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Compliance demands boost the insurance software market

By Alain Thériault | May 31 2017 07:00AM

Tim Fitzpatrick

As regulators step up their audits of firms to check financial needs analysis compliance, back-office and customer management systems are becoming must-haves for managing general agencies.

Mike Donati, CEO of Bluesun, supplier of WealthServ, stresses that back-office systems are crucial for MGAs because new regulations are extending from the mutual fund sector to life insurance. The compliance bar is high for MGAs, which need these systems to stand out, he adds.

Daniel Brisson, founder and senior consultant at AGEman Solutions, shares this view: “Distributors face strong pressure in compliance.” Brisson is very involved with insurance distribution firms affiliated with securities brokers (national accounts) and has seen this clientele raise standards in this area. “We do a lot of customized projects for them, and money is no object for these clients, who are often affiliated with large financial institutions. National accounts underwrite large insurance cases and must meet a high degree of compliance that prevails in banks. It all has to be checked and balanced to the penny,” Brisson explains.

IDC Worldsource Insurance Network CEO, Ron Madzia, confirms that MGAs must offer advisors a platform that includes compliance tools. Although an MGA cannot force advisors to use its platform, Madzia insists that it would be extremely important for advisors to use parts of it. “Advisors…will have to eventually deal with the regulators who will get much tougher going forward on monitoring Advisor and Cabinet audits,” he says.

“There is no question that several of the system enhancements that we are currently working on relate to new and future compliance issues,” PPI Solutions CEO, Jim Virtue, points out. In the context of new regulations, compliance has become very important for PPI, for both advisors and the end customer, he adds. “We need to use our back office system, together with other management tools, to assist us in identifying compliance issues,” he says.

MICA Financial Services runs AGEman, a system that has a gateway with Kronos Technologies’ front-office system. This system lets advisors access Kronos ABF. He says they can help advisors with an inspection by the AMF, Quebec’s financial sector regulator. “We tell them: send us your financial needs analysis. We will digitize them in our system,” MICA CEO Gino Savard says.

Advisor inspections

You absolutely need a system for compliance, says David Benamron, Senior Director for Life and Living Benefits, at MSA Financial. “Especially if there’s an inspection, the AMF asks the advisors for their files from the last six months. With the upcoming legislative review in Quebec, there will be even more pressure on compliance. Benamron says, “Eventually, we’ll need to inspect advisors ourselves.”

Tim Fitzpatrick, CEO of VirtGroup, says that insurers supplying standardized insurance data for applications (known as application notification), pending business and book of business is still all-important. CLIEDIS promotes this initiative at all industry levels, by developing CITS (Canadian Insurance Transaction Standards). Yet not all insurers abide by them, and their number may vary by the type of feed.

For now, five manufacturers feed application data to VirtGate, eight supply data on pending business and four on the book of business, which is admittedly vital for MGAs. “The main challenge is that we don’t have enough feeds. We have to convince insurers to create them. Without them, the MGA has to enter data by hand, via an on-screen interface,” Fitzpatrick explains. He says that insurers are reluctant to invest in data feeds because they do not offer immediate benefits. But somes companies are beginning to understand that investing here brings long-term benefits, he says.

Insurers also have back-office systems. Equisoft CEO Luis Romero offers needs analysis and wealth management solutions, along with solutions for illustrations and electronic insurance applications. As part of his mission to encourage insurers to modernize back-office systems, he has distributed the Oracle solution in Canada for over 12 years.

OIPA, short for Oracle Insurance Policy Administrator, was adopted by La Capitale, among others. It is being studied by other Québec insurers and elsewhere in Canada, that Romero declined to name. Time is running out for insurers to act, he says.

Trapped in the past

“Many insurers are using age-old back-office systems. They’re often written in obsolete programming languages like COBOL or assembler,” he points out. “A lot of insurers use Ingenium, a system that is 20 or 30 years old. Some have back-office systems that date back 40 or 50 years. This stunts innovation because when you launch a new product, it costs the insurer a few million dollars to adapt its system.”

Why are insurers trapped in the past? The situation became urgent only recently. “Insurers are risk averse.. Projects are scrutinized very carefully. When preparing for new tax laws, insurers mainly patched their old systems rather than take the opportunity to change them,” he says.

The situation is starting to evolve, Romero continues. For example, his front-office solution lets customers do actions that require communication with the back-office. “Connecting to COBOL is more complicated. It slows the process. In the United States, our clients who implemented this interface went from issuing a policy in 45 days to 10 minutes. Today there’s an appetite among Canadian insurers now that they have emerged from the crisis and are used to low interest rates,” he says. He gives the example of Humania Assurance, which can innovate in this area more easily owing to its small size.

Insurers will not move faster on CITS formats either, Romero adds, because this task is immense. Insurers’ systems, some of which are in-house, were put in place long ago and underwent countless changes since then. They must now connect with MGAs’ systems, produced by IT suppliers. “If insurers replace their obsolete systems with other in-house systems, this would complicate things, but if they opt for the same system, life will be easier for the AGEmans out there,” he says. His insurer system rivals include Accenture and Fast. OIPA currently has about 15 clients, Luis Romero says. About 30 use its front-office solutions.

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