By Elisabeth Boone, CPCU
Fast, economical, reliable...these aren't words we commonly associate with insurers' automated policy management systems. Not only agents, but the companies themselves, frequently express their frustration with mainframe-based systems that require vast amounts of costly server space and that lack the flexibility and speed so crucial to efficient policy processing. What's more, error rates with these overloaded systems often are uncomfortably--even unacceptably--high, further driving up costs and exacerbating some already tense agency-company relationships.
Given this gloomy scenario, few people on either the company or agency side of the property-casualty business would be likely to imagine a realistic solution that actually would streamline policy processing, cut costs, reduce errors to a minimum--and turn scowls to smiles in frayed agency-company relationships.
The vendor that could
Back in the early 1980s, when Bob Eustace founded Applied Systems to design and market agency automation systems, he envisioned a day when microcomputers would be powerful enough to drive not only agency systems but also the huge, complex systems in place in the offices of insurers. In this article we'll learn how that vision became reality: how user-friendly Windows technology is now being used to move vast amounts of policy data quickly, efficiently, and affordably between company and agency, and how one insurer that signed on with Applied's PC-based Diamond System now has agents singing its praises instead of calling for its head.
In 1989, Applied Systems, by then established as an innovative leader among agency automation system vendors, started up a unit to handle commercial lines and personal lines rating for agencies. Soon companies began to contract with the vendor for rating, and in 1993 Applied began working with programmers to design a Windows-based policy processing system for insurers. The focus was, and still is, on lines of business with a heavy volume of transactions. A key goal for the Diamond System, says Pat Kellner, an Applied vice president who works exclusively on Diamond, is to "make people productive in a high-transaction environment." Later that year the system was up and running, but not yet implemented with a company.
Enter Cincinnati Equitable, a small personal lines carrier then operating in Ohio only. Established in 1826, when both Thomas Jefferson and John Adams were alive, it's the oldest insurer in the state. Plagued by problems with its mainframe-based policy processing system, and ranked "worst in service" by its 90-plus-member agency force, the little insurer with the proud history was in danger of losing its bearings.
A system in need of an insurer--an insurer in need of a system. Applied Systems and Cincinnati Equitable seemed almost destined to meet. And meet they did, in the latter part of 1993. "We weren't actively shopping for a company system," says Terry Lyle, director of systems and training for Cincinnati Equitable. "We had contacted Applied for information on interface; they had a good reputation in download and upload." When the vendor sent several of its top executives to visit the insurer, Lyle says, "we knew something was up."
Indeed it was. The Applied executives explained the principles of the system they were developing, and Lyle was intrigued--as was company president Jim Ketring. "We were constantly competing with other companies in agents' offices," Lyle explains. "Our system was difficult. It took a lot of people to run it, and there was little continuity. We wanted an easier, more accurate system, and it had to meet our agents' needs. We shopped the market, then very quickly decided on Applied's system." Ketring agrees. "We were high on Diamond. We're totally committed to the American Agency System, and we knew Applied had an excellent reputation in developing agency automation systems. We were sure their system would be better than others in meeting agents' needs."
Doug Johnston, vice president, Applied Systems' Company Systems Division
The feeling is mutual. Doug Johnston, like Kellner, an Applied vice president assigned to Diamond, describes Lyle, Ketring, and their colleagues at Cincinnati Equitable as "smart and energetic. They knew what they wanted, and they didn't want to be computer experts." Of Ketring, Johnston says, "He's a visionary. Throughout the implementation process, he was always patient and encouraging." Ultimately, Johnston observes, "they got what they wanted, and we had a system we could build on and offer to other companies."
What's inside the box?
How did these well-matched partners work together to implement the Diamond System to their mutual satisfaction? We'll find out . . . but first let's look at the system itself and how it's designed to streamline policy processing and related transactions for insurers and their agents.
As was mentioned earlier, the Diamond System is designed for the Windows operating system in a local area network (LAN) environment. The advantage of this structure is that standard PCs, acting as the client, take on the processing load with their own memory and processor, thus leaving the server to store and manage data without large processing cycle requests from the clients. The system requires no proprietary, single-purpose hardware. A second advantage is that other Windows applications can be integrated with the system: Microsoft Word for word processing, Excel for spreadsheets, and Mail for electronic mail.
Applied describes Diamond as "a true workflow management system." Its Open Task system is a workflow tool that helps the insurer keep track of every piece of work in progress, as well as e-mail and schedules. Above all, however, the system is designed to expedite policy processing. A built-in control system automatically selects the correct policy, coverage, rates, underwriting rules, and forms, based on company-defined rules. Perhaps best of all, all processing takes place online, in real time--rating, underwriting, billing, policy issuance--so there's no need for batching and no waiting to discover and correct potentially costly errors. Complete policy detail is provided on a single screen that's available for every version of the policy--past, present, and future.
The Diamond System is built to handle out-of-sequence transactions efficiently: endorsements, renewals, cancellations, and reinstatements. Because full policy version detail is online, transaction back-off and reapply occurs instantly. If a coverage conflict exists, it's identified immediately.
Billing, claims, and more
In addition to policy management, the Diamond System performs a number of other key functions. The system provides complete billing and receivables management for both agency billed and direct bill business. It accommodates custom payment plans, separate billing addresses, and cancellations. The billing system calculates policy equity based on payments received and generates future cancellation transactions in compliance with state rules. The claims management function provides coverage and limit validation for a given date of loss. It also can handle an unlimited number of claim files per incident.
Diamond also performs essential agency management functions: contract management by date, state, line of business, and rate plan; and commission by new, renew, class code, premium level, and special. A reporting function allows the user to select, design, and run reports from the desktop. Report data can be exported into external programs such as Word and Excel. The system also can interact and integrate with third-party applications such as Equifax or Trans Union/Dateq for credit, claim, and MVR reports. The Diamond System is fully year 2000 compliant.
Interface is integral
As the designer of the widely used Forms Interface Module for ACORD standards-based upload and download, Applied is strongly committed to agency-company interface. Not surprisingly, the Diamond System performs Automation Level 3 (AL3) upload and download via electronic agency interface. All policy/ACORD data export, import, and rearrange functions are built into the system. This allows each insurer to process its unique policies and claims, including company-specific rules, rates, forms, and workflows.
Applied Systems is looking beyond interface to the environment in which it believes insurers and agents soon will be operating. "A lot of companies are looking beyond AL3 to a scenario where agents rate, issue, and bill policies on site," Pat Kellner says. "A subset of the company Diamond System, called Diamond Agent, could be installed in the agency and interface with the agent's system," he explains. "The agent could print policies during the day, and at night batch data up to the company. This approach, involving both download and upload, has clear advantages for both the company and the agent." Adds Doug Johnston, "Every company wants to do something like this. With Diamond, the advantage is that both companies and agents are using microcomputers. Records generated in the agency exactly match what's in the company Diamond System database. There's no need to rewrite data from the mainframe for a microcomputer, because both versions of the system are identical."
Cincinnati Equitable President Jim Ketring says the Diamond Systems will serve as the launch pad when the company begins writing business in two additional states next year.
Originally designed to manage personal auto transactions, which are high in both premium volume and number of transactions, the Diamond System now can handle any kind of personal lines business, Pat Kellner says. For example, Cincinnati Equitable writes auto, homeowners, umbrella, dwelling fire, mobile home, and boat insurance; and another carrier using Diamond offers motorcycle and mobile home coverages. Plans call for Diamond to expand aggressively into both workers compensation and commercial auto later this year, Kellner notes. The vendor has no plans, however, to deal with specialty lines of business, which would involve inordinately high costs for development and maintenance.
The Diamond System is now operating in eight companies, Doug Johnston says. Building company-specific criteria into the base system is understandably a slow process, he explains, with each company implementation taking between 8 and 26 weeks. Recently Applied has been adding one new Diamond System user every four weeks--without advertising. "Each company we bring on line teaches us new things that help us enhance the product and make the system better for everyone," Kellner declares.
Although the system initially was targeted for smaller regional insurers with premium volume of less than $100 million, a newer client-server version will allow Applied to pursue larger carriers, Johnston says. Diamond might not replace the entire existing system, but instead could be used to enable the insurer to launch specific programs in particular territories--say, a new auto program in the Southwest. The speed and efficiency of the PC-based architecture, Johnston points out, can get the program up and running faster and far more economically than could a mainframe system.
In fact, Cincinnati Equitable is using the Diamond System to do just that. Next year the insurer will begin writing business in two additional states--Illinois and Indiana--and the Diamond System will serve as the launch pad for this historic enterprise.
From worst to first
Earlier we mentioned that Cincinnati Equitable, plagued with processing problems, was losing both business and stature as its frustrated agents began to look elsewhere for markets--and that it suffered the indignity of being ranked "worst in service" by its agents. Now let's find out just how this insurer--with a big boost from Applied Systems--turned the situation around and ended up winning acclaim for its high level of service to agents.
First of all, says systems and training director Terry Lyle, "Applied was so knowledgeable about agents' needs, the flow of work through an agency, and the marketing aspects of the insurance business. Other vendors were not so knowledgeable." That level of knowledge, she and Jim Ketring agree, was a major factor in Cincinnati Equitable's decision to become the test company for the Diamond System. "Being the guinea pig wasn't easy," Lyle acknowledges. "It involved a lot of extra time and work for us." The vendor's programmers spent several months in the insurer's headquarters, setting up the mechanisms by which Cincinnati Equitable's personal auto business would be managed by the Diamond System. The Diamond System ran parallel with the insurer's existing system for a while, then was expanded to accommodate the company's other lines of business: homeowners, dwelling fire, mobile home, and boat owners.
Once the new system was up and running, Lyle says, the vendor "signed up other companies to use it, so we could pool ideas with them. Applied was always looking out for our best interests," she declares. And to what extent has the Diamond System broken the policy processing logjam in the insurer's headquarters? Lyle responds quickly: "We can operate our business with one half to one third the number of people it originally took." Perhaps most important, she comments, "The system put us back in the insurance business and got us out of the computer business, where we had been in the early '90s. Then, all we were doing was putting out fires, trying to keep up--we never had time to be proactive in marketing."
Lyle says that the company is now able to provide one- to two-day turnaround on new business and endorsements. What's more, "The billing system is very accurate. Agents' CSRs say it's much easier to understand our billing than that of our competitors, or what came out of our old system." And what about that "worst in service" rating from the agency force? Lyle is unsparingly honest. "Our agents put up with some of the worst service imaginable," she declares. "Then, about a year ago, our agents' advisory council told us we had gone from worst to first in service in their agencies."
Happy insurer, happy agents, happy vendor: the perfect ending to an insurance story. But getting there involved far more than the wave of a magic wand, as Cincinnati Equitable president Jim Ketring emphasizes. Asked what advice he'd offer to an insurer in his circumstances, about to become the pilot site for a system that looked great on paper but was yet unproved, he responds that the success of any such endeavor depends heavily on developing a climate of trust with the vendor. "Early on," he says of Applied, "we knew they were trustworthy and had integrity. They did everything they said they'd do.
"Our system conversion and implementation were very difficult," he continues. "We decided at the beginning that if we had problems, we weren't going to blame Applied--we would cooperate with them to seek solutions. Our company was well served by taking this attitude. We ran into a hundred things no one anticipated, but we worked together to find solutions. In the end, everything turned out beautifully."
Terry Lyle agrees. "We wouldn't be where we are today if it weren't for Applied's people working with us," she asserts. "Their programmers gave themselves completely to this project." Identifying a key component in the success of the undertaking, she adds, "We shared the same goals. They made our problems their problems, and they always tried to take the load off us. When there were problems, they stayed up all night to fix them. They gave their all to make it work--and they came up with great ideas for us." For example, she says, "Our class code system for auto business came from one of their programmers."
In the end, Jim Ketring says, it was Applied's knowledge of agents' needs and goals that made the vendor the ideal partner in this undertaking. "How can a company do business with independent agents without having walked a mile in their shoes? All of us have worked in agencies. We knew what our agents wanted, but we didn't know how to give it to them. Applied had the knowledge we needed: of agencies, of insurance, of computers. That's what brought everything together and made it work." *