Core Systems: The Elephant in the Room is Distribution Management
The New Car without a Transmission
Core systems are always in the insurance news since they are the engine that drives each, and every insurance company. Recently, Novarica published its biannual review of Core Systems—Policy Administration Systems—for the P&C world. One is struck by the number of policy admin systems that are in the study as well as what is theoretically the functionality of each system. Obviously, some basic functionality is essential to a core system such as a policy administration system. That functionality includes these points:
Core Policy Administration—handles all core aspects of policy management such as account clearance, new business, policy change, renewals, cancellations, cancel/rewrite, reinstate, and premium audit.
Rating—some level of rating engine with some very complex systems, designed to be integrated into a third-party rating engine
Underwriter Workbench—to improve work management with a workflow that is visible to management and the agent
Document Management—ability to generate documents and use customized templates that can be merged with policy or customer data. Some systems integrate into third-party document generation/customer communication management systems
Agent Portal—provides agent self-service capabilities, integrates with policy administration, and allows agents to get quotes/submit new business, track status/manage changes, communicate/collaborate with underwriters, and view reports
Billing—provides the ability to calculate and present billing of policies, changes, and refunds, ensuring correct information
A policy admin system has other key or essential functions but the above list describes most of them. However, in looking at the Novarica research (very well done by Novarica, by the way) a gaping hole emerged in all the functionality listed/noted by Novarica. Can you guess what it is? (hint: you are reading this on VUE’s website). You guessed it: Distribution! Here we are looking at a research report that lists all the functionality of a good policy admin system and agent or distribution management isn’t part of that functionality?? Let’s see. If I look at the some of the key findings that analysts raise about what CEOs are looking for, they have pretty much settled on Growth as the key driver. So, let me ask, Isn’t distribution the key to that growth? How can you grow without agents? (if you answered “Lemonade,” do not pass go and don’t even think about getting $200).
What is somewhat distressing in all this talk about policy admin systems is that many, many buyers of these brand-spanking new systems are surprised (shocked?) to learn that the new policy admin system with an 8-digit price tag won’t handle some of the most important key functions in insurance, which is to pay the person working with the customer and getting the customer to write the check. We have had several clients who thought their new policy system would pay the agent commissions and incentives and were very surprised to find out it would not. And then there is that messy area called agent compliance and management that includes such areas as licenses, appointments, contracts, and compliance. It is very much like buying a new car only to learn that the car you bought doesn’t have a transmission. Nice look, great price, perfect color, and goes nowhere.
The bottom line is this:
To be fair, most policy admin systems do have a file for agents, and that file can hold all the relevant information on agents, such as tax identification, addresses, licenses, and so on. But that file is not an agent-management system. I’ve seen more than a little buyer’s remorse when they find out that in addition to the policy admin system, they do require a robust distribution-management platform that manages all aspects of agents as well as the field organization, agent life-cycle management, compensation, analytics, and a very robust portal. In short, get the whole car, not the one that has it all, but won’t go anywhere.