When the pandemic hit a year ago, all the focus shifted to working from home. This included shoring up the technology infrastructure, business processes, and collaboration tools needed to support running business remotely. Budgets and strategic projects were placed on hold, and tactical quick hits were the order of the day. The insurance industry put stopgap solutions in place to bridge carriers’ current environments with new digital collaboration suites. Over the last year, companies refined and tweaked their operations, continually pushing out their return-to-office plans a quarter at a time.
Many companies have resigned themselves to the fact that the new normal for 2021, and possibly beyond, will include a shift to a more geographically dispersed operation. As insurers look at what that may mean from a strategic standpoint, they are starting to realize that the limitations of their current legacy environment, which may include core admin systems upwards of 50 years old, may not be able to sustain their evolving business models.
Insurance core legacy systems are one year older. In addition, the people that understand these systems, both from a business and technical view, are also one year older—and one year closer to retirement. The challenges of 2020 may lead some to take stock of their personal and professional lives and decide to pull the retirement trigger earlier than planned. These employees are the most critical ones to the success of a core system replacement project.
Taking Stock
One thing insurers can do now is take stock of their existing environment and develop a strategy to address all the blocks of business on the books. This includes both closed blocks and open blocks that are currently being sold. Insurers should recognize that an approach that calls for one system for all blocks is not the best way to support all of their in-force business; in fact, this strategy can lead to diminishing returns as insurers try to convert older policies. Conversion projects can take on a life of their own once they begin, and they can take years, with the pace slowing significantly once simple blocks are converted.
Instead, insurers should look to implement a separate solution that incorporates an immersive digital strategy for all products currently sold or planned to be sold. This should encompass the end-to-end life cycle of insurance, from marketing to sales to new business to underwriting to service to claims. In addition, carriers should perform a thorough analysis of all closed-block business (e.g., system, age, complexity, distribution channel) and the options available in the industry to support those policies moving forward (e.g., convert, sell off, outsource IT, or service).
Block Analysis
Such a block analysis program provides insight into how a transition will affect different products and lines of business, creates a broad understanding of costs and benefits, and provides a framework for executive decisions. The outcome of this analysis could involve a strategy to convert only a subset of in-force policies while outsourcing the IT support and/or service operations to a third party that specializes in managing older, closed block business. It could also result in the decision to offer a closed block for sale to another insurer.
It will become more important to perform a block analysis before the key subject matter experts, who are usually the longest tenured resources, start to push toward the retirement cliff. These experts have a wealth of knowledge about the evolution of the current core system, including decades of manual workarounds, error corrections, and functionality gaps. This insight is a key ingredient to the analysis needed to identify issues and options available to support old blocks of business.
For related research on this topic, read the Executive Brief Block Analysis and Life Systems Transformation and the Research Council Study Novarica 100 Digital, Data, and Core Capabilities for Life/Annuity Insurers.
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