Why this, why now?
New trends are taking hold in the world of core insurance systems. This article will to help explain these changes and should help insurers to start thinking about what decisions to make for their business. Let’s start by looking at some of the critical disruptions and drivers which are prompting Life & Annuity (L&A) carriers to evaluate their Policy Administration System (PAS) options:
- Consumer, agent, and employee expectations increasingly center around user and customer experience (UX/CX). Insurance shoppers and customers aren’t comparing their experience to other insurers, but to Amazon, banks, travel companies, apps, etc. Even home-office employees expect a reasonably modern experience, and a failure to offer this can result in challenges around recruiting/retaining talent. With the challenges of COVID, now that home-office employees work from their own actual home offices, a non-legacy experience is critical.
- Direct-to-consumer and direct B2B business models are on the rise and require 24×7, real-time back-end platforms, connected via APIs or services to web-based systems. Again, with COVID, these digital capabilities have become even more critical.
- Burning platforms are not uncommon, especially as a carrier looks to refresh previously dormant business lines. Even if a platform isn’t truly burning, inflexible legacy systems often prevent new products from being released, or make them impractical from a cost or time perspective.
- Greenfield carriers, including InsurTechs, are starting from a clean slate, and it may be impossible to compete with them with inflexible legacy solutions. Similarly, a digital-first/mobile-first approach is increasingly required; and is far more practical with a modern platform.
- P&C insurer Lemonade should serve as the canary in the coal mine for life/group insurers; competition can come from anywhere and may not look like anything you’ve seen before. Disruption may be difficult or impossible to predict
- Modern platforms have matured significantly in the last few years, and there has been significant vendor consolidation, M&A, and investment (PE and VC) within the market.
- Carriers are looking at a cloud-first approach to move away from data centers or expensive mainframe maintenance; migration of platforms to the cloud is rapidly increasing as well.
COVID-19 is amplifying many legacy system, on-premise platform, and paper-based or application-based challenges. It’s putting a spotlight on digital-first, cloud-first, customer self-service, agent self-service, and newer models. Where these capabilities are available, field agents and policyholders challenged with COVID-related, stay-at-home orders will transition into the “new normal” and as a result conduct business more effectively.
So has the time come to replace parts of your legacy systems with a modern policy administration system or suite? Consider a few drivers and trends:
- Firstly, modern platform maturation in both individual life & annuities and the group benefits space is the most significant change in the industry over the last few years.
- Secondly, the L&A space has experienced one of the most critical recent developments in this sector—a fundamental change in thinking around conversion. This is discussed in detail elsewhere in this series of blog posts.
- Thirdly, each carrier’s specific needs will drive their modernization approach and platform (if a new platform is necessary). Unfortunately, neither a Magic Quadrant nor a Magic 8-Ball will solve this for you.
- Finally, understanding what makes a great platform should be a key part of this process.
The modern core platform modernization and maturation process has been incredibly slow and unsteady within the industry. The start of the modernization movement in L&A is hard to pin down. Some would argue that Solcorp Ingenium’s portal capabilities or their acquisition of Essentium (ProductXpress) were a turning point. Others might point to the 1991 founding of NaviSys—but is C++ considered modern? Perhaps it was the start of AdminServer in 1998, while others might claim that the real work didn’t start until later.
Regardless, a series of unfortunate events—together with exceptional risk aversion—has slowed industry modernization. Even today, a small fraction (under 20%) of life insurance business runs on a modern platform.
Unfortunate, far-reaching events chilled the industry. Events such as 9/11 in 2001 and the financial crisis, followed by the Great Recession between 2007-2009 were felt through 2011. Then, just when L&A insurers were beginning to make significant investments, COVID-19 turned strategic priorities upside down (though IT budgets seem to be surprisingly resilient as of August 2020).
The result of this slow and shaky modernization is a scarcity of modern system vendors and limited references for those that do exist. Today’s vendor solutions are now maturing with support from leading carriers such as MetLife, Lincoln, and Allstate, who are implementing modern platforms for at least a portion of their insurance products.
These platforms are increasingly an out-of-the-box proposition in which implementation is about configuration and integration—not customization—with a good number of platforms now supporting either individual or group lines, with well-developed templates.
A handful of platforms even support group and individual (most of one and some of the other), while some modern platforms strongly support straight-through processing. These features, together, can support a massive change in IT and operations flexibility.
There’s no simple formula for modernizing a PAS platform. Rather, the carriers that come out ahead will be the ones who carefully consider a number of options.