Irrational Exuberance

In 1996 then Federal Reserve Chairman Allan Greenspan famously suggested that the American stock markets were suffering from “irrational exuberance”.  In other words stocks were generally overvalued and investors were ignoring the sober analysis of stock price fundamentals.

I feel that its time to take the contrarian position on all this talk of the superiority of new generation systems and warn the buying carrier population of irrational exuberance.  Anyone who has read this blog consistently is probably reaching for the “flip flopper” label as we speak, but let me explain.  I absolutely believe that new generation of systems are better designed and built and the new vendors are more capable.  I have said as much here and elsewhere. But, these systems, particularly the new policy administration systems, are mostly in their adolescence.  They lack all kinds of detailed functionality which the current legacy systems have.  I have been saying to clients for years that when it comes to new core administration systems their choice is between technology and functionality.  This is less true today than at any time before, but it is still true.  The P&C business is a Rubik’s Cube of exception conditions fueled and maintained by the fifty state regulatory environment within which our industry operates.  Building out the rate/rule/form, processing and reporting variances for one product over fifty states is challenging enough.  Now try it for multiple products written by multiple companies within the same group.  These kinds of complexities are conquered by vendors one client at a time.  So if you happen to be the second fifty state work comp carrier to purchase System X you are in infinitely better shape than the first carrier.  It takes years for a system to have been implemented at enough clients that a critical mass of detailed functionality is available “out of the box”.

My point is not that carriers should avoid new administration systems; to the contrary, carriers should look at new generation software to solve their business needs before they look at the legacy vendors.  However, we need to compensate for the now steady drip feed of articles and press releases which paint a positive and uncritical picture of life beyond the legacy world.   There is no doubt that the new administration systems hold more promise for ease of use, speed to market and reduced maintenance but there are some unavoidable realities to be born in mind; including:

·                    the new system you buy will probably have less “out of the box” detailed line of business/state specific functionality than the legacy it is replacing

·                    because of the first point above, the implementation will probably involve line of business and/or state build outs that add time and cost to the initial and subsequent implementation

·                    regardless of how good the new software is you still have to do all the other vital and mundane tasks to  replace the legacy system, including change specification, quality assurance testing, administration setup and data conversion and migration.

The promised of the new administration systems and software vendors is a better world, when you get there.  Getting there is still risky, expensive and hard and will require a sober gap analysis between the functionality the carrier wants and the capabilities the software offers.  Don’t be lulled by the press and publicity.  Curb your irrational exuberance and make sure you know what you are and are not buying.     

Comments

[Peter Symons]

I’d like to add one further point. Many of these systems move much of the “Care and Feeding” of many of the rules, formulae and other table driven variables from IT out into the user community. And, to a very large extent, rightly so, presumably it is more efficient to have the “minimum glass deductible in Texas” increased to $500 by the folks who decided to do that rather than have the request passed on to IT with all the requisite hand off processes involved.

To George’s point however, there are not only vital and mundane tasks required in implementing a system, there are also vital and mundane tasks involved in maintaining that same system. Now that the ability to make change is in the User’s hands, Users will (or should) have to learn to do all those vital and mundane tasks themselves before they change a rule or table entry. Whereas the fact that you can do them quickly and within the user community is unquestionably a good thing, frankly, it is also a risk.

It’s probably important to remember, generally, the actual act of coding or changing a table was never the bottle-neck; it’s all the vital and mundane tasks that were done before and after the coding that took the time.

The risk is that in the Irrational Exuberance of being able to move the Care and Feeding of the rules and tables etc to the users, many hard won IT skills could be bypassed with potentially unpleasant results. One fears that the cry of “oh, why test it, it’s only a one line change” will once again ring through the halls. And if you think spaghetti code is tough to unravel, wait until you see spaghetti rules.