Insurance company policy administration systems are overburdened and not meeting carrier demands for growth, adaptability and standardization, a survey by Accenture has revealed.

The consulting firm found 84 percent of those property and casualty insurers surveyed see modernization of their policy administration systems as a key priority over the next three years.

Insurers told Accenture the need for speed-to-market and greater flexibility in improving processes are the drivers for system improvements.

“The complex legacy environment as a barrier to high performance is not a new issue, as insurers have been trying to modernize their core systems for at least 10 years, but few can really claim success,” according to Michael Costonis, executive director of Accenture’s insurance practice for North America.

“It is very difficult to enhance systems while keeping them working, and insurers need to have a well-defined release strategy that balances speed of implementation with delivery risk,” said Mr. Costonis.

“Some organizations opt for the big-bang approach, in which they effectively cut over to all new systems at once, and others find it more appropriate to break up the effort into manageable releases��"by product, customer group, or some other distinction��"to reduce operational and delivery risk,” he added.

Among other findings from the survey:

• Ninety-two percent of insurers see organic growth as the main contributor to overall revenue growth, and 81 percent believe their current systems are inadequate to support current and anticipated needs.

• High costs are a major concern, with almost all insurers reporting that the expense of running their business has increased in the past three years, while almost two-thirds believe those high costs prevent them from performing at a higher level.

• Insurers express concern for the state of their current policy admin systems. Accenture indicates 65 percent of those surveyed report their systems need some level of improvement. Nineteen percent rate the effectiveness of their systems as poor, with significant improvement needed.

• Those looking for a competitive advantage express disappointment with their current systems. Less than half (44 percent) of insurers believe their current systems help differentiate themselves from the competition. 

• Carriers also cite a lack of flexibility to meet customer needs, improve the time needed to bring new products to market, and lower the cost of maintaining and/or running the systems.

“Insurers recognize that in the current environment, they no longer can afford just to continue pumping more money into maintaining and enhancing legacy systems,” said Mr. Costonis. “They understand the confluence of economic and market factors have created a unique window of opportunity to transform their technology infrastructure.”

Insurers need strong business ownership and governance of the new system’s design to help ensure the company redesigns its business operations around the new system’s capabilities and not the other way around, according to Mr. Costonis.

Nearly all the carriers surveyed (92 percent) report the cost of running a business has increased in the past three years, and nearly two-thirds (64 percent) expect an increase in the next three years.

To balance those increases, insurers must turn to areas such as process optimization and consolidation of systems in the next three years, according to Accenture.

“Because raising their top line is a significant challenge in the marketplace, many insurers really have only one choice to boost their margins, which is to reduce dramatically the ongoing cost of their steady-state operations,” said John Vale, a senior executive in charge of p&c policy administration solutions for Accenture.

“Such a reduction is not achievable by simply reducing headcount or eliminating certain projects or initiatives,” added Mr. Vale. “It requires a fundamental change in the underlying cost structure of the business to which complex, outdated core systems are a major contributor.”

Accenture surveyed 27 p&c executives in the United States and Canada “closely involved in the decision-making process in the selection and management of policy administration systems.”

The firm added that “in order to guarantee the quality of the responses and ensure the objectivity of results, telephone interviews were conducted by an external market research agency from August to November 2009.”

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