Throughout my career, I helped life insurance companies transform their operations to take advantage of the latest next great thing in technology. Over the course of that career, I worked on over a dozen conversion/migration efforts to get from point A to Point B. While all of these migrations were ultimately successful, there were many situations where workarounds and compromises were required to tweak the ultimate definition of “success.”
Adopting a block analysis approach to transform existing systems provides insurers with insights into how a transition will affect different products and lines of business, creates a broader understanding of relative costs and benefits, and offers a rational framework for executive decisions.
Block analysis allows for a multi-pronged approach to transformation design that enables insurers to develop better-informed decisions and apply the appropriate solution required for the level of complexity and “imprecision” of each block.
At some point, insurers will need to migrate policies for a block with a level of imprecision that cannot be addressed in a straightforward manner in the new system. The complex nature of life insurance products and systems makes it difficult to test every permutation of options and events allowable under a policy. That, coupled with the introduction of coding changes and defects that are introduced over the lifetime of the existing system, provides fertile ground for “imprecision” to flourish.
If these imprecisions are communicated to the policyholder as part of normal reporting, the insurer is faced with the challenge of making the policyowner “whole.” Sometimes these situations are known and workarounds have been developed to address them in the existing system. Often, these situations are discovered as part of a conversion effort, which can result in delays and reduced confidence in the new system.
“Imprecision” is not a term that product actuaries like, so it is important to involve them early in the project and to develop formal governance processes to prepare for these situations. Best practices for this include:
- Developing an inventory of known situations and workarounds,
- Developing a decision matrix that sets thresholds for correcting and forgiving past defects,
- Staffing a team of actuaries who understand the products being converted and can analyze inconsistencies between systems, and
- Establishing a senior team that is empowered to review situations as they arise and make timely decisions regarding solutions.
I have been involved in too many projects where late discovery of embedded issues in the current product block led to significant delays in the deployment of the new solution. Developing procedures and a formal governance process in advance can help address these situations as they arise. Planning ahead also helps ensure that transformation projects proceed smoothly and that insurers can react to unexpected issues in a coordinated and informed manner.
A related report on this topic, Block Analysis and Life Systems Transformation, addresses these issues and provides an overview of benefits and approaches to block analysis.
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