Panel Weighs In On When To Dump Administration Systems

Hersh pointed to what he called an aversion to risk in the insurance industry, an attitude that carries over to information technology (IT). Rather than using IT to gain a competitive advantage, many carriers simply look to IT to enable them to remain competitive, he noted. "IT can be used for competitive advantage, if it's done properly," he asserted. The key is knowing which business problems to solve via technology.

Panelist Bill Jenkins, CIO of Penn National Insurance, based in Harrisburg, Pa., disagreed with the idea that older systems could be part of a competitive enterprise, noting that, "Legacy systems won't allow carriers to remain competitive. There's no real-time flexibility.

"Legacy systems inhibit the business from introducing new products," he continued, adding that they also keep carriers from bringing products to market quickly. Hersh noted, however, that if a company can "extend legacy systems to do real-time business, you are okay."

According to Hersh, when it comes to policy administration systems, servicing producers is the key to "gaining wallet share. You risk losing business by not being up-to-date with core administration systems." Newer systems, he said, would yield "up-to-the-minute and accurate data, which reduces costs. That is a competitive advantage."

Another advantage of newer systems is that they are built to upgrade more easily than older systems, which must be "drilled into after the fact," he said.

Costs to upgrade remain a major hurdle, however. Jenkins pointed to a project in which another carrier replaced 28 legacy systems, which cost between "$35 million and $50 million–and that was 10 years ago."

"You must spend time up front to figure out how to get everyone off the mainframe," said Hersh of the systems update process. "Make sure you can get off it first." This involves a thorough ROI review and cost-benefit analysis, including the cost of converting data, he noted. "This should be the most challenging project you've had on the business side. Outsource tasks while you can; don't waste retraining of your IT staff."

Both Jenkins and Steward, however, were less enthusiastic about outsourcing core processes. "I want control; I want the source code in my pocket," said Jenkins.

Hersh maintained that outsourcing "could be helpful to this industry. Yes, you lose some control, but you also lose some of the costs. There is a tremendous unwillingness in the insurance industry to allow anyone else to manage anything for you. We're seeing some core systems outsourced now."

"Most CIOs are bringing mission-critical systems back in-house," Jenkins said. Looking at his own experience with outsourcing, he noted, "I've been hurt many times.

"Data quality is the industry is a huge problem," he continued. "There must be some control over building files and how they use it."

The panelists agreed that a critical aspect of the success of any upgrade project is commitment of the organization to the project, from the top down. "Senior management must vocally approve it or others will slow down the process," said Hersh.