Life Carriers Face Challenges and Opportunities as 2020 Comes into View

On October 2, Novarica had the opportunity to host a Special Interest Group Meeting for individual life carriers. The session, held in Boston and attended by a dozen participants, highlighted both the challenges and opportunities facing this part of the industry as it approaches a series of potentially key inflection points. Here are some of the issues and decisions carriers will be facing as they execute on 2020 plans.

Aging core systems are not getting better with time. This was a key topic of discussion; carriers highlighted challenges they are having around moving forward with system transformation and modernization. These are clearly not purely technology efforts, but rather business initiatives supported by technology. For some, however, the business strategies that will address changing customer demographics, product preferences, and distribution models are still evolving. While legacy systems may be fine for legacy customers, they don’t support future-state needs. But this also creates an issue; should old legacy blocks really be converted or do other options (e.g., BPO services) offer an attractive way to get the right capabilities, for the right customers, with the right economics? Industry examples highlight this as an approach that carriers are increasingly leveraging. As vended core systems continue to mature, strategies which decompose monolithic environments to allow for incremental modernization are an effective strategy for risk mitigation.

As D2C and augmented business models emerge, new challenges surface. Many carriers in this space are looking for effective approaches that would allow them to embark on direct-to-consumer strategies. This creates a series of challenges, however, some of which are technology-related, but many of which are not. From a technology standpoint, trying to leverage existing legacy environments to support new products, services, and markets is deemed to be ineffective. Greenfield technology approaches are increasingly showing promise. One of the major business challenges is related to branding and whether or not a single entity can effectively go to market against different customer segments and distribution channels. In addition, as technology is more often deployed at the front end of new business processes, finding effective solutions to support prospect/client authentication is rising in importance for many carriers. Clarifying the business objectives for these initiatives is critical before selecting the appropriate technology partners and implementation approaches.

Payment support models are growing in both importance and complexity. Across many distribution channels, life insurance carriers are grappling with developing payment strategies that meet changing consumer preferences. In some cases, this is driven by efforts to go direct to consumer. There was a wide-ranging discussion around payment solutions, including the use of credit and debit cards as well as new payment services (e.g., Venmo). All of these alternatives to checks and traditional ACH processing are very much on carriers’ minds. This raises interesting questions about transaction processing fees; one carrier noted that they offer discounts to consumers who use a vehicle without payment charges, which is an interesting way of getting around concerns associated with surcharges for credit and debit card processing. It appears that traditional life insurance carriers continue to harbor concerns about the use of credit card payments for in-force contracts, an issue that the life insurance subsidiaries of property/casualty companies seem far less concerned about.

Innovation is widely seen as important, but execution models vary significantly. Changes in competitors, demographics, and distribution channels are all heightening awareness of innovation as a concept. AM Best’s intention to include this as a rating factor in 2020 was top of mind. Most carriers at the session have focused on tactical, incremental innovation, although some larger companies noted a greater interest in separate innovation labs and brands for strategic purposes. Irrespective of approach, however, there was broad agreement on the criticality of separating innovation efforts from “business as usual” activities. For insurance carriers and InsureTechs alike, “BAU” will consume all available resources, hence the need for clear segregation of duties.

Security is a priority for carriers of all sizes. The risks associated with security breaches are increasingly clear, and painful, in the eyes of executive management at life insurance companies. As other industries have built up their defensive capabilities to protect their companies, insurers have become more vulnerable to attack. Addressing this has helped drive changes in funding levels, as demonstrated in the new Novarica Budgets and Projects report. Security concerns extend into sourcing for new capabilities and vendor governance models as well; a number of carriers noted that loose governance models have created unintended consequences in terms of the management of confidential data (e.g., the use of vendors on cloud-based subscription models which do not comply with existing security frameworks). Even though cloud-first strategies are generally the norm for carriers now, the proper vetting of solution providers is taking on renewed urgency.

Future state talent is key in many areas…including IT. Life insurers are growing more aware of an aging issue across many functional areas, which is creating risks that need to be addressed. Finding, attracting, and ultimately retaining resources in underwriting, actuarial, and claims, as well as IT organizations, is very much a broad organizational mandate now. The nature of labor force entrants is changing; younger employees are much more inclined to see work as a “series of tours of duty” rather than a lifetime commitment to one company. This issue is increasingly urgent given that the youngest Baby Boomer is now 58 and that Millennials are projected to represent 75% of the US labor force by 2025. Automation, AI, and machine learning may help reduce the absolute headcount needed in the future, but reducing the number of employees doesn’t address the organizational needs for both knowledge management and inter-generational knowledge transfer.

The session in Boston was lively and engaging, highlighting challenges and opportunities for carriers as they prepare for the third decade of the 21st century. Technology is both part of the problem statement and the solution as carriers’ multi-year plans move toward execution.

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