CHARLIE: Welcome to another episode of Talking Technology. Today, I am thrilled to be joined by two guests, one of whom is actually a return guest. So, John Heidelberger who leads up our global technology consulting practice. Welcome back, John.
JOHN HEIDELBERGER: Great, Charlie. Thanks for inviting me back.
CHARLIE: And Peter Harrison, who leads our America's practice for technology consulting. Welcome, Peter.
PETER HARRISON: Thanks, Charlie. Great to be here.
CHARLIE: In today's episode, we are going to be talking about externalized rating, and we're going to actually be looking at it from an IT perspective, which is fantastic. We've had a lot of business practitioners on some of the recent episodes. And I think given that we're called Talking Technology, it's good to hearken back to our roots and have some of our technology consulting folks on and try and approach this topic through the eyes of IT. So that's what we're going to do.
Externalized rating seems to be getting a lot of air time. Maybe we can start off with just exploring a little bit about what is externalized rating. So, what does it mean when you externalize your rating and perhaps get into what is the typical plumbing and architecture that is needed to support that. And maybe I'll open it up to either of you. Who wants to start?
JOHN HEIDELBERGER: Yeah, Charlie. I guess I'll take a shot at what is externalized rating. The idea behind externalized rating is creating a purpose-built tool that business users, actuaries can use to create the rates and then have a tool that runs those rates natively in production without necessarily interpreting them or re-implementing them in a new system.
And the idea behind it is that a company like ours employs 1,000 actuaries. And can really get into the complexities of an offering tools that support creativity, that support the underlying tools that people need to really maximize the value to an organization. Maybe I'll let Pete talk a little bit about how you wire that up or what the architecture looks like.
CHARLIE: Just in layman's terms, when we're talking about externalized rating, we're actually talking about rating that's not done within the policy system. So, if I'm an insurer and I've got a policy system and it's got a rating component to it, when we talk about externalized rating, we're talking about something outside of that platform.
PETER HARRISON: Yes, Charlie, that's right. Generally, it's independent software. It's managed, controlled, installed, maintained separately from the policy admin system. And basically, it just provides more flexibility in terms of how it's used, where it's deployed, and in terms of maintenance, updates, and deployment of rates, and just provides less dependence on IT that is working on a policy admin system on a daily basis, and allows rates to be updated and changed and maintained much faster because they're not dependent on other changes, other initiatives, other projects that are happening within the monolith that often is the policy admin system.
CHARLIE: OK, thanks, Pete. And so, i guess, to John's question, from a plumbing perspective, how does that usually work within an insurer?
PETER HARRISON: From the perspective of a rating engine being independent from the policy admin system, it allows for the rating engine actually to be deployed in a range of different places. So, for example, some people will use it as a SaaS service, so a particular vendor will host that, or it can be deployed within the existing insurance carriers' portfolio and network. And basically, most external rating engines will basically look to integrate it with some sort of a web service, so usually a REST service, which means that so long as your policy admin system can generate a web service and generate the mapping data that's needed for the rating call, it's really a pretty simple and straightforward integration. Typically, it's just as simple to integrate with an old legacy mainframe system as it is with some of the more modern policy admin systems that are on the market today.
CHARLIE: OK, great. And as far as-- and I guess maybe, again, looking at this through the lens of IT, if we think about some of the drivers-- so what would influence a company or what would appeal to a company to consider externalized rating?
JOHN HEIDELBERGER: Charlie, there's a couple of different aspects that play into this. Two that come to mind for me, at least, are first, we talked a little about this being native. And so instead of having to compromise on how you build your rates or compromise in the tools that you use, you've got a full workbench designed specifically for this for rating. And that gives the end user this wealth of ability to be creative in how they approach the business problem and not have to worry about what a specific policy admin system can or can't support when translating those rates to a policy administration system.
The other thing that I would bring up is the idea of introducing rates into complex environments. So, you might have multiple PaaS systems. You might even have other entry points into needing rating. So, for example, a B2B connection through a rating service or potentially a web portal that provides rates back to prospective insurers.
And the idea of externalizing this into a centralized place is you then don't have to worry about implementing them multiple times in multiple places for multiple reasons. You've got a single source of truth, and you can connect to that single source of truth to enable the right outcome for the organization as clients. And then Pete, I would say, you work a lot with our clients and insurers and could probably share a little bit more about the benefits that they get in terms of governance, and rework, et cetera.
PETER HARRISON: Yeah, for sure. Obviously, a rating engine. Most carriers already have one. They often cases have multiple versions of one.
Most policy admin systems, most legacy policy admin systems have one. So really, the driver comes down to what value you're going to get from switching because they already have that capability. But really, what we see with a lot of clients and a lot of folks in the market is get much more sophisticated calculations. So, you're not limited by what the out-of-the-box capability is. So, it allows the business to really drive new direction, create their own proposition to differentiate themselves from their competition.
That is a driver getting the rate to market faster, not dependent on IT folks and policy admin changes and scheduling of changes and stuff. So, the business having that capability in their own hand to be able to do it as needed-- those are significant drivers as well. And certainly, in the past couple of years from COVID, with auto rates and even home rates needing maybe more than one rate a year updated, it's entered a market need to be able to get to market faster.
And then, with the ability to deploy the same code if you like, or the same logic that you've already built into your analytics, much less really narrow seam in production. So, you're not getting fined. You're not sending policies that are incorrectly rated to clients. The IT organization isn't having to do a lot of work to identify policies that have been impacted, and working with the business to rectify that.
So, there's a lot of value in that. And in traditional budgeting, those costs are often hidden or hard to calculate. But really, the more you can shine a light on them, those costs that you're absorbing today within your organization, probably the stronger the argument is to make that change to externalize rating and having a more end-to-end life cycle in terms of your pricing and rating capability.
CHARLIE: OK, so it sounds pretty positive, I think, from that perspective. So John, you talked about no compromise, I guess, in actually the technical rating because I assume, as you mentioned at the start, that we are very focused on, say, the actuarial space. And I think in our products, we can really embed and, I guess, keep pace with the latest rating approaches and methodologies.
So that can be brought to bear. And then combining that with what Pete-- with what you said, it can be introduced, I guess, quickly in a way that's governed and robust. I like your comment about less errors as well.
John, you talked about multiple policy admin system environments. So having a single source of, I guess, rating or pricing truth that feeds into different platforms. At least in my experience, there's a lot of insurers that still have potentially more than one PAS out there and/or are mid-flight migration between two. I guess I would assume that this would help out in a migration case as well, where even if it wasn't necessarily the long-term solution, that it was going to be connected to both platforms, the rating-- externalizing your rating could help you support the business during the transition.
JOHN HEIDELBERGER: Yeah, absolutely. So, there's a lot that can go wrong in transitioning from one policy administration system to another or consolidating multiple policy administration systems into a single policy administration system. And this is really an opportunity to externalize complexity.
So if I take rating as the topic here, I externalize that rating. I create its own space where you can validate that it's correct and connect to it. Then, I've taken or simplified the conversion process. And it's one less thing that can go wrong, one less thing that needs to be validated in consolidating platforms or converting platforms as you're going through that process.
CHARLIE: Yeah, I'd almost go one step further and it's almost a safety blanket, in a way. If you look at the scale and all the different work streams and everything that's involved in a policy admin system replacement program, I guess, in some ways, being able to pull out the rating or the analytics piece and keep that stable during the change is probably something that's reassuring, I would imagine.
And actually, thinking about externalizing and taking functionality, say, out of the core platform, if you will. John, that, for me, reminds me of, I think, a much earlier podcast that you and I did together about ecosystems and partnerships. And in some ways, externalized rating is a prime example of taking some specialist capability and taking that and being able to connect it and bring different vendors together to collaborate on that. So that's a nice of full circle that we've come in talking about this.
JOHN HEIDELBERGER: Yeah, and I think, too, one of the nice things about the tools in the market and specifically Radar, the tool we offer, is-- those same specialties that we've built into the tool for rating can be extended out to aspects of other parts of the value chain. So, decisioning around claims and claims management, or decisioning around and driving machine learning into the underwriting space. Those aspects of the value chain are very, very closely related. And this purpose-built tool can be used to support multiple parts of the value chain once it's up and running and in your ecosystem.
PETER HARRISON: Maybe I'll add to that. 25 years ago, when I was toiling away as a business analyst on development projects, forms, and publishing was where there was the initial push to extract that out of legacy systems and was being driven by a need for being able to manage large amounts of forms and be able to do new things faster and manage maintenance and whatever. This, I think, is just-- we've reached a point in which, from a reading engine perspective, the sophistication, the need for speed to market, the need to be able to do things faster and cheaper has reached that portion, if you like, of the portfolio.
And so products like Radar and similar products in the market, I think, are driving deeper into people's thoughts now in terms of how to pull that out of policy admin system and reach some of the benefits and flexibility and maintainability. That maybe previously, over the past 20 years, wasn't as important, and now is becoming much more important as some-- as folks look to do things faster, more flexibly, and differentiate themselves a little bit more in the market going forward.
CHARLIE: And for me, that's not a knock against the policy admin systems. I think they have such a broad scope. So that's a challenging piece of work if I put myself in their shoes. So I think in some ways, I feel that this is, I guess, accretive to the ecosystem in that there's so much to focus on there and so much to the inner workings and the end-to-end life cycle of a policy and all of that, that actually giving some breathing space and offering something in the externalized rating space is probably a good thing from both sides.
So we've talked a lot about the positives. And maybe I'll ask you guys to put your IT hats on. From any downside, what are the-- if you're an insurer out there listening to this and you're thinking about externalized rating, what would be some of the reasons that-- what would be some of the areas you want to think carefully about? Maybe I'll put it that way.
PETER HARRISON: I think, overall, from an IT perspective, it's still-- you don't want to add something new to your portfolio. You don't want a new technology unless it's really going to drive business benefit. And I think more and more the carriers are seeing the benefits that are coming from that.
Certainly, the performance, the security, the standard starting points that most IT people think about when they're bringing new technology in, either as a SaaS product or to add into their portfolio and into their network, I think, the capabilities of a rating engine, what you expect from it-- they don't raise significant new issues in that regard. Most rating engines don't retain the data, it's a sort of transient service. Performance is usually much better than the policy admin system elements.
So it really is about getting past that latency, if you like, about, OK, I want to add something new to my portfolio. It is something that might have to maintain and support going forward. Is that really going to add to the business-as-usual costs and expenses that I need to accrue, or is the benefits for the business and the low-end impact to adding that to my portfolio of worth the expense and the effort? And I think the rating engine as an external component looks pretty good from all those dimensions.
JOHN HEIDELBERGER: I 100% back what Pete is saying there. I think when you look for or try to find potential downsides, cost is one that bubbles to the top. There's the cost of the tool. There's the cost of the project. But I think when you dig in and do a business case, at least when we do this with our clients or prospective clients, it really turns into all upside.
Between the reduced cost of deployments, rate deployments during the course of the year, between the ability to get those deployments to market faster and realize business benefits faster. And really, that upside potential we talked about earlier to be more creative with products enables greater profitability. That when we sit down and really dig into and build business cases with clients, that cost quickly turns into an upside.
CHARLIE: Pete, you used the word latency. And I was just thinking about it... So, we are putting two systems together here
and I think you were talking about actually rating and pricing is coming to the fore, and maybe how it hasn't before. I would assume that the requirement for a very fast response is only ever increasing. Talk to me about maybe externalized rating and latency. Is that an issue, or is that just the turnaround time is lost in the overall noise of the response?
PETER HARRISON: Charlie, I think from a latency perspective, there's an element where your rating engine being close to you, supported within your network, removes that. But if you do take a SaaS service, just the speed of the performance of a rating engine, maybe compared to the reading engine on the legacy side, means that even with the legacy you're not-- with latency, you're not recognizing or seeing much change.
I would say that with the push towards a lot of SaaS services and a lot of SaaS-based services, whether it be reading engines or whatever, I think there's a recognition and almost a built-in expectation that legacy now is just something that gets managed in terms of carrier operations. And I think the benefits that they see from not having to maintain and support that and the little bit of latency that they may be experiencing that isn't affecting the user experience means they're willing to play that game a little bit and see that as a relative trade-off. I do think that, by their nature, rating engines are probably not that impacted by latency or slowness in general. And so, it's a really good capability and component within your portfolio that having as a SaaS service is not a big deal and not a big decision for you.
CHARLIE: Maybe I'll open this up to either of you. So, we've talked, I guess not necessarily from our perspective, but certainly as a company, as a firm who provides externalized rating solutions. I think we see lots of upside in it. But it really is a collaboration with the policy admin systems.
And so, any insight into-- if you could put yourself into their shoes, what are they thinking? What's their perspective, I guess, in your experience working with them?
JOHN HEIDELBERGER: I guess from my point of view, they like that we exist. They welcome that we exist. If you think about the size and scope, and I think you mentioned this earlier, Charlie, the scope of a policy admin system, they're dealing across multiple parts of insurance and insurance administration. They're dealing with data rules, workflow, logic. They're so big and so complex that when a client wants something very specific in the ratings space, it's a comfort for them to know that we are out there and positioned to help their clients be successful in a place that would otherwise require them to make a significant incremental investment to get to the same level of functional value that a tool like ours provides to an insurer.
PETER HARRISON: Yeah, I would maybe add to that. I think a lot of policy admin systems positioned themselves not just as policy admin systems, but essentially the insurance solution, if you like, in a much more broader scale. And as a result, I think they're much more open to ensuring that what they're bringing the value to their clients is broad as possible.
Certainly, in talking to one particular policy admin system vendor, I was surprised to hear that when they get RFPs, they're asked whether they support integration with X, Y, and Z externalized routing engines in a similar way that when we get RFPs. We're asked whether we can interact with other policy admin systems. So, I think the market is driving an expectation of having that flexibility.
Insurance companies are driving both the policy admin system as well as the rating engine vendors to be able to interact and integrate smoothly, quickly, and produce accelerators and the like in order to make the development of that and the maintenance of that faster. So, I think it's an emerging and growing relationship. And I certainly think that it's only going to get more and more expected and will continue to develop in terms of those partnerships going forward.
CHARLIE: You mentioned accelerator, Pete. So, I think, in some ways, I guess that's a testament a little bit to the not necessarily the buy-in, but the merit and the value that externalized rating brings. What I mean by that is that some of the policy admin system vendors are legitimately going out of their way to try and help bring the industry together, so kudos to them.
They're trying to pre-built connectors and accelerators that give their clients the flexibility to create their ecosystems, if I can use that word again. So, I think that is a very positive, I guess, move. Not necessarily that you always need connectors for everything. I think a lot of people have been connecting systems for a long time without pre-built code. But I think they certainly do have their place, and they can speed to market. And even if it's just giving you confidence or giving an insurer confidence that the two platforms can talk together, I think that's important.
PETER HARRISON: For sure. And I also think that integrating with an external reading engine or solution was never that long or complicated in the grand scheme of things. Certainly, when I was on the carrier side, you expected every change to be at least a year.
There were very long things. Certainly, with my experience with Radar and some other products out there, it's a matter of months. So, it's not been very difficult to do that. But think now that we've got people recognizing that the speed of market on maintenance items can be really quick, now the focus from an IT perspective is, well, that's great, you're helping the actuaries and the business get their rates to market really quick. But that first integration seems like a little bit of a hill to climb. It still seems like there's a fair amount of IT-specific work that's needed to get that done.
The more that we can accelerate that process, make the mapping of the data, from the calls to and from the reading engine, and the policy admin system as fast to develop and deploy as better. From an IT perspective, that starts to drive even more value for them. And the ability to now have these policy admin systems with these partnerships with approved pre-built connectors or accelerators that make that process even easier. I think from an IT perspective, again, it just adds icing to the cake a little bit in terms of making that change and the cost involved in that, again, much more appetizing in terms of when coming to make decisions.
CHARLIE: John, anything you want to add in closing?
JOHN HEIDELBERGER: Yeah, when thinking about how I would summarize the topic, I think there's a point to be made about building the business case. Good, bad, or indifferent. In a lot of organizations, when you're thinking about an investment in technology, it's often the technology organization that's driving building the business case, about deciding whether or not to make the investment, about helping your business partners articulate the value of that investment. And I think one of the things that we find when we work with organizations is we bring a perspective about the holistic business case.
We have both actuaries and technologists that have worked at carriers, sometimes with decades of experience. And so, as you're evaluating whether or not externalized rating is the right tool or the right model for you, thinking about the end-to-end business case, the upside business value, the potential cost savings, really helps drive an outcome that, if this is the right tool for you or the right paradigm for you, almost always produces a positive ROI.
CHARLIE: That's a very interesting discussion. I want to thank you both for joining. So, thanks, John.
JOHN HEIDELBERGER: Thank you, Charlie. Appreciate being here.
CHARLIE: And thanks, Pete.
PETER HARRISON: Thanks, Charlie. Appreciate it.
CHARLIE: Thank you to our listeners as well for taking this opportunity to listen to another episode of Talking Technology.
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