Total Price or TCO Implementing and Maintaining a 2015/Sessions/TECH/473I… · •Predictive...

IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW

Total Price or TCO – The Value of Implementing and Maintaining a Modern PAS

Ward Group

CapSpecialty

OneShield


AGENDA

Introductions & Why Total Cost of Ownership Focus

Ward Group TCO Study Findings

Panelist Response to Industry Impacts, Transformation,

TCO & Value

Audience Q&A


INTRODUCTIONS


TODAY’S SPEAKERS

Jeff Rieder, Partner, Head of Ward Group

Brian Rohrer, Head Application Development, CapSpecialty

Tim Steele, SVP Product Management, OneShield


TOTAL COST OF OWNERSHIP STUDY

OBJECTIVE: Gather and analyze data on the true ongoing

costs of maintaining your modern PAS focusing on:

• Self-sufficiency capabilities

• Business agility

• Maintainability

• Cost benefit analysis of upgrades


Key Themes

The outlook is positive

• Heavy investments in systems and expansion plans (products and

geography)

• Still, many emerging external trends are affecting strategies

Still a legacy based industry not aligned with goals

• Age of systems

• Not meeting business and customer leads

Source: Ward Research Center PAS Total Cost of Ownership Report


Key Themes

Companies with a modern system are seeing advantages

• Speed to market (products and states)

• Quote / issuance / expert underwriting capabilities

More than $ - there is a cost of being not on current systems

• Technology costs need to be weighed against costs of not enabling

business

• Legacy retirement strategies also have negative impact



Industry Challenges and Initiatives

Challenges facing the industry

• Keeping up with technology and managing associated costs

• Where is growth going to come from after pricing initiatives exhausted

(flat PIF growth)

• Managing total exposure and having adequate reinsurance related to

recent CAT activity

• Keeping pace with evolution of data analysis and predictive analytics

• Diminishing returns with improved results

• Personal auto product and pricing strategy – Telematics / UBI



Industry Challenges and Initiatives

Top initiatives

• Strategic planning around distribution strategy – evaluating alternate

distributions, strengthening key agency relationships, and renewed

focus on terminating unprofitable agencies

• Enhancing customer experience is a focus of carriers encompassing

all touch points in lifetime of relationship

• Core system replacement and legacy retirement

• Predictive analytics projects continue in underwriting, but now span

rest of company including claims, agency management, marketing,

telematics, and premium audit

• Aligning company structure to future strategy – includes span of

control review



How is the Industry Performing?

Return to underwriting profitability

Capitalize on improving economy / push growth

Distribution channel management

Leverage technology investments

Data analytics for informed business decisions

Managing regulatory reform

Mixed

Needs Work

Unknown

Mixed


What we learned in the study…


Participant Profile – By the Numbers

29 Participants in study

$869M Average GPW per

company

2.5 Policy Admin Systems per

company

$382M Average GPW per

system

222,000 Policies supported per

system

18 States supported per system

10 Products supported per

system

663

509

294

40

343 322

Premium PerSystem (mms)

Policies PerSystem (000s)

Multiline Commercial Personal



Age of Systems (Years)

Average age of systems is 17.2

years, with expected 8.4 years of

remaining life.

Legacy systems were 21.8 years

old, with only 5.1 years of

remaining life expected.

Only 30% of companies

responded they have updated their

legacy systems.

Additionally, legacy systems were

significantly deficient in upgrades,

which may cause even greater

disparity on capabilities to modern

systems!

17.2

21.8

4.2

8.4

5.1

17.7

8.5

14.0

1.4

Overall LegacySystems

ModernSystems

Years in Production

Remaining Life

Years Since UpgradeSource: Ward Research Center PAS Total Cost of Ownership Report


50%42% 42%

35%

12%4%

0% 0%

19%27%

23%19%19%

27%35%

46%

Policy Administration Claims Billing Enterprise

Vendor Custom Developed Not currently replacing, but within 2 years No plans to replace

New System Implementation

62% of companies are participating in a policy administration system

implementation and 46% of companies are implementing a new claims system.

New system projects remain a high priority item for insurance carriers. As

companies achieve some moderate growth, they are looking to start or escalate

their systems projects.

In 2012, companies were starting new system projects. In 2013, many of those

projects are entering development and integration of the initial location. There

are also a high percentage of companies planning system replacement within

the next two years (27% for claims systems and 23% for billing systems).



2013 Spending Changes - By Function

0% 20% 40% 60% 80% 100%

Finance

General Counsel

Billing and Collections

Commissions

Audit

Personal UW/Processing

Agency/Broker Mgmt

Commercial UW/Processing

Actuarial

Human Resources

Claims Administration

Marketing

Product Development

Information Technology SignificantlyLess (-15% orless)

ModeratelyLess (-3% to -15%)

About theSame (-3% to3%)

ModeratelyMore (3% to15%)

SignificantlyMore (15% ormore)



6%

44%50%

Budget StatusUnder Budget /Timeline

On Budget /Timeline

Over Budget /Timeline

35%

65%

Timeline Status

System Expense – Policy Administration

Comments:

Personal lines carriers are more likely to be over budget (80%) and timeline

(100%) than commercial carriers (36%, 50%) respectively



Systems Expense

0.97 1.04 0.82

0.31 0.35

0.21

0.38 0.39

0.35

1.66 1.79

1.38

Overall Legacy Modern

Cost per System (mms)

Company Staff Consultants Maintenance

Modern systems required 23% less to maintain per system.

However, due to less premium actually moved to the systems, expenses relative to premium were higher on the new systems.

If the average modern system had the full premium of the average legacy system, expenses relative to premium would drop from 0.58% to 0.31%.

Overall, the average company used consultants to support systems - 22% legacy and 14% modern systems of their total resources.

0.26% 0.23%0.35%

0.08% 0.08%

0.09%0.10% 0.09%

0.15%0.44%0.40%

0.58%


Cost per System (% GPW)


A Lasting Legacy…

48%52%

Legacy Systems

Ongoing System Sun-setting

Although the average legacy

system was 21.8 year old, only

52% are in process of being

sun-setted.

Legacy systems can be difficult

to retire completely due to the

amount of premium, states and

lines of business affected. The

average legacy systems also

supported nearly 2.5 times

more products than the

modern systems.


The value is in business benefits

of technology improvement…


Speed to Market

Important to consider market

benefits when develop cost /

benefit analysis for business

case to replace legacy

systems

Chart shows IT time and costs

to develop new product and

state

Modern systems were

moderately to significantly

faster and less expensive for

IT departments to introduce

new states and products78%

58%

82%

82%

59%

48%

67%

48%

63%

51%

71%

58%

0% 20% 40% 60% 80% 100%

Product CostsUnder $250k

Product DevelopedUnder 6 Months

State CostsUnder $250k

State DevelopedUnder 6 Months




Functional Productivity Improvement

Only Personal Processing realized decrease in

expense ratio

Claims improvement driven by new claims

systems and centralization / consolidation of

headcount

Commercial and Personal Underwriting

improvements in automation and predictive

analytics. Also benefit from higher retentions with

high percentage of automated renewals

Commercial and Personal Policy Processing

realizing benefits of automation, particularly

through streamlining agency interface and more

automated renewal processing (both eliminating

duplicate entry)

Billing and collections, on-line payment systems

and automated payment processing contributing

to billing productivity gains

0% 10% 20%

Billing

PersonalProcessing

CommercialProcessing

Claims

Commercial UW

Personal UW

Productivity Improvement per Policy or Reported Claim from 2008 - 2012

Source: Ward Research Center PAS

Total Cost of Ownership Report



$6,290

$9,806

$11,497

$13,918

Multi-Line Work Comp

Average Premium per Commercial Lines

Underwriter

Overall High Performer

Commercial multi-line top

quartile performers averaged

82% more premium per

underwriter than overall

benchmark group

Mono-line work comp top

quartile performers averaged

42% more premium per

underwriter than overall

benchmark group

Automation provides capacity

to work more efficiently




Top quartile performers

averaged 70% more

premium per underwriter

than overall benchmark

group

Automation provides

capacity to work more

efficiently

$15,510

$26,391

Overall High Performer

Average Premium per Personal Lines Underwriter



Functional & Productivity Improvement

Service Standards – Personal Auto Overall Legacy Modern

Minutes per New Policy Quote 7 5 12

Minutes per New Policy Issuance 271 128 4

Minutes per New Policy (excl. Batch) 12 11 12

% of Systems Batching New Policy 18% 27% 0%

Minutes per Endorsement 279 126 2

Minutes per Endorsement (excl. Batch) 6 5 8

% of Systems Batching Endorsements 19% 27% 0%

Expert Underwriting Pass Rate - New

Business53% 48% 62%

Expert Underwriting Pass Rate - Renewal

Business75% 66% 88%



Improved Service Standards – Agency Self Service

0% 25% 50% 75% 100%

View Commissions

Pay Bills

View Claim Status

Report Claims

Non-Premium Endorsements

Premium Endorsements

Purchase/Bind Policies

Receive Quotes

View Policies

View Account Info

Percentage of Commercial Lines Respondents with Capability

Overall

High Performer



Improved Service Standards – Agency Self Service

0% 25% 50% 75% 100%

View Commissions

Pay Bills

View Claim Status

Report Claims

Non-Premium Endorsements

Premium Endorsements


Receive Quotes

View Policies

View Account Info

Percentage of Personal Lines Respondents with Capability

Overall

High Performer



Improved Service Standards -Policyholder Self-Service

0% 25% 50% 75% 100%

Pay Bills

View Claim Status

Report Claims

View Policies

View Account Info

Percentage of Commercial Lines Respondents with Capability

Overall

High Performer



Improved Service Standards -Policyholder Self-Service

0% 25% 50% 75% 100%

Pay Bills

View Claim Status

Report Claims


Receive Quotes

View Policies

View Account Info

Percentage of Personal Lines Respondents with Capability

Overall

High Performer


Additional value opportunities

created through flexible core

systems…

Additional Value OpportunitiesOther Potential Gains

Total Cost

Of

Ownership


Q&A


Closing Summation

When undertaking a core system transformation – what are

the most important factors you considered with regard to cost

as well as value?


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