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Perspectives

Rethinking Life Insurance Operations

2016-05-17


Consistent, optimized operations offer powerful business benefits for carriers, from improved customer satisfaction to additional reinvestment dollars for innovation.

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With low interest rates, increasing regulations and changing customer demographics, it has never been more challenging for life insurers to manage their books of business. Optimizing their operations through business process as a service (BPaaS) or hosted solutions can enable carriers to more profitably service their books of business and also free up budget dollars for innovating new digital services.

To start, life insurers need to examine their current systems, and particularly the outdated, budget-draining policy administration systems on which they’ve run their businesses for decades. 

Figure 1

The transition to modern, cloud-based applications – for new business and underwriting as well as policy administration functions – is a money-saver. It effectively puts an end to the IT budget bloat of legacy systems and opens the door to additional savings through streamlined business processes. Increasing numbers of insurers are moving their closed-book operations to service models. By moving non-core tasks to external vendors, they can shift staffing to more value-added activities. 

Equally important, the transition to new systems triggers a domino effect of improvements in operations management. 

  • Greater profitability for books of business. Portfolio rationalization is on the mind of insurance executives everywhere. More efficient and cost-effective processes can generate higher returns on open and closed books that drag down profitability. Insurers can reduce their fixed costs through the consolidation that results from process reengineering and Lean approaches, and from a decrease in overlapping systems. They can also eliminate the legacy maintenance costs that are a major drain on profits and revenue as they impede the flexibility and agility needed for new business acquisition. 

  • Increased efficiencies as a result of converting business processes to a service model. Whether it occurs through cloud-based applications or contracting key functions to external vendors, adopting a service model for functional transaction processing enables carriers to focus on their core capabilities. For one thing, BPaaS enables variable pricing, so companies pay only for the services they need. For another, it eliminates the legacy-related hardware leases, operating system software licenses and support that account for much of carriers’ IT budgets. Along with the cost savings comes the power and efficiency of streamlined operations. 

  • The power of scale. One observation insurers can make with certainty about their legacy systems: They don’t scale. In today’s life insurance marketplace, agility and scale is what it’s all about. It accommodates higher business volumes and transactions, and it lets insurers map business requirements and match customer expectations. Both conditions are imperatives for growth. Agility and scalability also helps manage increasingly complex product and service options. For example, automated solutions enable more accurate, agile execution of high-volume, repetitive processes. 

Perhaps even more important than management improvements, optimizing operations helps address one of the key issues keeping insurance executive awake at night: freeing up budget and internal resources to drive growth opportunities. Increasingly, this means connecting in new ways with today’s consumers and developing the high-touch services and insurance products that attract younger consumers. 

Making those connections demands capital that many life insurers find difficult to allocate. Optimizing operations can provide a source of funding for much-needed investments in simplified (but highly engaging and personalized) mobile apps and e-commerce products for digital and multi-channels. 

Looking Ahead 

How can insurance companies begin to optimize their operations and transition to business-as-a-service? 

  • Inventory your operational needs. BPaaS doesn’t address every operational challenge, but it’s especially useful for helping insurers tackle problems related to the consolidation or modernization of multiple legacy systems, closed blocks of business that clog workflow, and rationalization of redundant systems.

  • Prepare to shift your operational viewpoint, from products to customers. BPaaS enables insurers to focus on policyholders and prospects. That’s an important – and necessary – cultural change for carriers to take before they can begin to reap benefits, such as applying big data analytics to deliver tailored services and solutions. By becoming more customer-centric across all channels, insurers can dynamically track segment needs and increase customer retention through more precise interaction models. 

  • Plan a phased migration. Most carriers underestimate the operational challenges associated with implementing a new policy administration system and architecture. It requires changes to all business processes and technical systems. An incremental approach helps effectively manage risk and achieve goals early in the phased process.

By rethinking their operations, insurance carriers can benefit from a range of benefits that span all aspects of their businesses. Perhaps most important, transitioning to virtually managed applications opens an opportunity to reallocate the funds that once supported legacy systems to investments in innovation and new products – and create a path to profits.

For more information, visit Life and Annuities Business Process as a Service

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Rethinking Life Insurance Operations