Product Configurators, Rules Engines and Calculation Engines
Please find below an overview of the differences between product configurators, rules engines and calculation engines:
Business Rules Engines
Calculation Engines
Rating Engines
Product Configurators
Business Rules Engines
Business Rules Engines are used for defining business rules. These rules are typically created and stored independently, without the context of product. They can cover some product rules but also cover process/workflow types of rules, as an example, processing a withdrawal and advising the user to complete a check and an accompanying letter. These solutions are typically horizontal and not vertical specific and as a result have a thin framework for an industry vertical that sits on top of the framework. Rules engines typically do not have the concept of product so that rules that have interdependencies with the product structure are not easily accommodated.
Rules engines and Product Configurators both have a place in the enterprise as insurers will have business process rules that are independent of product. Typically Product Configurators can interface with Rules engines. For example a rules engine may control the processing of a face amount change tracking items such as when the change request document was received, referring it to an underwriter for review and approval, and advising the user to make the increase in the admin system, once the increase was processed, the admin engine would call the Product Configurator to calculate the new premium amount. A typical use for business rules engines in P&C would be to automate the usage of forms to build the policy schedule. Business rules are also used to define the insurers appetite within the market through underwriting rules and logic. Both of these examples have a tight relationship to product. Policy processes are driven by business rules, from submission to quote, quote to bind/issuance. These processes are controlled by the business rules and will determine the path of a policy.
Calculation Engines
Typically serving the L&A and Pensions markets, calculation engines complete complex insurance calculations, for example monthiversary calculations on a Universal Life product. These engines are typically linked with an administration system and perform the mathematical calculations of insurance. They do not typically perform insurance product rules that do not have a mathematical component, such as insurance forms, issue, underwriting, etc.
Most calculation engines have been developed by Policy Administration vendors and as such calculation engines are typically optimized to work with one administration system instead of with multiple divergent systems such as new business, illustrations, multiple administration systems, etc. There is significant overlap between a calculation engine and a product configurator, however a calculation engine does not provide the product development lifecycle management that is provided through a product
configurator.
Rating Engines
For the P&C market, rating engines are rule-driven systems that evaluate risk variables to determine the premium an insurer should receive for covering a risk. With a defined set of inputs for a product, the rating engine uses an algorithm supported by rate tables, using the inputs to determine the rating factors to be applied. Often developed as a part of a policy administration system, the rating engine automates the pricing of a risk, usually in line with the insurer´s state filings. Providing consistent, compliant pricing for a product is a strength for rating engines. However, rating is only a subset of a product definition - along with qualification (underwriting appetite) and coverage (forms). As such, there is significant overlap with product configurators, which provide the broader product definition.
Rating engines can work in conjunction with product configurators, particularly in the case of commodity or industry-standard lines, within a best-of-breed solution architecture. The difficulty may arise when there is not a clear line of separation between the product and the rating - a consolidated approach is easier to maintain. Product configurators provide this full product definition.
Product Configurators
Product Configurators combine the mathematical calculations of a calculation engine/rating engine and the product rules of a rules engine, however all of these are done in the context of product. In addition to the features in a calculation/rating engine, product rules are also captured in a product configurator similar to a rules engine. The rules that are captured in the product configurator are in the context of the product. What this means is that interdependencies between the product calculation/rating and the rules can be accommodated. As an example, a market value adjustment calculation will be done in the context of minimum and maximum withdrawal amounts and timing rules.
In the context of a product, a product configurator is able to reuse not only rules and calculations but also product structures. A product structure can be set up once for a product set (i.e. Variable Universal Life) and then through inheritance many products can be created. The inherited product may contain the same rules and calculations, however they can be changed for one version of the product as needed.
In addition to the context of product and inheritance, Product Configurators are insurance specific and as such have pre-built templates and calculations specific to insurance. As an example, an insurer would expect the structures for first principles calculations such as qx, Mx, Dx, etc to be pre-populated, with the ability to override them. Typically this level of insurance specificity is not present in a horizontal solution such as a rules engine.
In addition to the specific features of rules, calculations and product data, product configurators also support the entire Product Management Lifecycle.
What this means is that:
- Product Specifications are produced directly from the product repository which then becomes one version of the product "truth"
- Workflow around product approvals can be managed and prompted from within the tool
- Testing of individual calculations as well as combined product calculations can be tested
- Product comparisons can be done between multiple products in the repository
Summary
How does an insurer decide whether to invest in a business rules engine or calculation engine or a rating engine or a product configurator? Do you need to implement all four engines? Where do each of these engines belong within your organization?
Some simple rules to consider:
- Use a rules engine for non product related business process rules and tracking of business process metrics
- Don´t assume that an either/or decision has to be made between a rules engine and a product configurator, they can coexist
- Use a product configurator when you would like to build your products externally but also track the product development
lifecycle
- Use a product configurator when you have multiple systems that need to access product rules and calculations, from a single source/repository
- Use a product configurator to store "one version of the product truth"
- Use a product configurator when you want to manage your entire product
lifecycle
