Solution Partner Views
Transformation Requires More than a Policy Solution
Transformation is one of the key drivers in the insurance industry today. According to a Celent survey, 88 percent of insurers believe innovation within the next three to five years is critical for insurers to remain relevant.
There is tremendous pressure on insurers to innovate: premiums are down, claims and expenses are up, and underwriting profit is razor thin. Insurers are looking to grow their books of business and expand into new products and markets while monitoring underwriting profit closely because the investment income is not there to ease underwriting losses. To add to this, there are insurtech and insurance model disruptors threatening the market, combined with a generational shift in how clients and agents want to interact with insurers.
The problem is, insurers are investing in the wrong systems. Overwhelmingly, insurers are investing heavily in new policy administration systems (PAS). According to insurance research firm Novarica, 70 percent of property casualty insurers and 74 percent of life insurers are either in the middle of implementing new PAS, starting the implementation of new systems or making major enhancements to existing systems. This has resulted in two things: large project fatigue and severe disappointment.
As for large project fatigue, PAS projects are large and expensive, requiring substantial budget and personnel. The result is that the organization becomes overtaxed and weary of anything sounding ambitious. This leaves little room for transformational projects, which grind to a halt as the organization tries to slog its way through a massive install.
Historically, when insurers wanted to innovate, the kneejerk reaction was to reach for another PAS, and it`s no different today. This sets up insurers for severe disappointment. As insurers try to get products to market faster, respond to changes in the marketplace, and strive for flexibility, the first impulse is to get a new PAS, with the belief it will provide everything an insurer needs to become a leader. However, this seldom works and here`s why:
- PAS are transactional – All PAS can execute transactions such as issue a policy, execute an endorsement, and initiate billing, but can`t properly manage workflow, orchestrate processing across other systems, or provide insightful feedback.
- PAS are data centric – PAS are primarily data depositories. While the better ones can accommodate an account level view of the client, this is only for policies that reside within the new PAS, excluding policies in other PAS.
- PAS are isolated – When an insurer implements a new PAS, it`s added into an environment that already has other PAS in place. Trying to consolidate disparate PAS into a single new PAS takes time or is never completed fully, which results in no significant operational improvements. Overall maintenance costs increase, data is still siloed, and opportunities to transform, expand business strategies, and improve go-to-market are lost.
Instead, insurers should focus on two things: actionable insight and underwriting agility. Actionable insight is about more than just reporting or analytics. It`s about providing much needed insight to everyone in the insurance value chain to make informed decisions to drive underwriting profitability. This includes the use of artificial intelligence (AI) as well as the ability to provide AI-driven contextual insight to the user when the user needs it the most and to launch and monitor processes to achieve the optimal result, such as:
- Scenario-based planning – Not all business strategies can be encoded in deterministic rules. AI needs to be strategy-based, enabling insurers to capture business scenarios within core processing environments to drive processing and alerts.
- Next best action recommendations – Currently, insurers are living on a strategy of hope. They hope agents, underwriters, and field staff remember go-to-market and product strategies, follow their training and underwriting guidelines, and execute accordingly. With AI, insurers can provide guidance to the user in the context of the transaction and characteristics of the client. This enables the least experienced resource to operate at close to the same level as experienced resources.
- Real-time alerts and processing – There is nothing more useless than insight not leveraged in a timely fashion. To get the most out of this approach, systems must be able to trigger alerts and processes that deliver insights or respond to business scenarios in real-time. This includes alerts to management when thresholds are being breached and risk management processes that respond to identified triggers such as alerting underwriters, agents or managers when action should be taken.
- Book management – All books of business need to be monitored to quickly identify when results might be going sideways. This is especially true for commoditized books of business where the underwriting process is automated. Books can be monitored in real-time for scenarios such as when to loosen underwriting or button it up, re-thinking pricing based upon loss experience, or pinpointing territories where a new product isn`t gaining traction or might be too hot. When the results dictate, actions are recommended based upon the corporate strategy when boundaries are breached.
- Channel management – Regardless of the channel(s) they support, insurers should monitor to pinpoint both problem areas and success stories. For example, which agents are doing well and should be rewarded? Which agents are struggling and need support? AI can be a tremendous tool to support channel managers to pinpoint areas of focus. This need for channel management is essential, with strategies tailored to manage the inherent differences of each channel.
As for underwriting agility, the industry has been disaggregating processing for years. Now is the time to address underwriting separately from core policy administration. Underwriting is a process, not a transaction. Separating underwriting from policy administration, insurers can be more flexible and responsive in the following ways:
- Extensible to new digital environments – Underwriting needs to be extended and available for any transaction across channels. As data is collected, workflows need to transition across the organization and pull in third parties or third-party data (agents, field people, reporting bureaus) regardless of where the user is. The system itself must quickly change to reflect business requirements, business strategy, or regulatory changes.
- Coordinate disparate environment processing – One of the main failings of PAS strategies today is multiple PAS will never work properly together. Separating underwriting from PAS enables an independent underwriting environment to work on top of multiple PAS, creating a seamless environment for the underwriter and support staff in which they can work within a single cohesive system.
- Automate where possible, augment human capabilities where it`s not – While some books can be almost completely automated, all lines can benefit from an underwriting environment that is flexible enough to automate routine tasks and support the human underwriting team by enabling them to focus on value added tasks.
- Underwriting management – A flexible underwriting environment will enhance how risks are processed. For example, home offices may want to underwrite initial submissions for a new product. As these underwriters become comfortable with the new product and what to expect, they can gradually roll out underwriting authority to regional offices through the system, making sure regional offices understand the new product and requirements. Insurers need an underwriting environment in which management can control the underwriting process without having to create a large IT initiative.
Do insurers need to replace their existing PAS? Eventually, yes. By investing in underwriting/sales/service solutions that can help isolate PAS (both legacy and new) and manage processing across systems, insurers give themselves a chance to gradually replace and consolidate PAS over time with less dramatic impact on operations, while freeing up resources and funds for transformational projects. Investing in action-orientated AI will provide insurers with the insight they need to drive business and the tools to optimize the business in real-time, optimizing results across the board.