In this three-part blog series, I’m comparing insurance to manufacturing. I’ve talked about the key breakthrough in insurance software of the separation of product from policy. And I’ve addressed how the product itself needs an unambiguous way of being defined — the product model— to get to one version of the truth for both IT and business people. Now let’s consider the beginning of the product, that is, its “supply chain.”
Here is where the comparison takes another sharp turn. In their pursuit of quality and just-in-time delivery, manufacturers can make demands on their supply chain vendors. Insurance companies, on the other hand, are at the mercy of the bureaus. ISO, NCCI, AAIS all develop rate, rule, and form of course. They then deliver these updates to their member subscribers via paper manuals or electronically via text.
From there the fun really begins. Insurance companies must log the info, determine which of their products and territories are impacted, compare the updates to what they already have implemented and filed, conduct marketing and business reviews, and hopefully and eventually, implement at least some of those updates.
Recent studies by Novarica and SMA indicate there are approximately 3,000 to 4,000 changes per year in commercial lines alone. The labor cost to implement just one ISO circular with a form change and a rate change is estimated to be $135,000 with the majority of costs in the analysis and system update steps.
There’s got to be a better way…
ISO at least has taken a step in right direction with the availability of its Electronic Rating Content. In either Excel or XML format, ISO interprets its own content to specify such constructs as premium calculations (e.g., defined order of calculation, rounding rules), form attachment logic (for conditional forms) and stat code assignment logic (to support full plan).
A step in the right direction no doubt. But what if ISO used a standard mechanism and format to do this? ACORD now has under its control the ACORD Product Schema. This is part of IBM’s fairly recent IAA donation. It provides us a standard way to represent the insurance product and a standard way to integrate with policy admin systems. What if ISO and the other key providers in the product supply chain started it all off this way?
Dream on, you say? While you may not have the clout to demand that the bureaus change today, you do pay membership fees and collectively the members have a voice in encouraging ongoing improvements in the insurance “supply chain.”
In the meantime, the goal to be lean and agile with product lifecycle management continues. We must respond quickly and cost-effectively to market opportunities, policyholder feedback, and regulatory requirements. That all starts at the product source…but it doesn’t end there. So while the supply chain improves its quality and delivery, insurance companies will need to gain efficiencies throughout every corner of their organizations in order to achieve those lean goals.