functionality Most systems all ow multiple underwriters to be assigned to work on a single account handling different policies. Carriers also look for capabilities for manual assignment or reassignment for both bulk transactions or single policies or accounts. Automated renewals. Most solutions have the ability to handle no-touch automated renewals. If the policy meets the carriers defined requirements, the information from the original policy carries over to the renewal and the policy is issued. Some allow business rules to be used to apply an inflation factor automatically, or to make other bulk changes on policies as they renew. Those policies that do not meet the requirements are popped out of the renewal cycle and assigned to an underwriter for intervention. Along with automated renewals, look for automated non-renewals. Some allow a policy to be marked for non-renewal. Some allow business rules to be used to determine whether an underwriter will allow the policy to renew. In the case of an automated non-renewal, the system generally can send out the appropriate documents in the right time frame according to the jurisdictional requirements of the policy. Endorsements. All systems can handle endorsements. Almost all systems can handle out-of-sequence endorsements as well. When it comes to out-of-sequence, there are a variety of techniques in place. Some alert the underwriter to the fact that the policy change is out of sequence. Each affected endorsement is identified, and the underwriter can select which to back off and which to roll back on. Others handle the back-off and roll-on automatically only highlighting conflicts for an underwriter’s intervention. At least one solution can handle multiple policy changes with different dates on a single endorsement. Mid-term broker of record changes can often be handled as a bulk transaction, but some systems require the changes to be done policy by policy. Some allow a lot of flexibility as to when commission changes occur, and some allow the commission to begin accruing to the new broker immediately. Others begin the commission accrual at the time of renewal. PRODUCT MANAGEMENT CAPABILITIES In addition to transactional capabilities, a policy administration system is the primary repository for the product rules, rates and forms attachment logic for all products. Rating. Most but not all solutions include rating engines as a key feature. As vendors are creating more sophisticated configuration tools, rate changes can be done by business analysts rather than developers. The rate tables, rules and algorithms are externalized from the programming code. There are wide variations in the level of sophistication of the rating engines. As carriers have been moving to more complex rating algorithms, rating engines have expanded their ability to support complex rating algorithms including multivariate rating and by-peril rating. Most allow multi-line, multi-location rating on a single quote or policy. Many also allow multi-state rating. Look for the ability to use external party information sources (e.g., credit score, loss data, property data, predictive scores etc.) in the rate algorithms during real-time calculation. Other features to look for include the date management capabilities — the ability to manage multiple dates based on the versions of the rate, table, or algorithm changes. Some solutions require the versioning dates be embedded in the code or script. Others provide fields to enter the dates. Some allow different versions or effective dates for renewals versus new business. Rate analysis. Some solutions include very robust tools for handling the rate analysis function. Testing, modeling, and product analysis tools are included that allow a carrier to do an impact analysis — calculating the overall impact of a rate change or a displacement analysis — identifying the number of policyholders that will be impacted. These types of tools are typically found in those solutions that include a stand-alone rating engine that can be sold separately. Some vendors have business intelligence tools included and are able to set up reports that can provide some level of analysis as well. Many solutions do not include any functionality for handling rate analysis or testing. 8 Chapter: Policy Administration Systems: Definition and Functionality