Though carriers as a group might not agree on much business and technology strategy, many are now pursuing the same goal — Web-based rating. Marketing, competitive advantage, and improved efficiency are among the motivations. What may not be obvious at the beginning of the process is the way pursuit of Web-base rating may generalize into broader solutions. And as is often the case with a responsive marketplace, new needs encourage the development of new solutions — in this case, rating technology that may finally address issues that have dogged the industry for a generation.
Rating is central to the insurance process but has been one of the most difficult to solve. Carriers need to rate, but so do agents, and now perhaps even consumers. And rating really doesn't stand on its own. It's intimately involved with underwriting, tiering, third-party data, submission, policy issue and so on.
The traditional approach to solving the rating problem took one of two forms. The most common approach was to build batch rating into the carrier policy administration system and then delegate agency rating to third party vendors — contracting for proprietary PC solutions or passively accepting being part of a comparative environment. A second and less common approach was to find a way to create interactive rating and extend it out to agents — a single platform solution.
When the two-platform approach included comparative rating, that pleased agents to an extent but was ultimately unsatisfactory because in-agency quoting often produced different results than carrier systems and didn't bring efficiencies to the submission process. On the other hand, extending the carrier system out to agencies had an untoward impact on the standardization agents were trying to bring to their multi-carrier workflow.
The Internet changed the picture. It was a no-brainer to see that offering Web-based rating to agents could provide more control, bring underwriting into the process at point of sale, enforce accurate submissions, and perhaps even create a competitive advantage of sorts.
If Web-based rating has promise, how do you go about it? What implications does it have for legacy systems? What implications does it have for the agency sales force? A number of vendors are now supplying promising Web-based rating solutions. I talked to three recently and they offered some insights I'd like to share.
Twenty-three-year rating veteran Rackley Systems (www.rackley.com), supplies single-carrier and comparative personal and commercial lines rating solutions and has recently retooled to use Microsoft's dotNet platform. I talked to Mark Stroop, EVP, at Rackley recently. Duck Creek Technology (www.duckcreektech.com) , a two-year-old startup is staffed by long-time rating experts and uses XML to specify rating plans. Doug Roller, CEO, was kind enough to spend some time talking about his approach. AscendantOne (www.ascendantone.com), another new company peopled with industry experts, supplies next generation rating software as well a complete front office solution. Chuck Boodro, CTO, provided me some perspective.
Roller says about half their business comes from carriers that are looking for what he calls tactical solutions and the other half strategic solutions. The former group wants to get something up and running quickly, without impacting their current systems. The latter is looking for long-term complete solutions and doesn't want to take half-measures. They don't, for instance, want to have to maintain two rating platforms in parallel.
Stroop reported that one of their customers has been working on a strategic solution for years — at great expense — but may contract with Rackley to provide something now that works while they struggle on with their massive project. He's confident Rackley can have them up and running with four commercial lines across 30 states in less than five months.
Boodro told me that in a recent experiment, a prospect was able to attach remote AscendantOne rating services to its legacy system in ten days. That created the possibility that they could have their cake and eat it too — leaving their legacy system undisturbed but adding Web-based rating, a strategic-tactical blend.
Legacy carrier software often blends the user interface, business rules, and data management into one program. Though that might get the job done, it's a poor environment for change — whether of rate plans or new forms of presentation. Many carriers and rating vendors have found themselves hamstrung by past programming sins. The analysis and intellectual capital buried in the rating software can't easily be reused or applied to new needs. At the same time, doing the whole thing over again from scratch may be prohibitively expensive — putting the carrier between the a rock and a hard place.
The first order of business is to separate rating from other policy processing and the mechanics of rating from the presentation and database systems. Though modularization as a software technique has been available for some time, the idea of remote services, that is, rating engines that can live anywhere and serve a variety of different client programs has only recently become practical and that's the approach all three of these vendors have taken.
As too many carriers have realized too late, the big problem isn't creating a rating system, it's maintaining it — responsively at modest cost. Anyone can throw some code together that rates — I've done it myself — but that doesn't mean you've created a sustainable process. More likely you've created a nightmare for someone else to deal with.
Rackley's approach to the maintenance puzzle is to take on outsourcing responsibilities. Stroop pointed out that no carrier is likely to have the depth of experience Rackley does and therefore can't be as efficient. Because it has put together so many rating plans over the years and then had to maintain them — in some cases in the low margin comparative rating environment — Rackley has developed tools, processes, and staff carriers must struggle to create and maintain.
Duck Creek and AscendantOne are happy to accept maintenance responsibilities but find that some carriers, at least, both want and are good at developing and maintaining rate plans using the vendor's tools.
Roller reports that Duck Creek employs the concept of a manuscript, a collection of everything that makes up a rating environment — tables, rules, workflow, presentation, documentation and so on. All that information is stored and maintained in XML format through a collaborative authoring system. Nothing is hard-coded. Rating analysts, not programmers can develop and maintain the rate plans.
AscendantOne, according to Boodro, see ease of ongoing maintenance as the crucial test for rating software. The vendor's rate plan creation and maintenance tools provide English language documentation as a by-product of the process and before/after comparison reports to help manage the change process. And rate plans are based on an inheritance system — national/state/carrier — to minimize time to creation as well as maintenance effort.
Few carriers will ever be enthusiastic about the prospect of being part of an agency comparative rating environment. It's much more pleasant to focus on fielding one-company Web-based rating — making it attractive, fast, and effective — with the hope that agents will use it more than the competition's offerings. And though agents are happy with penny-accurate carrier supplied Web-based rating and the opportunity to complete the submission and binding process on-line, in the longer run agents want comparisons and standard workflow across multiple carriers. Roller reports that agents are screaming for Web-based rating that has both the benefits of single-carrier solutions but is multi-carrier.
Carriers can't — on their own — create multi-carrier Web-based rating — so how do well-intentioned carriers at least assist the process? One way is by using Web-based rating that has a multi-purpose, modular architecture. The Rackley, Duck Creek, and AscendantOne solutions are all multi-purpose and could thus serve both carrier sites and comparative agency services — and even direct-to-consumer offerings. Thus by using any of these new rating technology solutions carriers can at least be in a position to cooperate with multi-carrier solutions without having to do additional work to be there — even if they can't actually make comparative rating happen. And in the case of Rackley, because the vendor also supplies comparative rating services, the vendor can help the carrier be part of a multi-carrier solution for agents.
I've had enough involvement with rating over the years to understand how difficult it is to maintain rate plans — not just in the narrow sense of changing a particular rate or making changes to the structure of the policy but in the broader sense of capturing knowledge in a way that it can be reused for purposes not contemplated at the time the analysis was done. The larger issue of maintenance isn't within a technology generation but between them. That's the insight these three vendors, and others like them have had about the nature of the rating problem and that's what's especially interesting about their solutions.
Elegant solutions solve multiple problems simultaneously. The need for Web-based
rating should be viewed, I think, not simply as a way to put rating on the
Web, as attractive as that prospect is, but as a way to solve future rating
and insurance deployment problems that won't even surface until ten years
from now. It the Y2K debacle taught us anything at all, it's that the future
comes sooner than we think.