Case Study: Sticking to policy at OneBeacon

Two years ago, OneBeacon Insurance Group was bleeding out US$50 million a month from inefficiencies throughout the company, including an IT department rife with cost overruns, poor accountability and poor communication with the business side of the house.

One major IT project that was supporting the launch of a commercial line of insurance had run years over schedule and hadn't returned any results. OneBeacon's IT infrastructure was so expensive and inefficient that it was threatening the company's ability to provide small-business insurance coverage, says OneBeacon CIO Mike Natan.

"We had problems in terms of being very expensive, and we didn't have a good track record in terms of delivering," says Natan.

A $15 million investment in a Web-based policy administration system from Sapiens International will help bring the company back to profitability, according to Natan.

OneBeacon's existing underwriting system required a lot of manual intervention, he says. Field agents would fill out forms and fax or phone them in, and then data entry clerks would input the information. The process cost about $15 per policy to run. The new platform, running on an IBM zSeries mainframe, DB2 database and HP-UX Web servers, will cut that cost in half, to about $7 per quote, Natan says. It will also cut the time required to issue a policy from a week to 15 minutes.

That will allow OneBeacon to begin offering insurance coverage to small commercial businesses, something that was impossible before because the high cost of quotes didn't justify the return.

The Unix server will handle all Web interactions with agents, including different insurance quotation screens, and a rules-based engine driving the actual quotation application will reside on the mainframe. It will score insurance risks based on input and approve or disapprove potential policies. Both platforms will be tightly integrated on the back end in order to share data for fast quotation responses.

Distributed Network

OneBeacon's rollout is somewhat unique in that it constitutes a distributed network by allowing more than 1,000 agents to download the underwriting system onto PCs and laptops and use a back-end system to get nearly instantaneous quotes, industry analysts said.

Between the savings from retiring the old underwriting policy administration systems and new revenue resulting from a new line of small commercial business with additional products, Natan says, OneBeacon will realize a return on its investment in less than a year.

OneBeacon has been working with Sapiens for 10 months to create a system it's calling Policy Insight. The company rolled out the application for its commercial automobile insurance business in April and plans to add its individual auto and workers compensation insurance programs by early next year.

"Frankly, the biggest challenge was to get the right set of people on the project team. We had up to 50 people in the team at its peak. It was a very intense work environment. Most team members were putting in 70- to 80-hour weeks," Natan says.

He also expects significant savings from staff reductions. When Natan took over as CIO in 2001, there were 750 IT staffers. Today, there are about 500, and Natan plans to drop that number to 350 by the end of 2004. A large number of the staff reductions resulted from replacing seven disparate administration systems that came from mergers and acquisitions with one new application that ties together mainframe and client/server systems.

Larry Goldberg, senior vice president of Sapiens Americas, says it's not uncommon for insurers to have multiple policy systems that are 15 or 20 years old and don't talk to one another.

He says Policy Insight's rules engine is the middleware tying the back-end systems together. It is hidden from agents and appears as a Web interface to end users, who can configure the rules on their laptops.

OneBeacon, formerly CGU Insurance, was purchased two years ago for $2 billion by White Mountains Insurance Group Ltd., which downsized OneBeacon's coverage area from 48 states to seven states in the Northeast. The new quotation system is currently live in Maine and will be rolled out in the other six states over the summer. The system allows agents in the field to send customer information into Policy Insight, which will then score it for risk and approve or disapprove the policy. "Any red flags that are raised electronically get referred to an underwriter who decides to proceed or not," Natan says.

Jamie Bisker, an analyst at TowerGroup, says that while OneBeacon's project follows an industry trend of automating the underwriting process, it's cutting-edge in that it uses a distributed network.

"You're going to see more of these automated systems," he says. "The general idea is to reduce cost but also increase accuracy and the convenience for the broker and consumer. It provides consistency across the underwriting process as well as across the business process."

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