Insurers really face enormous challenges in the marketplace. The competitive landscape, state regulations, reinsurance availability, insurance fraud, cat losses and internal expenses makes for a challenging environment. Insurers, naturally, want to reduce expenses, improve volume, enhance profitability and make use of new tools and technology to reduce risk.
In the last 15 years or so, most insurers have transitioned or are currently transitioning from either the old mainframe systems (like PMSC) or home grown solutions to a more modern technology. There are still some who are sitting on the fence. Many insurers who have taken the plunge have found their implementation costs or expected outcome to be less than desirable.
The Modern Core Insurance Platform
A modern Core Insurance Platform is the heart of the insurance carrier. It’s a suite of complex software components which provides crucial systems to support all important aspects of the business.
There are several components that make up a Core Insurance Platform. Let's briefly discuss these components.
1. Policy Administration
The Policy Administration component handles the management of insurance policies. It keeps track of who has a policy, what it covers, and when it starts and ends. It helps the insurer handle tasks such as creating new policies, updating existing ones, and making sure everything is properly documented.
2. Claims Management
When a policyholder needs to use their insurance to file a claim, such as a car accident or a house fire, Claims Management of the core system comes into play. It helps the carrier manage the entire claims process, from receiving a claim to assessing the damage or loss, and finally, making payments to cover the costs. Loss reserve management helps balance loss expense payments, giving the carrier’s accounting team deeper visibility into costs.
3. Underwriting Management
Underwriting within the core system manages risk evaluation and factors behind pricing policies. It considers various factors behind a policyholder’s profile, such as the person’s age, driving record, or the history of the insured property. By analyzing and simplifying these details, analytics for underwriters helps the company efficiently determine the appropriate premiums and ensures the company remains competitive.
4. Billing and Accounting Management
Billing and Accounting Management helps the insurer keep track of the company’s profits and expenditures while following regulatory compliance. It handles tasks such as generating invoices, collecting payments, and managing premium calculations. It ensures that everyone is paying the right amount for their insurance and helps the company maintain financial stability. Typically, Billing is closely tied to the Policy System due to tight integration requirements. We've generally found it's prudent to buy the Billing and Policy Administration layers from the same software vendor.
5. Reporting and Analytics
Reporting and analytics within the core system provides powerful data analysis tools. Some systems provide internal Reporting and Analytics tools, while others provide methods to use third-party software. Theses tools help in the visualizing of data trends for communication among executives and decision makers. It allows report generation that dives deeper into the company’s data and is important for tracking sales trends, customer satisfaction levels, and claims performance. These insights help the company make informed decisions, identify areas for improvement, and adjust strategies accordingly.
6. Document Management
Document Management is sometimes a part of a purchased core system and sometimes is third-party software that is integrated. It's among the most important components as it brings together internal operations, external partners, and policyholders, calling for fast and robust cloud storage.
7. User Interface / Customer Experience
The UI layer is most often included in a core insurance platform. It's often tied closely with the rest of the system allowing rules to determine field and page level validations as well as dynamic selections for the end-user. While some insurers require their own proprietary UI layers, we're finding that the more modern core insurance platforms have excellent integration capabilities and can often be used in conjunction with or as a replacement of bespoke interfaces. That said, some systems have extremely extensible API layers allowing for seamless integration for bespoke interfaces.
8. Rating
Rating is a collection of insurer rules and rate data, algorithms and integration to various third-party systems (for MVR, credit, etc.). It's a critical component that needs to be designed to be easy to update new rates and easy to test when changes are made. Too often, a rating system's complexity can stall needed rate changes due to reliance on internal IT rate maintenance teams. Poor design during implementation can make simple rate and rule changes into a far more difficult task than it needs to be.
9. Database
Core insurance platforms most often have a database that logs all transactions made within the system, the core platform data, as well as houses the rules and rates required for the policy transactions. These database platforms at some of the smaller insurers tend to be the single database for the entire company. Sometimes extracting data can be difficult and when running real-time inquiries can bog down the performance.
10. Integration Layer
An integration layer is one of the most important functions of a core system platform. This allows for extensibility of functionality to a multitude of third-party software and bespoke functions (such as customer UI / Experience layers). Integration layers enables an insurer to express their uniqueness through customization but still reaping the benefits of a purchased system. We've found that the core insurance platform software companies that have a well thought out and extensible API layer, gives insurers far more capabilities than those that do not have this API layer. This layer will be a key component to leveraging the coming capabilities of Artificial Intelligence.
Steps to Choose the Right Core Insurance System
Choosing the right Core Insurance System calls for team effort. Be sure involve key stakeholders from different departments, such as IT, operations, underwriting, claims, and finance, as they will be directly impacted by the new core system.
Assess Business Needs: Begin by conducting a thorough assessment of your insurance company’s specific business needs and objectives. Consider factors such as the size of your company, the types of insurance you offer, your target market, and any unique requirements or challenges you face. Identify the pain points in your current system and determine the specific functionalities and features you require in a new core system.
Research Available Solutions: Once you have a clear understanding of your business needs, start researching available core system solutions in the market. Look for reputable insurance software vendors, that offer core systems designed specifically for insurance carriers. Consider factors including the vendor’s industry experience, customer reviews and testimonials, system functionality, scalability, integration capabilities, and ongoing support services.
Request Proposals and Demonstrations: Reach out to shortlisted vendors and request detailed proposals that outline how their core system can address your specific business needs. Ask for product demonstrations to see the system in action and better understand its user interface, features, and overall user experience. Pay attention to how intuitive and user-friendly the system is, as this can greatly impact your team’s productivity and adoption.
Evaluate System Integration: Assess how well the core system integrates with your existing or desired technology infrastructure. Determine whether it can easily integrate with your current systems.
Consider Implementation and Support: Evaluate the vendor’s implementation process and support services. Find out how long it typically takes to implement the core system and whether the vendor provides comprehensive training and support during the transition phase. Additionally, inquire about ongoing technical support, system updates, and the vendor’s commitment to long-term partnership and collaboration.