Executive Perspective: Policy Administration Systems for Group Benefits not living up to expectations — Stay the course or change direction?

By Michael Kelly

Group Benefits insurers who selected policy administration system (PAS) vendors from other industries (P&C, Individual, Retirement, etc.) are reevaluating whether they should stay the course and try to make these systems work for group — or stop, reduce the original intended scope, and change direction for the future.  Some have already stopped these PAS projects and have gone back to relying upon their legacy admin systems. However, those who are still at this reevaluation crossroads should use the opportunity to step back, evaluate the whole situation carefully and determine the correct decision on direction for the future. The decision may not be to stop and throw the PAS out entirely – it may well be to keep the PAS, or parts of it, and make it a non-strategic PAS by using it only for what it does today and then change direction for the future needs of the business.  

Confronting fallout from changing direction on your policy administration system

The decision to stay the course or change PAS direction can be hard, as the Sunk Cost Fallacy comes into play: executives associated with selecting and funding these often very large, failing programs begin to stress about the historic spend, likely fallout and, in some cases, even their careers. However, these PAS selections were made several years ago with the very best intentions, when the core system landscape in the group market was very different. Back then, there was no clear path for group carriers selecting a new PAS, which is what opened the door for vendors from other industries to opportunistically enter and claim they could meet the needs of the group industry. In many cases, new entrant PAS vendors to the group market knew nothing about the uniqueness and complexity of group insurance — their systems were not originally architected to support the group structure.  However, given there was white space in the group PAS market, these vendors positioned their PAS for simple implementation projects, such as a new voluntary benefits product launch, to persuade carriers to commit and invest in the new PAS. By starting with a greenfield new business implementation, the vendor could ignore the existing book of business and therefore avoid the uniqueness and significant complexity involved in having to support true group insurance.  The carriers were often supported by industry advisors who assisted the selection evaluation process. At the time they believed they were taking the best option available in the market.     

A small number of group carriers believed that by trying to make a PAS built to support another market work for group insurance they would become industry pioneers. I recall hearing about the CIO of a very large group insurance carrier declaring at an industry CIO event that she was going with one of these new entrant vendors from another industry for her PAS. Her key point was that she was keen to see other carriers follow her lead so the group industry would be better served for PAS. It was a noble and well-intentioned declaration, but unfortunately, her PAS initiative did not go well and after a couple of years the insurer sensibly decided to cancel the contract with the PAS vendor. My colleague, Chuck Johnston, has written persuasively why it is not a good idea to adopt systems architected for other insurance industries to work for a group system 

A policy administration system purpose-built for group benefits

FINEOS market research from 10 years ago highlighted only two purpose-built group insurance PAS that existed in the market: Compass and Genelco. However, both systems originated in the 1980s and were outdated – even as far back as 10 years ago.  As the market leader in claims management back then, FINEOS had integrated FINEOS Claims with these two group PAS and many other PAS group systems developed in-house. As a consequence of our research, we embarked on constructing our totally new purpose-built PAS as an end-to-end, customer-centric, SaaS platform for group, voluntary and absence benefits. In other words, we wanted our platform to support true group business but also support the future trajectory of the employee benefits market given the growth of voluntary and the increasing importance of absence benefits.   

Thankfully, we partnered our customer, Cigna Group Benefits (now New York Life Group Benefit Solutions), to build an industry standard PAS platform to replace their multiple legacy systems and enable business and operational excellence, as well as, great digital customer experience.  

A few years prior to our partnership, Cigna had purchased a PAS for their voluntary benefits, which they hoped could also become their PAS for group insurance. By the time we started our partnership, they had determined this PAS would not support their group business, so they decided to wind down their investment in this PAS and retain it for voluntary business only. Running it for voluntary benefits enabled a return on investment, while partnering with FINEOS for a new strategic policy administration system platform for group, voluntary and absence.            

Changing direction on a policy administration system is an opportunity

Carriers confronting whether to stay the course or change direction on PAS should use this as an opportunity to reset and realign their business and technology strategy to enable a faster pace of execution once decisions on strategic direction are made. At FINEOS, we sometimes say, “Slow down to speed up.” What we mean is that there are times when you need to slow the pace so you can reevaluate your strategy, direction, priorities, and approach. This enables you to reset and then speed up again. Things change; what got us here may not be the right answer for where we want to go.       

Of course, politically speaking, staying the course on a non-strategic PAS doesn’t rock the boat. But if this is the chosen path, then it does mean that people will be unhappy, and the business continues in the slow lane with a vendor who is not fully focused and strategically aligned with the group industry — a vendor that supports multiple industries and therefore has multiple masters, with different priorities, functional capabilities, and regulatory requirements to serve.  

Clarity of purpose as well as decisive leadership is required to change course

Changing the direction of a non-strategic PAS program can be truly liberating. It’s amazing the number of people who will say after a change of direction, “This was the right decision; I could have told you this was going wrong a long time ago.” These are the people who don’t feel comfortable speaking up unless they are 100% sure they will not be harmed for doing so. No one wants to rock the boat if they don’t feel safe or have the power to change course. That’s why stepping back and bringing people on a journey of logical discovery and learning when you are at a PAS decision crossroads is the way to gain the clarity, alignment and buy-in within your team on the best way forward.  

It normally takes one or two senior executive leaders to make the final determination on PAS direction.  The key is to ensure the decision becomes a positive motivational step for everyone. We all know that failure is part of learning – it’s how failure is embraced and the speed of recovery that define true organizational health and success.   

If a PAS is not fit for purpose, then not taking the opportunity to evaluate alternatives and change to an easier and faster course is a lost opportunity. It may be that part of a non-strategic PAS that works today (e.g., new business) should be retained, but perhaps another vendor can provide stronger back-end PAS components, such as, the policy admin, absence, and/or claims.  Changing course to a direction like this can put a carrier in a much stronger position very quickly, which will open new opportunities.    

Some carriers may feel that engaging an advisor to evaluate a PAS that is not living up to expectations may be a safe way to move forward. This can work if the terms of engagement and objectives are clearly defined with the right goal of finding the best business outcome. However, a danger is that the advisor may be too eager to please if clear, open terms are not set. If the advisor feels that stopping is politically difficult, then they may advise stay the course — and then offer to help on the program going forward. Fundamentally, this could end up wasting more time and costing even more than envisioned, to ultimately arrive in the same place again. 

Changing course while extracting ROI from an existing policy administration system

As already mentioned, in many cases, a non-strategic PAS can continue to be used at some level to extract value. The key decision is to stop spending good money on trying to reshape it into the strategic PAS platform for all future business. Recognize the limitations and find a different option for the future.  Leave the non-strategic PAS, or some working parts of it, where it is today in order to extract some value and quickly move on.   

Often a non-strategic PAS can be heavily customized, or it could still be running on premises and requires an expensive upgrade. This upgrade cost scenario can provide the reason and a business case to stop with the non-strategic PAS and change direction to a much better PAS for the future.  

Choosing to win with a purpose-built and proven policy administration system

The group and voluntary benefits market has changed rapidly in recent years; the pace of change will only accelerate. Further investment and resource commitment toward a non-strategic PAS is a very risky and expensive decision. It’s never too late to evaluate and change course. In fact, change is inevitable and healthy for organizations. You can take the learning and the positives from having gone the wrong direction and then use this valuable experience to select the right direction and PAS platform for the future.  

Finally, executives should not be made scapegoats for previous PAS selections from several years ago when the group PAS landscape was not clear. If they take the opportunity to logically reevaluate and change direction to select a group PAS for the future, they should be thanked.  

The group carriers who face up to making the right choices will continue to be the winners.  


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