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Beyond the Pandemic Pivot: Problems Still Prevail

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Life insurers are focused heavily on digital, less on new products. Many large and midsize insurers recognize their weak portal capabilities and are planning investment.” [I]

The COVID pandemic has brought a wave of change to virtually all aspects of our lives, how industries, including insurance, do business and the global economy. It exposed laggards that at best, had business models that had not been digitally transformed. However, it also revealed how quickly insurers can pivot toward virtual when they need to and embrace agile thinking.

Prior to the new year, Novarica reported in its 12th annual Insurer IT Budget and Project Report [i] that overall IT spending would inch upward in 2020. They forecast that insurers would seek to improve speed to market, distributor service, analytics capabilities and a continuing shift toward digital. The report also found that business leaders want new capability and cost savings. And, despite the pause caused by the disruption of the pandemic, these challenges have not and will not go away.

Most Insurer IT Budget Allocation is on Core Systems and Digital

Chart 1

Legacy challenges remain roadblock to modernization

The era of low interest rates is now a decade old and it looks like the Fed will keep interest rates at near zero levels for the next several years. To remain competitive, insurance companies need to reduce operating expenses and attract new customers. The challenge is that, as of 2020, Millennials represent 50% of the US workforce and their ‘buying expectations’ are radically different than those of Baby Boomers.

They expect that their interactions with companies in every industry will be digital, efficient and fast. However, in the insurance value chain, delivering exceptional multi-channel customer experiences and harnessing the benefits of straight through processing requires exceptional digital capability. And, that digital capability is difficult to build on the back of legacy infrastructure.

At the heart of every life and annuity insurance company are core systems, sometime decades old and written in COBOL or even assembler language. These aging, rigid systems are difficult to maintain and even harder to integrate with. Creating new products or even making changes to existing ones, requires changes to the base code.

The systems don’t support the APIs that allow easy movement of data in real-time and facilitate integration with digital front-end sales and service tools.

In order to meet heightened customer expectations insurers, need to sunset their legacy technology and pivot to modern rules-based policy admin systems that make it easier to implement new products faster, address regulatory changes, open new distribution channels and reduce operational costs.

Jumpstart your back-office transformation

Although the need to modernize is well understood, the size and scope of these projects make them a once in a generation effort.

And, the decision to go forward with PAS modernization is challenging for many insurers because it is difficult to construct a positive ROI model that will convince executives to make the investment based only on tangible metrics.

As part of our collaborative approach to working with our partners, Equisoft commissioned an in-depth research study conducted by Celent to understand the specific challenges insurers face when building a business case and trying to secure stakeholder approval. The report focused on a specific window in the implementation of a new back office system. The goal was to understand the decision-making process for insurers and how they reach the point of investment in a new system, from the recognition of the problem through the decision to move forward.

The surprising outcome of the research was that, although 10 of the 11 insurers involved could not show a positive ROI on the proposed modernization project, all 11 went ahead with their initiatives.

The reasons why every insurer made that decision are complex, and the rationale for green-lighting their project varied. However, in every case, the insurers had to factor in intangible risks and benefits to make their case—like the ones listed in the table below.

Chart 2

The interviews in the full research report reveal, how in some insurers, the winning business case was built by expanding the scope and time horizon over which the metrics were measured. In others, it was based on asking, what will happen if we don’t modernize? Whatever the method, each of the organizations recognized the overwhelming need to address the legacy challenges that had already been well-understood before the pandemic in order to more effectively pivot to address the opportunities for growth going forward.

Move forward beyond COVID

The impact of COVID cannot be understated and all insurers have pivoted to address the issues it created. The question now has become, how long will you let that pivot pause your focus? If you entered 2020, amid a core system replacement search or were about to start one—have your underlying challenges really changed? Did your abrupt shift to go virtual really reduce your operations or IT costs? Were you able to launch that new simplified underwriting term life product your distribution channel needed? Or perhaps, the pandemic exposed huge gaps and an inability to process business across your value chain.

Do not let your 2019 challenges morph into crisis mode in 2021. Let this pause be a time to rally your stakeholders around a back-office modernization and move forward!

[i] Novarica Research Council Study, INSURER IT BUDGETS AND PROJECTS 2020, https://novarica.com/insurer-it-budgets-and-projects-2020/

[ii] Celent Rallying Stakeholders Around Back Office ModernizationIn Light of a Challenging ROI, https://www.equisoft.com/en/rallying-stakeholders-around-back-office-modernization-in-light-of-a-challenging-roi/?utm_campaign=CELENT%20Research%202020&utm_content=140187018&utm_medium=social&utm_source=linkedin&hss_channel=lcp-46585

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