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5 Modernization Best Practices in Life Insurance Policy Administration

The life and annuity industry faces a significant challenge that spans decades. Some life insurance policies, currently housed on legacy systems, have been on there for up to 75 years and need replacement. Simultaneously, there are also policies currently being issued that may also be on there for another 75 years.

“The policies that go on the books today could be on there for 75 years, creating 150-year problem.” - Karen Monks, Insurance Principal Analyst,

Additionally, retiring old systems isn't straightforward. Due to the coexistence of multiple systems within insurance companies, the process involves sifting through layers of complexity and potentially encountering unexpected challenges along the way. This is often compared to a metaphorical "archaeological dig" through various technological eras.

The Rise of PAS Modernization Projects

To address this challenge, Life Insurance CIOs are turning their attention to Policy Administration System (PAS) modernization projects. This strategic shift is reinforced by the findings of an annual "Silent CIO Survey" conducted by Celent. Results from this year’s survey reveal that approximately 50% of insurers are either planning to replace or are already in the process of replacing their policy administration systems.

Furthermore, in the recent webinar "Practical Advice for PAS Modernization from Project Veterans," a survey conducted revealed similar sentiments. Among participants, 50% indicated that their modernization projects are actively in progress, while 30% are currently deliberating whether to pursue policy administration modernization initiatives.

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If you're considering replacing or are already in the process of replacing your policy administration system, read on for Practical Advice for PAS Modernization from veterans, Karen Monks, Insurance Principal Analyst at Celent and Amit Sharma, AVP, Global PMO at Equisoft.

5 PAS Modernization Best Practices from Project Veterans

Leverage a Greenfield approach to PAS Modernization as a proactive response to technical debt and outdated systems.

Many insurers are adopting a Greenfield approach, investing in new systems while still utilizing data from old systems as necessary. This allows for quicker configuration and market introduction of products. They integrate new products into the new system, outsourcing data management if needed. Ultimately, the new system becomes the primary focus for future development, while the old systems are phased out and closed.

The reason the Greenfield approach is gaining popularity is because many insurers face significant technical debt and technical risks associated with their outdated systems. These legacy systems are often older and not easily integrated with modern technologies. They may lack essential fields required for digitization efforts, making it challenging to adapt to the evolving needs of the industry and customers.

Ensure alignment among all project stakeholders

The key to successful project implementation lies in ensuring alignment among all stakeholders regarding project goals and objectives, as well as a clear understanding of the scope of actions being implemented.

Effective scope control requires robust governance and empowering a product owner who represents the voice of the business. It's crucial to avoid falling into the trap of recreating past systems and instead adopt a forward-thinking mindset to focus on the vision and business needs, anticipate developments and prioritize the right decisions at the right time. In order to do so, collaborating with a strong product owner, typically from the customer side, is vital.

"Alignment across stakeholders on project goals and objectives, alongside clear scope control through strong governance and empowered product owners, is essential.” - Amit Sharma, AVP, Global PMO at Equisoft.

A robust methodology is crucial for success

Additionally, ensuring a robust methodology is crucial for success. Scope definition typically originates from various business needs, such as acquiring new business blocks, launching new products, or implementing strategic changes. This could also be driven by technology-related factors like system support issues or scalability concerns. These needs are identified during roadmap exercises, leading to the formulation of modernization goals and a transformation roadmap.

This roadmap should be milestone-based and prioritize business value. Subsequently, specific projects aligned with the strategic vision need to be defined and scoped out, ensuring alignment with overarching goals and the transformation roadmap. Since PAS modernization, contract negotiations can impact implementation timelines, it’s important that all stakeholders outline processes and define project goals from the beginning. This includes prioritizing an elongated Sprint 0 for thorough refining and detailing of project requirements.

Setting up organizational change management strategies

While it's crucial to anticipate that there will be a learning curve and potential growing pains during a project, proactive preparation and consistent communication are key to ensuring everyone's comfort and readiness for the changes ahead. The new system you are creating will be different, and so effective communication and the inclusion of change agents throughout the transition process will help alleviate negative impacts.

With appropriate information dissemination, timely engagement of relevant personnel, and provision of necessary tools and training, potential resistance to change within the organization can be mitigated.

When seeking PAS modernization partners, prioritize customer feedback, future readiness, and cultural fit.

Celent has played a pivotal role in guiding numerous insurers through the selection process for PAS modernization partners. With insights garnered from this experience, Karen Monks emphasizes the critical steps insurers must take. According to Monks, insurers should prioritize gathering customer feedback, evaluating vendors' readiness for the future, and assessing the cultural fit between their company and the vendors.

While it's crucial to consider factors like functionality, price, efficiency, and speed to market to overcome challenges posed by old systems, Monks underscores the importance of additional considerations. These include assessing the vendor's competitive position and technology roadmap. However, above all, Monks stresses the significance of gathering customer feedback and ensuring alignment between the insurer's culture and that of the chosen vendor.

  • Gathering Customer Feedback: Insurers should engage with customers to obtain insights and participate in full demos to understand how the system works in practice. A key aspect of vendor selection is testing functionality through proofs of concepts and scenarios to ensure alignment with the insurer's needs and expectations.
  • Assess Future Readiness: When assessing future readiness, it's crucial to consider scenarios that demonstrate the system's capabilities, such as portal integration and data analytics. Additionally, exploring cutting-edge technologies like AI beyond current functional requirements is essential to ensure preparedness for future needs.
  • Assess Culture Fit: Assessing culture fit involves evaluating how well the vendor's culture aligns with that of the insurer. This includes considering factors such as change management strategy and ease of collaboration. A strong cultural fit is crucial for effective partnership and successful implementation of PAS modernization projects.

Conclusion

PAS Modernization presents a challenge to life insurers due to the longevity of policies and the complexity of existing legacy systems. However, there are ways to mitigate those challenges. Ensuring alignment among all stakeholders and having a robust methodology in place are essential for successful project implementation. Effective scope control, supported by strong governance and empowered product owners, helps avoid the pitfalls of recreating past systems and fosters a forward-thinking mindset.

Organizational change management strategies also play a crucial role in facilitating the transition to new systems, emphasizing the importance of effective communication and inclusion of change agents throughout the process. Moreover, prioritizing customer feedback, assessing future readiness, and evaluating culture fit when selecting PAS modernization partners is paramount for ensuring successful outcomes.

Additionally, a proactive approach to PAS modernization, such as leveraging a Greenfield approach, offers a promising solution to address technical debt and outdated systems.

By addressing these challenges and implementing strategic approaches, insurers can navigate the complexities of PAS modernization and position themselves for future success in an evolving industry landscape.

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