Develop a Strategic Roadmap. Companies should define business drivers to confirm strategic business direction, human performance elements, key business activities and relationships, information and application functionality on which the business operates, technical services that support application execution, and the physical network and computing platform on which the enterprise operates.

Evaluate Your Own Technology. Are databases, platforms, and architectures scalable? A critical success factor for M&As is reusability and integration of existing applications, especially when common information is accessed from multiple sources. Technology and business perspectives should be evaluated, and enterprise architecture components should be compared to best practices in business architecture, organization and governance, business process architecture, applications and data architecture, technology architecture, and infrastructure. Assess the scalability of your applications to ensure the combined volume can be accommodated.

Expect the Unexpected with Integration. Don't underestimate the integration challenge. It is not realistic to assume data can be dumped into one existing system, flip a switch, and move forward with no problems. Proper pre-merger due diligence must include analysis and identification of agency, policy, claim, legal, and vendor systems. A roadmap or strategy to close gaps between disparate systems is important to prevent loss of data or inaccurate financials. Seek outside expertise when necessary for interface work. In addition, don't presume the acquiring company has the best claim system. The acquired company might be smaller, nimbler, and have better technology and processes. Hire a consultant to conduct a thorough assessment before making any changes. This also will provide an opportunity to combine the best applications and processes of each into a much better combined entity.

Beware of Compliance Issues. During an M&A, be aware of where the buyer and seller companies do business. Companies should adhere to state unfair claim practice acts and be prepared to understand Patriot Act issues. Also, if the acquired company writes business globally but the acquiring company does not, make sure linguistic and currency issues are considered during system integration. Lastly, data residency requirements should be given attention. In other words, make sure data is housed in accordance with statutory requirements. Create claim file extracts and batch files when appropriate.

Use a Phased-In Approach. Tackle the most volatile claim exposures first. For example, if both buying and selling companies write predominately commercial auto, begin integrating these exposures first. If the most expensive, high-profile exposures are in environmental, start there. Segment lines of business, then prioritize blocks of business for system integration.

Keep in mind that not everything needs to be merged. The first notice of loss call center should be merged, as well as back-office processes such as mail rooms, imaging centers, print centers, training centers, advertising and graphics, statistical and state reporting, and reinsurance. However, claim applications should be separately evaluated, especially if they handle different lines of business that have unique processing requirements.

Keep Costs in Mind. Business and IT executives are sometimes in conflict. While the CIO may want a successful, big-bang claim system integration with all lines of business, all modules, and all conversions on day one, the COO is more focused on reducing operating expenses, but not allocating sufficient technology spend or resources to execute the claims system integration plan. An outside consulting firm with superior business and IT expertise can be invaluable in bridging this gap.

Ensure Functionality. Is the system easy to use? For most insurers, post-merger claim system integrations are highly visible, with many touch points. A relatively straightforward upgrade can impact multiple lines of business and numerous downstream systems, so it is critical to ensure the system meets business objectives. Upgrades and enhancements can be added later, when warranted.

Add Historical Claim Data with Care. A major decision during integration is determining how to treat historical claim data. It is costly and labor intensive to fully convert claim data. Although some insurers are able to justify cost and insist on converting all client data, this is generally not recommended. Instead, treat customers as new customers in the system on a go-forward basis and manually add claim histories for a select few, and only when warranted.

Conduct a Security Checkup. Evaluate user entitlements. Address privacy concerns to validate who can gain access to data and when to limit it to preserve data privacy.

Exercise Discipline. Agree on must-have features versus nice-to-have features. Clearly define parameters to ensure business and IT goals are aligned. If internal objectives are not in sync, customers and revenue will be lost. Tie IT and business strategies to business opportunities and you will drive business results.

Avoid Complexity. Employees in the new organization have enough to worry about without the added complexity of technology. Start with a claim system that allows you to effectively move department operations forward. Work with a vendor that employs the continuous delivery approach based upon proven, agile software development methods, rather than delivering huge amounts of source code at once. Effective, large-scale insurance applications provide a steady stream of updates to avoid overwhelming end users.

The next time your claim organization is facing a merger or acquisition, do not be afraid to sweat the small stuff. Effective best practices for claim system integrations can mean the difference between a failed merger and a profitable business that is positioned well for the future.

Tom Filep, CPCU, is a partner and insurance industry expert in the financial services practice of Computer Sciences Corporation (CSC). He may be reached at 908-392-6511, [email protected], www.csc.com.

Scott Kemmerer is a Chicago-based partner and insurance industry expert in the financial services practice of CSC. He can be reached at 630-472-2561, [email protected], www.csc.com.

Special thanks to contributor Elizabeth Mowery, who is a director of product delivery for CSC's property and casualty division. She may be reached at 803-333-5792, [email protected], www.csc.com.