The policy administration system (PAS) is the electronic heart and lungs of an insurance operation. The PAS stores information about each insured risk, generates the company's top-line revenue numbers (direct written premiums), issues legally binding insurance agreements, tells the billing system how much it needs to collect, and validates whether or not claims are covered and payable. And yet there is no agreed definition of what a PAS actually consists of; indeed, some would argue not everything on the foregoing list is a vital function of a PAS. This fact is not just an interesting lexicographical foible. It is an important factor to be taken into account by any carrier that decides it needs to replace its PAS. How can a carrier successfully search for a new mission-critical system without knowing what constitutes the object of the search?

Time and again I have been involved with a client company intent on replacing a PAS where the search team has assumed the new system would have the same functional footprint as the legacy system and only one piece of software would be required to fit the bill. This often proves to be a false assumption that causes confusion and consternation.

There are two major variables along which the PAS varies in terms of its functional footprint. The first variable is chronological: Generally speaking, the newer the PAS, the smaller the functional footprint. Let me be clear about what I just said, or rather what I did not say. I did not say the newer PAS does less. The concept of a functional footprint essentially is a two-dimensional construct. It addresses the question of how much functional real estate the system covers. However, the true scope of a system is a three-dimensional construct that includes the critical element of depth. So, generally, what modern developers of the PAS have done is to focus on a deeper solution for a smaller problem set, which by definition is the problem set those vendors consider to be central to the role of a PAS. We will return to this central role later as it directly addresses the question: "What makes a PAS a PAS?"