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3 Major Themes Driving Insurance Technology Change at Life Insurers

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In order to help life insurers understand the key drivers of PAS modernization, the challenges faced during implementation and how to make your transformation a success, Equisoft commissioned Novarica to conduct a research study with carriers who had undertaken modernization projects.

From planning to implementation, this research provides the most current picture of how life insurance CIOs approached their PAS modernization challenges and how you can benefit from their experience.

This is the first of three articles that explore each of the major areas covered in the research:

Part One: 3 Major Themes Driving Change at Life Insurers

Part Two: 4 Critical Challenges That Must Be Tackled to Ensure Successful PAS Modernization

Part Three: 5 Elements That Make Digital Transformation a Success

The complete findings from the research are available by downloading the full report:

Transformational Journeys: Implementing Modern Core Systems At Life Insurers

The legacy system tipping point

Life insurance core system modernization happens once every several decades. New generations of future customers are born, markets and company needs evolve, but inflexible and unsuitable legacy policy administration systems linger—creating challenges for IT and business leaders seeking to adapt.

The decision to modernize and retire the old core systems often gets put off year-after-year. Many fear that modernization will be expensive, time-consuming and disruptive to their daily business. Sometimes it’s easier to ‘kick-the-can-down-the-road’. Patches and imperfect, manual work-arounds are put in place, instead of implementing real solutions to long-standing issues.

The challenges can’t be ignored forever, but what drives CIO’s past the tipping point where modernization makes sense?

To find the answers, Equisoft commissioned Novarica to conduct an in-depth interview series with mid- to large-tier life insurance CIOs actually engaged in modernization projects. The full report—Transformational Journeys: Implementing Modern Core Systems at Life Insurers—includes all the research data, as well as insights from the CIOs who participated.

Here are some of the highlights.

Key drivers for policy admin system modernization

In the research, CIO responses revealed that, although more than half-a-dozen factors contributed to the decision to modernize, the two biggest reasons to transform were rooted in the need for:

  • New digital business capabilities
  • Productivity improvements

For 60% of insurers surveyed, improving digital and new business capabilities stand out as the key drivers for modernization, followed by improvements in productivity to allow faster and more fluid underwriting processes and workflows.

Chart 1

The need for new digital agent and client tools creates legacy data challenge

Life insurers are exploring new business capabilities that leverage predictive analytics to replace fluid-dependent underwriting. COVID-19 is placing renewed attention on this approach.
  • Tom Benton, Vice President of Research and Consulting at Novarica

Certainly, CIO’s were especially concerned with replacing legacy systems to provide more effective data management and accessibility—in order to enhance digital sales and underwriting going forward. For most companies, priorities have shifted in the past few years. Finding efficiencies and increasing speed-to-market are still important considerations, but creating superior, digital customer experiences has taken over the top spot. And creating those experiences using integrated digital advisor and customer tools relies heavily on an organization’s ability to access and manipulate client data in real-time, and across different platforms. Data can’t be siloed any longer. It’s a strategic asset for an insurer. It drives customer engagement.

Modern PAS systems were seen by the surveyed CIOs as a clear way to eliminate data bottlenecks that had prevented many companies who relied on legacy systems from developing new products and introducing the kinds of digital tools that enable better service experiences. And, these systems also happen to support automation of processes and increased efficiency, which ultimately increases productivity.

Life insurers anticipate analytics/insights and digital capabilities to become more prevalent in the next few years. The pandemic is supporting the trend toward digitization and remote interactions.
  • Tom Benton, Vice President of Research and Consulting at Novarica

Given the growing adoption of digital advisor and client tools—and the clear need created by social distancing—that result was what we would anticipate. But not all the key modernization drivers were what we expected…

Surprising result! Highlighting the human component in technical risk

While only 10% of respondents said knowledge transfer was a growing concern – it was a noted issue for almost all insurers, with most considering it crucial in their long-term planning.

If you look at the results, knowledge transfer didn't score as high as some other factors, but when talking with the insurers, they stressed the need to address the issue. They have many SMEs managing their legacy systems who have specialized knowledge that will be lost as they retire.
  • Deb Culliton, Vice President, Novarica

Part of the problem is that legacy systems often run on code that is generations old, written in languages that are no longer supported or even taught in school. No new programmers are coming into the industry who know how to write that code or have the expertise to step into the role of keeping the legacy infrastructure running. That knowledge is a non-renewable resource.

And, those team members who currently tend to the old machines, are reaching retirement age. As they leave, organizations lose the institutional knowledge vital to keeping their core systems, and much of their day-to-day business, running. As recently noted by Brian Carey, Equisoft’s Senior Director, Core Insurance Solutions,

The scarcity of COBOL programmers during the pandemic—needed to do everything from state tax changes to policy lapse adjustments— has shone a spotlight on the potential consequences of losing those experienced staff who can keep the machinery going.

Now, as CIOs repeatedly told researchers, insurers find themselves in a race to retire their legacy systems and replace them with modern infrastructure in order to offset the shrinking knowledge base and growing technical risk that could create serious disruption.

Wrap Up

Given those factors that drive the need to modernize, what should life insurance executives be thinking about as they prepare to undertake that journey? In short, the key takeaways are:

  • Plan for legacy system modernization now in order to benefit from evolution of data analytics
  • Understand the scope of the project and its likely effects on the entire organization
  • Plan to off-set the risk of losing the human capital that supports your legacy systems

For more insights into what CIOs are experiencing in their modernization journeys, read the full research report. Or, check out the webinar recording with Equisoft, Novarica and Oracle for more insights and discussion of success factors and important key takeaways.

Don’t miss the other webinars in the Equisoft Accelerate Series for more insights into how to succeed in your modernization projects.

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