Significant core system transformation activities are taking place in the group and voluntary benefits sector. In our recent Group and Voluntary Benefits Special Interest Group meeting, Aite-Novarica Group clients and Research Council members discussed factors that insurers should consider as they begin, or extend, their multi-year modernization journey.
Key discussion topics included approaches to core system transformation, automation capabilities, platform integrations and conversions, and the implications of demographic shifts on future-state benefits.
Approaches to Core System Transformation
Selecting a solution provider is a key part of any core system transformation effort. Group/voluntary benefits is a remarkably concentrated line of business; the top dozen carriers own significantly high market share compared to other parts of the industry. From vendors’ point of view, this means that they need to get in and establish relationship quickly.
An array of factors could impact choosing a vendor as each provides different capability profiles and implementation approaches. As part of the vendor selection process, insurers should gather requirements reflecting their future needs, assess vendors’ capabilities and gaps, and evaluate technology and cultural fit by focusing on what would be strategically appropriate from IT, business, and organizational perspectives. Carriers should also review vendors’ future roadmaps and form what amounts to a new age “business continuity plan” in anticipation of any future events impacting selected vendors.
Carriers must also decide which product line to begin the core system transformation with. One participant noted that their company’s journey began with new product lines and no migration was involved. Another shared a different path, which highlighted a greenfield approach for a specific line of business “from quote all the way to claims.”
Their articulated long-term plan is to consolidate everything to the new platform, but the journey to sunsetting the legacy platform will be a long one. Because of the relatively short liability tails, Group and voluntary benefits carriers generally noted that they focus on a “convert at renewal” strategy.
Modern Platforms and Automation Capabilities
Many insurers are looking for automated claims adjudication and underwriting capabilities to improve efficiency and profitability. Carriers that understand these needs are investing in data and analytics. Some carriers are also leveraging technology such as robotic process automation.
While automation capabilities could bring many benefits, insurers should be careful in their use. For example, auto-adjudication that lacks clarity and transparency could lead to potential regulatory issues. The National Association of Commissioners is trying to frame model regulations that can direct how data is used for underwriting.
Some group plan sponsors have asked for proof that there is no bias embedded in the algorithms carriers develop. There has also been some regulatory pushback related to the use of genetic data in underwriting. There’s significant value that can be gained from AI, but the potential for bias is very real, warranting care in implementation.
Platform Integration
Integrations and conversions remain among the most daunting of tasks group and voluntary benefits carriers contend with when implementing a new solution. The lack of data standards in these lines of business continues to cause challenges both with implementing new platforms and with the ongoing transition of plans from one provider to another.
While APIs certainly help facilitate implementation approaches, the fact that standards remain elusive requires carriers to execute and manage governance strategies that are comparable to the internal management of data in order to achieve operational and financial efficiency.
While insuretech solutions can be helpful in some cases, underlying standards issues mean that this can also lead to a patchwork of solutions. Approaching all of this with open eyes is a key issue for carriers to consider as they pursue the technology investments required to prepare for a highly competitive future.
Demographic Shifts
Demographic shifts are becoming an increasingly significant factor in modernization efforts. Last year, millennials represented about half of the labor force; by 2025, that is expected to increase to around 75%. Many companies noted this year that there’s acceleration in early retirement of baby boomers. This kind of shift impacts the talent pool, which may soon be filled with employees, distribution partners, and customers who grew up with technologies and are digitally savvy.
While it is too early to know all of the changes that will come from a changing workforce, in light of both accelerated retirements of younger boomers, the Great Resignation that is underway, and the need for employers to stabilize the management of their own human capital, it is likely that changes in the demand for different types of benefit packages will continue. Understanding these shifts could have material implications on the technology strategies that carriers need to pursue as well as the products they will be required to bring to market.
Some economists have noted that current labor market shifts are the greatest experienced in North America since the ends of the World Wars in 1918 and 1945. With that in mind, group and voluntary benefits carriers will likely see great opportunities and challenges in the road ahead. The current planning process may be one of the most significant experienced by these companies in more than a generation.
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