Many carriers are held back by the constraints of their existingpolicy administration systems, which can lengthen productdevelopment cycle time, increase overhead, lock them into outdatedbusiness practices, and cost new business opportunities. To evolvewith an ever-changing and often unpredictable marketplace, insurersneed to consider adaptive policy administration systems that aredesigned to be flexible, agile, and maneuverable, so that thesystem itself is no longer a constraint to new productdevelopment.

Product Development for Insurance - What are theConstraints?

Insurance companies face various constraints - from people toprocesses to systems - when trying to introduce new products andcapture market share. In fact, inflexible policy administrationsystems can be one of the biggest constraints in the "systems"category as insurers have modified and customized them many timesover many, many years.

In the past, technologies and tools built for the insuranceindustry were massive systems which required much planning and tooka long time to implement. Insurers built these systems to last in asteady environment where significant change was not expected.However, many of the systems that met insurers' needs 10 to 20-plusyears ago cannot effectively meet the demands of today's industry,which requires unprecedented agility.

In addition, these legacy systems produced many inefficientprocesses, designed to work within the constraints of inflexibletechnologies. For example, a simple change to a product, such asadding a new data element, often requires changes to the system'sunderlying code and can turn into a protracted IT project.

Legacy policy administration systems have also introduced"people-based" constraints. Older workers who understand the legacysystems are retiring, and newer, younger employees do not haveexpertise in Common Business-Oriented Language (COBOL) or othercode languages that dominated the IT world in years past. Inaddition, many of these highly customized legacy systems lackadequate documentation, making it difficult even for the mostskilled programmers to manage and maintain them.

Minimize Reliance on IT for Product Development

How can insurers cast off their product development constraints,giving them freedom to quickly capitalize on market opportunitiesand shifts? Adaptive policy administration systems can helpinsurers eliminate constraints to the product development cycle inthree ways: removing reliance on IT, streamlining quality assurance(QA), and managing rule migrations and standards.

An adaptive system is one that is highly flexible andrules-driven, using business rules to configure nearly all of thechanges required by the carrier. This includes data fields, tables,screens, and more - all of which can be changed without evermodifying the underlying code. The advantage of an adaptive policyadministration system is that new products can be created, orexisting products updated, much more quickly and without changingthe source code - which in turn has less impact on other systemsand processes.

Using legacy policy administration systems in the productdevelopment process typically requires heavy reliance on IT. Forexample, if an insurer would like to add a health rider such aslong-term care (LTC) to an existing annuity product in its legacysystem, IT programmers would have to customize the system to modifythe product based on requirements provided by the business unit.This lengthens the overall product development time cycle and alsoinhibits an insurer's ability to be nimble in today's competitivemarketplace.

In contrast, with an adaptive policy administration system, theinsurer could configure the change just by using business rules.Configurable systems enable collaboration across a hybrid group ofIT and business users such as actuaries, customer servicerepresentatives, claims representatives, compliance officers, andothers involved in the product development process. Users are notsolely reliant on the IT team and its schedule to make systemchanges; nor is the IT team dependent solely on the business sideof the house to provide product development requirements. With aconfigurable rules-based system, product development becomes atruly collaborative process between business and IT.

An adaptive rules-based system enables users to quickly createor change products with complex and extremely specific features -such as hybrid annuity or long term care products - without concernfor system limitations. This level of flexibility enables users todrill down and manipulate products and features - for example,changing rates, modifying coverages, or adding riders - at veryintricate levels. Lines of business can share rules whereappropriate, enabling insurance companies to enforce common productand regulatory calculations and processes globally. This capabilityprovides insurers the unparalleled opportunity to capture emergingmarkets with unique, niche products, and increase market share inexisting markets by bringing new products to market quickly.

Quality Assurance: Enabling Transaction-Level Testingand Debugging

Many legacy policy administration systems place limitations onusers' ability to perform thorough unit testing (tests that verifythe functionality of a specific section of code) and debugging.More often than not, QA is forced to rely on the IT department toprocess test case results and unit testing before migrating over tothe quality assurance environment - a process that can delay aproduct launch and cede a competitive advantage. Unit testing alsois often restricted to single event processing or even a singlecalculation.

Moreover, QA testers typically bundle all cases together on asingle processing date, which limits the amount of testing that maybe done in a single batch. This approach makes it less likely thattesters will be able to understand or predict the results that oneevent may have on another.

To break through this constraint, an adaptive policyadministration system enables insurers to perform transaction-leveltesting and debugging in a real time mode. At every stage,including development and quality assurance, each policy can beindependently processed forward - the system allows tests toexamine each event or transaction as it occurs. This reduces theresources and time required to uncover complex errors such asmismatched valuations or complex math and helps to facilitate rapidtime to market.

Users require visibility into every processed transactionincluding scheduled events, fund allocations and valuation,accounting detail, end results of calculations processed,disbursements, etc. This helps to streamline quality assurance,improves compliance, and reduces the workload associated withaudits.

Managing Rule Migrations and Standards

The last limitation insurers typically encounter during productdevelopment is inadequate control of rules migrations and datastandards from test regions to production. Traditional legacysystems require any changes to create or modify products to behard-coded within the source code, making it difficult orimpossible for end users to trace changes within the system.

Adaptive policy administration systems include built-in toolsand processes to help remove these constraints. For example, arelease management tool can be used to view a complete history ofchanges that have been made to any given rule and show ruleversions. Tracking multiple product changes is not only importantfor history and documentation, but also a necessary part ofcompliance. To further assist in the configuration process,adaptive systems include an integrated data dictionary wherestandard naming conventions enforce consistency, making productdevelopment a more efficient process overall.

Market Success of Adaptive Systems

The need for adaptive systems is clear, and insurers using thesesystems are able to do more with less. For example, one insurerusing an adaptive policy administration system reported developingsix products in parallel using a team of 12 people - an undertakingwhich previously would have required up to 40 people using theinsurer's older legacy system.

Another insurer based in the Northeastern United States used thebusiness rules of an adaptive policy administration system todevelop a highly complex new annuity product and bring it to marketin less than six months. The response in the market was phenomenal,with the product accounting for approximately 25 percent of thecompany's total sales during the first year of roll-out. Theinsurer reported that it would not have been able to develop thisproduct using its previous legacy system, which simply did not havethe capability to handle the complexity of the many features andoptions of the annuity. This insurer has since migrated otherproducts to its adaptive policy administration solution and retiredits legacy system, significantly decreasing its overall productdevelopment cycle from 12 months on its previous system to fourmonths with its adaptive policy administration solution.

The question looming for insurance carriers and providers is,"Is my policy administration system enabling my business to moveforward, or holding it back?" By leveraging an adaptive policyadministration system, insurance companies are removing theconstraints that stand between them and agile new productdevelopment. Reducing reliance on IT, streamlining qualityassurance, and managing rule migrations and standards will helpinsurers to successfully enter new markets and gain an advantageover their competitors.

Roger Soppe, CLU, is senior director of global insurancestrategy for Oracle Insurance and Kate Fowler, Fellow,Life Management Institute (FLMI), is director of product strategyfor Oracle Insurance