Getting their feet webbed: for the past 18 months, Lexington has been automating policy administration in the underwriting process, and as many as nine products are distributed over the Web. The most complex transactions, however, are still paper-based

Risk & Insurance, Jan, 2005 by Tom Starner

It's no secret that insurance carriers, brokers, buyers and agents want fully automated policy administration.

But it's also no secret that many carriers, especially large commercial earners, have yet to move their policy administration to a completely automated reality--the Web--that reflect today's technology.

Joel Otfinoski, manager of e-business at Lexington Insurance Co., the nation's largest excess and surplus carrier, says that like most carriers, his company is trying to do more via the Internet.

For the past 18 months, Lexington has not only been automating policy administration in the "back office" area, but also automating the underwriting process around policy administration. The company is doing both using a Web services approach.

"We're combining the two to get the efficiencies it can bring," Otfinoski says. "In our case, policy administration was disjointed, all over the place."

Lexington says it is also extending the Web distribution channel to its brokers, who would traditionally employ the telephone, a fax machine or e-mail. To get there, Lexington built a Web portal that allows its brokers--Austin & Austin, Black Ink Insurance Services, Target Insurance Services and IBSC/PMIA--to come online and execute a transaction.

When it comes time to bind a piece of business, the broker's data enters a policy processing engine that maps the data to forms, generates those forms and sends them out to the broker or agent. "It even sends the data to our back-end corporate reporting systems, which then route that data to the appropriate regulatory agencies," Otfinoski says.

Right now, Lexington continues to distribute its policies on paper, but looking ahead, Otfinoski says the day will come when agents, brokers, commercial buyers and risk managers can go online and download the polices, in a PDF format, for instance.

Industrywide, Otfinoski says the level of automation and policy administration really depends on the segment of the business. On the personal lines side, using the Web has become the norm on how to do business. But on the commercial side, it's used mainly for the lower end of the market, which means small- and middle-market businesses.

"It's starting to take place on higher-end business, but Fortune 500 transactions remain exceedingly complex," he says. "So policy issuance and underwriting are still done the old way."

"When you get to the excess and surplus world, I believe you'll find that we're one of the few heading in that direction," he adds.

John Roller, chief operating officer at Duck Creek Technologies, a Boliver, Mo., provider of rating and policy administration software, says that nearly all of today's policy administration solutions remain "legacy," or older solutions, where the data is locked up in a mainframe computer.

"Even with all that has been available, everyone's still using them," Roller says. "There are very few with any Web interface or even a Windows desktop into those systems. And even when they do use desktop applications, companies are having trouble pushing what they have out to a Web service-type of interface."

Roller says that commercial lines carriers lag way behind their personal lines peers on the policy administration automation front. Policy administration systems for specialty lines are not served "in any capacity" by the Web, he also says.

Why is the legacy system still the dominant system in policy administration? Roller says it's because insurance, by its nature, faces a large number of data processing challenges. The entire industry remains tied to legacy systems--often I.B.M.-based--because there has been no reason to change.

"It's tough to take on all that data," Roller says. "And if it's not broken, and it seems to work, companies will stay with it, even if it's not as efficient as newer technology can make it."

That means it's simply not worth the risk to move to more innovative systems. Whereas the banking and life and health insurance industries have been able to move a little more quickly, the property-and-casualty industry is unique in dealing with state-to-state regulatory requirements.

"As a result, every implementation is a unique implementation," Roller says. "There are no standards, no off-the-shelf solutions. By comparison, there aren't too many ways to do banking."

At Duck Creek, the policy administration solution is strictly a Web services solution.

"What we try to tell insurance folks is that the paradigm needs to shift, just as it has in any hard-line manufacturing business," Roller explains. "You have to streamline your business process, including forms, rating, underwriting, policy administration."

With the Web, carriers can manage a process from a single spot, so their ability to deploy products is improved.

"Today, if you want to make a product change, you have to go to three systems to make a product change," he says. "That's because most carriers have a separate functioning system for rating, policy administration, billing. What we believe would make a difference is to find a way to manage all those processes in a single area and business functionality works off that product definition."