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Author: Shanmuga Prabhakar |06/25/18

Top Four Questions That Define Transformation Strategy for Life Insurers

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One of the primary challenges of life insurers today is to stay ahead in the race and to keep up with the advancement of the digital era. Most of the established insurers are constrained in this journey due to their well-established IT infrastructure, predominantly the legacy systems in which they would have invested significant resources in terms of time, money and man hours. Due to technological advancements and disruptions that are caused in insurance industry like any other customer-centric industry, life insurers are at least a lap behind in adapting to these disruptions and leveraging the opportunities through modernization in their IT landscape.

Major imperatives that drive the need for modernization in the existing core business applications for life insurers are listed below. These imperatives could be business challenges, opportunities or themes to be adopted, depending on the time of intervention.

  • Competition from new entrants/InsurTechs
  • Regulatory compliance
  • New market entry
  • New product launch
  • Poor customer experience
  • Senior management decision making
  • Operational inefficiency (Systems in silos)

In order to align the business with these imperatives, life insurers have started leveraging digital solutions on top of their existing legacy systems to improve the point of interventions, and end up as a standalone solution. This includes selecting the strategy of wrapping the legacy systems with modern digital canvas and deploying customer portal/digital engagement platform which interacts with the back-end system for data processing. By this strategy, an insurer provides a feature-rich user interface to the customer, but it addresses only one of the above imperatives - improving customer experience. As life insurance is a customer-centric business, this can be a major differentiator but not the solution for all imperatives. Therefore, a life insurer must look at the holistic strategy that will enable them to give adequate weightage to both business transformation and modernization of their IT landscape.

Different Stokes for Different Folks

Typically, life insurance industry has witnessed two major approaches for core transformation, i.e., Greenfield (building from scratch) and Transformation – (radical changes to existing landscape). In order to design a holistic approach to cater to all the imperatives mentioned above, an insurer has to address the four questions below

1. What is the priority of the business?

This is the key factor to be considered when a life insurer decides to transform. The core transformation should be in-line with the organization’s strategies. Most life insurers have multiple legacy platforms that support different products and, in few cases, support different geographies. Considering such a scenario, it is important to know the priority from the business before designing the transformation plan. There may be multiple dimensions for the priority such as regulatory compliance, potential areas of higher revenue, countering competitor’s strategy, etc.Business need/priority should be the first factor to consider as it not only helps in defining the scope but also gives a clear picture of the timeframe available to achieve the goal. Thus, knowing the scope and duration will help insurers in selecting the right approach. The boundary of scope should not be restricted to the functionalities, but should also consider the number of systems impacted and alternate options to achieve the desired functionalities.

2. Where do we stand in technical maturity?

A clear understanding of the existing IT infrastructure is crucial while deciding the transformation approach. Gap analysis should be conducted in order to identify the gap between the current state and target state of the systems. In order to assess the maturity level of technology, the following factors need to be considered by the insurer:

  • Core system that has most of the features and focus on the priority
  • Percentage of the system outsourced and managed in-house
  • Technology of the systems – core and the ecosystem
  • Volume of data handled by the system/data accessibility
  • Practices of IT service management
  • Amount of documentation available

This analysis will help in predicting the technical challenges or risks that will be faced during the time of transformation. As data is crucial for any life insurer, the ‘data accessibility’ part of the analysis helps in finding the way in which data is stored in the organization and the approach that best suits while migrating it to the new system.

3. Who are the key stakeholders?

It is important to form a governing council for the transformation. This council should not only contain the top-level executives and people from technology team, but should also contain people from all levels and departments. Requirement and scope finalization should happen in collaboration with both business and technology teams in the council and should be validated by all the stakeholders. This is a key activity for the entire transformation program, else, the approach may be transactional and siloed.

4. How is the competitor landscape?

While the above three factors are internal, this one brings in the need for considering external aspects. In this digital era, many InsurTechs with a thirst for innovation flood the market. Hence, it is important for traditional insurers to be meticulous in analyzing the competitive landscape. With the help of digital innovations, InsurTech startups disrupt the insurance landscape and only few traditional insurers get into the game.

For example, the U.S. insurer Mass Mutual, launched Haven Life which is disrupting the life insurance landscape by simplifying the process of purchasing a life policy within minutes. It includes customers calculating their needs, getting a quote, and applying for instant coverage. It has enabled the customers to select term coverage of their choice from their phones or computers at their preferred time. Such disruptions can have a major impact on the business and hence the insurer must invest in strategies that counter the competition fittingly. Market scan of competitive landscape on a continuous basis will help in realigning the strategies and priorities for the business. Based on this, an appropriate transformation approach can be selected.

In summary, life insurers are compelled to transform their IT landscape for becoming more agile and responsive and meeting the modern age imperatives. Life insurers who are successful in their transformation can reap benefits such as enhanced customer experience through digital technologies, improved decision making with the help of advanced analytics and refined operational efficiency across the value chain. Both the approaches have been successful with each having its own share of advantages and challenges. Hence, it is prudent for any life insurer to have clarity in the four areas, which will help them in selecting the right approach with reduced risk, during the transformation.

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