Last week, the entire Novarica team gathered with more than 80 insurer CIOs in Providence, RI for the annual Novarica Insurance Technology Research Council Meeting. I moderated the Life and Annuities Panel, featuring my colleagues Mitch Wein, Chris Eberly, and Ken Toffolo, which discussed current trends in the life and annuities space, strategies for large-scale software initiatives, and ideas for managing legacy solutions in a modern world.
Standards Evolution
One of the greatest challenges facing life insurers, particularly in the group and voluntary benefits spaces, moving forward is the lack of meaningful standards for information exchange. This affects group lines in particular, which often rely on census or other third-party information to manage contracts throughout their natural life cycle. The biggest adverse impact resulting from a lack of information exchange standards is the subsequent lack of efficiency (carriers often still rely on manual processes which ingest data from Excel files and email). Despite organizations like ACORD and LIMRA reporting that they are working toward this goal, a standard has yet to emerge. For some, there’s a growing realization that an alternative approach to handling the flow of data and normalizing it for consumption will be required in the future. Developing this type of capability, which has seen use in the health arena, could create a form of competitive differentiation.
Core Systems Replacement Strategy
Many of our Council members were interested in the panelists’ take on effective strategies to handle core systems replacements. One participant asked if there is really a policy administration architecture that can handle being put through the multi-million-dollar paces carriers demand. Unfortunately, there is no silver bullet applicable at any or every carrier; each use case has its own specific requirements based on the types, complexity, and volume of products being managed.
Participants worried about carriers’ ability to scale on new platforms. Moving from an old system to a new one means insurers must decide whether to move or reverse engineer older products. Of course, increasingly, life carriers are realizing that there’s another option for older and closed blocks, which is to separate them from the “go forward” product set and consider a range of BPO/ITO options.
The consensus was that when it comes to new products, it pays to plan on putting complex products up on new systems. And, as Mitch noted, “The good news is, once you’ve created the skeleton for the first ‘family’ for a product series, you can carry the specifications forward in future configurations so that you don’t have to build everything from scratch.”
Legacy Blocks
An overarching concern for life and annuities insurers is dealing with legacy blocks of business. The costs for legacy systems are beginning to go up on a per policy basis, even as the number of contracts on them decreases.
Since the cost dynamics for these products were communicated 10, 20, or 30 years ago, insurers must decide what course of action works best for them. Carriers of all sizes must decide whether it’s best to partner with a BPO or TPA vendor, to replace the system entirely, or to move legacy blocks to a new system. A BPO option, in addition to simplifying a carrier’s technical environment, may allow for more variabalization of the costs associated with these blocks of business, aligning the costs more effectively with the inherent cost covering capabilities built into the blocks as they “decay.”
Other topics we discussed included talent management, digital strategies, and the potential impact of InsureTech. To learn more about our research and advisory work in life and annuity, contact us at [email protected].
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