Digital Insurance - - STRATEGIES -

The busi­ness en­vi­ron­ment in which in­sur­ers (both prop­erty/ca­su­alty (P&C) and life/health (L/H)) must com­pete has be­come as fast mov­ing and as com­plex as the tech­nolo­gies nec­es­sary to man­age it. The speed of in­for­ma­tion flow, com­bined with the up­surge of mo­bile and so­cial tech­nolo­gies, have changed the way in which pol­i­cy­hold­ers in­ter­act with their in­sur­ers, re­sult­ing in in­creased ex­pec­ta­tions for 24/7 ac­ces­si­bil­ity, us­abil­ity and self-ser­vice. Th­ese fac­tors, com­bined with se­cu­rity risks due to out­dated sys­tems, in­ef­fi­cient pro­cess­ing of pol­i­cy­holder in­for­ma­tion, lag­ging re­sponse times, and the in­creas­ing num­ber of IT staff with pro­pri­etary knowl­edge near­ing re­tire­ment age, point to the need for pol­icy ad­min­is­tra­tion mod­ern­iza­tion.

“One of the big­gest chal­lenges fac­ing in­sur­ers is how to re­main rel­e­vant in to­day’s dig­i­tal econ­omy,” says Karen Fur­tado, part­ner at Strat­egy Meets Ac­tion and au­thor of SMA’s “In­sur­ers’ Core Sys­tems Buy­ing Trends” re­port. Fur­tado points to the is­sues re­lated to that chal­lenge: prod­ucts not evolved enough to be con­sumed and a lack of data avail­able for real dig­i­tal con­sump­tion.

“We still have old trans­ac­tional par­a­digms,” adds Fur­tado. “We are be­ing called in to help with dig­i­tal strat­egy--how to be dig­i­tal in and out. In­ter­nally you have to have rules/work­flows and mo­bil­ity for your in­ter­nal work­ers, and you have to be dig­i­tal

In or­der to suc­cess­fully com­pete and re­main rel­e­vant, in­sur­ers must evolve and mod­ern­ize their pol­icy ad­min­is­tra­tion sys­tems.

ex­ter­nally to those con­sum­ing that info along the chain. Core has to sup­port that. That’s the shift – that’s why we are see­ing the buy­ing trend, for ex­am­ple, of por­tals be­ing sold with core pol­icy ad­min sys­tems.”

The de­ci­sion to mod­ern­ize a core pol­icy ad­min­is­tra­tion sys­tem, the lifeblood of an in­surer’s op­er­a­tions, doesn’t oc­cur overnight, nor does it oc­cur in a vac­uum, and for some car­ri­ers, it’s a de­ci­sion that is still on the back burner, be­cause the prospect of ap­proach­ing the host of up­grade op­tions avail­able is over­whelm­ing.


Yet in­sur­ers rec­og­nize the im­por­tance of pol­icy ad­min mod­ern­iza­tion: SMA re­ports that to date, 74% of in­sur­ance com­pa­nies in­vested in core sys­tems re­place­ments this year, and it con­tin­ues to reg­is­ter as a top pri­or­ity, notes Fur­tado. And there is a new sense of ur­gency: In the early part of 2015, SMA re­search showed that per­sonal lines were the far­thest be­hind in pol­icy ad­min­is­tra­tion mod­ern­iza­tion ef­forts, as pub­lished in “Pol­icy Ad­min­is­tra­tion: P&C Plans and Pri­or­i­ties.” Two-thirds of in­sur­ers writ­ing per­sonal lines had not yet be­gun to im­ple­ment a mod­ern core pol­icy ad­min­is­tra­tion sys­tem, notes the re­port, and only 8% had a mod­ern pol­icy sys­tem on­line.

Of the 139 core sys­tems pur­chased by in­sur­ers in 2015, 35 were pol­icy ad­min stand­alone (See Fig­ure 1) and 60 were suites (which in­clude pol­icy ad­min, billing, claims, etc.), notes Fur­tado. “The smaller the in­surer, the more likely they are to pur­chase a suite. In fact, this is where the trend to­ward suites is re­ally play­ing out. Note that Tier 4 in­sur­ers are pur­chas­ing suites at a stag­ger­ing rate: 72%--one out of ev­ery four core pur­chases--of all core trans­ac­tions in 2015 was a suite for a Tier 4 in­surer,” she says.

“This makes sense when you think about the largest per­sonal lines in­sur­ers, which con­trol 80% of the mar­ket,” notes Don­ald Light, di­rec­tor of the North Amer­i­can Prop­erty & Ca­su­alty Prac­tice at Ce­lent, a re­search and ad­vi­sory firm. “The top 5-8 in­sur­ers are work­ing with 15 to 30-year-old sys­tems—most with sev­eral of those sys­tems on-premises, and so they are slower to mod­ern­ize. Plus, th­ese re­cent core pur­chases are re­plac­ing those im­ple­mented 1015 years ago, dur­ing the first core mod­ern­iza­tion wave.”

Con­sult­ing firm McKin­sey agrees, stat­ing that the P&C in­dus­try lags in dig­i­tal so­phis­ti­ca­tion. “Our anal­y­sis sug­gests that the top 20 or 30 pro­cesses can ac­count for up to 40 per­cent of costs and 80 to 90 per­cent of cus­tomer ac­tiv­ity. Dig­i­tiz­ing th­ese pro­cesses can take out 30 to 50 per­cent of the hu­man ser­vice costs while de­liv­er­ing a much bet­ter cus­tomer ex­pe­ri­ence,” say the au­thors of McKin­sey’s new re­port, “Mak­ing Dig­i­tal Strat­egy a Re­al­ity in In­sur­ance.”


Life and health in­sur­ers are even far­ther be­hind than P&C, notes Tom Scales, Re­search Di­rec­tor with Ce­lent, who cites ap­prox­i­mately 12 pol­icy ad­min deals a year in the life line of busi­ness. “Even with driv­ers such as In­ter­net-en­abled con­sumer sales, con­ver­sions are com­pli­cated for life car­ri­ers, so their deals are de­signed for green­field op­por­tu­ni­ties or for new busi­ness only. And with health ex­changes, they are still run­ning old sys­tems but with snazzy front ends.”

“The fact is, there are no sim­ple, quick fixes,” says Fur­tado. “True trans­for­ma­tion takes re­sources, dol­lars and time.”

Even af­ter the de­ci­sion is made to mod­ern­ize, the ex­ist­ing sys­tems that main­tain pol­i­cy­holder data must con­tinue to run ef­fi­ciently and re­li­ably dur­ing such an ini­tia­tive, re­gard­less of a rip/re­place, de­velop and built or up­grade op­tion.

In­deed, in­dus­try lead­ers are con­cerned about costs and the chal­lenges associated with trans­form­ing their sys­tems. But, ar­gue the McKin­sey au­thors, the penalty for do­ing noth­ing or mov­ing too slowly could be far greater.

It fol­lows that the loom­ing de­mand for per­for­mance im­prove­ments in sup­port of in­creased busi­ness re­sults have some in­sur­ers look­ing be­yond mere up­grades to dig­i­tal trans­for­ma­tion of their core pol­icy ad­min­is­tra­tion sys­tems.

“Ad­vanc­ing their busi­ness to a mod­ern core plat­form is a ma­jor step to­ward be­com­ing a Next-Gen in­surer – not only be­cause it in­creases speed to mar­ket, ef­fi­ciency, and ef­fec­tive­ness, but be­cause it pro­vides the foun­da­tion for truly dig­i­tal in­ter­ac­tions,” says Fur­tado. “We are al­ways look­ing for in­sur­ance to move faster, but we seem to be hold­ing at our first at­tempt to be dig­i­tal, and we are not op­ti­miz­ing yet. We could do this in claims and with claims ad­justers, for ex­am­ple, mak­ing that ex­pe­ri­ence much more dis­con­nected from lap­tops and more mo­bile.”

Fur­tado’s view of what SMA calls a “Next Gen” in­surer equates with mar­ket lead­er­ship, and in­volves mov­ing be­yond mod­ern­iza­tion of pol­icy ad­min­is­tra­tion to op­ti­miza­tion and in­no­va­tion for the fu­ture (see Fig­ure 2, SMA Busi­ness Value Ma­tu­rity Model).


Dig­i­tal is very much a part of the next gen­er­a­tion of pol­icy ad­min sys­tems, and from Ce­lent’s per­spec­tive, in­cludes a dis­tinct path to­ward en­hanced dig­i­tal op­ti­miza­tion that

em­bod­ies func­tional/op­er­a­tional and tech­ni­cal/ar­chi­tec­tural de­vel­op­ment (see Ta­ble 1) and in­cludes in­te­gra­tion of the fol­low­ing as a min­i­mum:

Re­port­ing, busi­ness in­tel­li­gence, and an­a­lyt­ics in­te­gra­tion Mod­ern user in­ter­face (UI) de­sign Agent, prospect, and pol­i­cy­holder por­tals Prod­uct con­fig­u­ra­tion ca­pa­bil­i­ties out­side of IT de­part­ment.

“Very few in­sur­ance IT shops say ‘next year we won’t do anything new or dif­fer­ent.’ So, for all lines of busi­ness, the goal is con­tin­u­ous im­prove­ment,” notes Light.

For some in­sur­ers, it will mean a full rip and re­place of their pol­icy ad­min sys­tem(s); for oth­ers it will mean a wrap and ex­tend, which means keep­ing the old sys­tem but pro­vid­ing more agility via in­te­grated add-on’s such as a BPM sys­tem in­ter­face, new por­tals or a rules en­gine. For many, notes Light, the dig­i­tal path will also in­clude eval­u­a­tion of hosted/ cloud based ser­vices. “Most cur­rent [cloud] im­ple­men­ta­tions re­quire the ven­dor to sup­port mul­ti­ple re­leases, across mul­ti­ple plat­forms, which in­creases their over­all costs,” says Light. “The nir­vana to a Pol­icy Ad­min Sys­tem provider is hav­ing all of their cus­tomers run­ning on the same re­lease of the sys­tem, and as PAS im­ple­men­ta­tions move into a multi-ten­ant, cloud-based im­ple­men­ta­tion, this nir­vana may ul­ti­mately be achieved.”

Fur­tado main­tains that pol­icy ad­min sys­tems need to be fu­ture-ready. “This means it must sup­port the or­ga­ni­za­tion as it adopts new busi­ness mod­els, new tech­nolo­gies, and a culture that looks be­yond core ap­pli­ca­tions and more at ex­e­cut­ing on en­ter­prise goals that sup­port changing mar­ket con­di­tions.”

Ce­lent’s Scales, who spe­cial­izes in the life and health lines of busi­ness, agrees. “For the first time, we are ask­ing ac­tu­ar­ies to look be­yond mor­tal­ity and mor­bid­ity data and fo­cus on ac­tual be­hav­ior. Us­ing John Han­cock’s Vi­tal­ity pro­gram, which re­wards pol­i­cy­hold­ers for healthy liv­ing be­hav­iors, as the ex­am­ple, the pol­icy ad­min sys­tem they em­ploy links a va­ri­ety of ad­di­tional sources, to third-party data, and to data sci­en­tists who can an­a­lyze it and cre­ate real-time flows to un­der­writ­ers based on all the data that’s com­ing into the sys­tem.”

McKin­sey asserts that although the tra­di­tional in­sur­ance busi­ness model has proved re­mark­ably re­silient, dig­i­tal has the power to re­shape the in­dus­try. “As new op­por­tu­ni­ties emerge, those in­sur­ers that evolve fast enough to keep up with them will gain enor­mous value; the lag­gards will fall fur­ther be­hind,” notes the McKin­sey au­thors. “To suc­ceed in this new land­scape, in­sur­ers need to take a struc­tured ap­proach to dig­i­tal strat­egy, ca­pa­bil­i­ties, culture, tal­ent, or­ga­ni­za­tion, and their trans­for­ma­tion road map.”

SMA’s Fur­tado be­lieves pol­icy ad­min­is­tra­tion trans­for­ma­tion lies in the in­surer’s abil­ity to have the agility nec­es­sary to both adopt and adapt. “Our re­search shows that 80% of in­sur­ers now view them­selves in a trans­for­ma­tion or growth mode. In­sur­ers re­al­ize that it will be con­tin­u­ous change – not a one-time pass-through with this. The jour­ney we’ll al­ways be on. We just need to get out of our own way and be more in­no­va­tive.”

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