NU Online News Service, March 26, 2:30 p.m.EST

Insurers that make price the overriding concern when selecting apolicy administration system, have failed to do their homework andare not serious about the purchase, a technology consulting firmadvises.

This was one of a number of observations coming in a studyconducted by New York-based Celent titled "Pricing of PolicyAdministration Systems In Europe."

Nicolas Michellod, senior analyst with Celent and co-author ofthe report with senior analyst Catherine Stagg-Macey, said bye-mail that while the report concentrates on Europe, because policyadministration (PSO) systems are prevalent throughout the industry,including the United States, the findings can easily apply here andelsewhere.

His e-mail explained that (PSO) systems record all informationabout a policy transaction from issuance to termination.

Mr. Michellod said such systems can also include otherfunctions, such as billing, rating, underwriting, and can beintegrated with other technology solutions.

During an online presentation, he said that the majorconsideration buyers have when purchasing these systems isfunctionality and how much information technology understanding thevendor has of the insurance business.

"When an insurer starts at the beginning negotiating aboutprice, this is a sign that they are not serious about a potentialdeal," said Mr. Michellod.

"Price is important, especially in a critical downturn we aregoing through now, but in a very critical project like policyadministration replacement, we have noticed that pricing iscertainly not the most important criteria."

He noted later by e-mail that when an insurer seeks to negotiateprice at the outset "it often means they've not clearly analyzedand defined their business case internally."

There is no one size that fits all, he noted, and the key forthe buyer is to have the flexibility with a vendor that they needin implementing the system.

Among some of the findings, the report indicates that having atechnology vendor with a lot of outsourcing capabilities does notnecessarily mean lower cost.

The report found that when it comes to the type of licensingoffered, the usage price model (payment based on the number ofusers of a system) dominates the licensing models. When it comes towarranty coverage the majority of vendors give a standard 90 daywarranty.

On pricing trends in Europe, Mr. Michellod said the expectationis that in Western and Eastern Europe overall pricing will bestable to moderate. He noted that the market is growing in EasternEurope and that might translate into moderate increases there.

The report is available online at [email protected]. Celent is a member ofthe Oliver Wyman Group that is a subsidiary of Marsh & McLennanCompanies.