I recently spent time with a client that is in the final stages of selecting a claims administration system. The client needed to answer four questions posed by the company's executive management: Who (which vendor)? How (implementation approach)? How long (implementation time line)? How much (cost and payback)? My involvement at the time was with the "How?" To this end, I participated in "Road Map" meetings with IT staff and business people to understand where the claims system implementation would fit in the corporate timetable and how to structure the software rollout in order to minimize duplication of effort and disruption to the claims operation. Everything went swimmingly well until we hit the issue of data conversion.

Data conversion is that dangerous place inside a "package" implementation project where, if you are not careful, you give birth to a runaway, one-off, throw-away development effort that, like the cuckoo, grows way too big for the project's nest. Here is the basic problem: It is perfectly reasonable for a claims manager, when participating in the planning of a multimillion-dollar claims system replacement project, to assume when the project is done all the open and closed claims actually will be in the new system, put there by smart IT people writing the necessary code to move them over. What could be more reasonable than that?

The reality, of course, is significantly more challenging. Unless the carrier is very large and measures premiums in billions and policies and claims in hundreds of thousands, if not millions, it is not cost justifiable to design, write, and test the software necessary to perform an automated data conversion. What most business people don't know (and why should they?) is the conversion software may cost more than the new claims administration system. Let's say the license fee is $2 million for the new claims system. That doesn't mean it cost $2 million to build it. More likely what you get for $2 million has a development price tag of anywhere between $50 million and $100 million or more. The reason it can be bought for a mere $2 million is because the vendor writes the system once and shares the cost among the client user community–similar to why Microsoft Office didn't cost you a billion dollars when you bought your PC.