Life insurance policy administration: Five modernization best practices

By Brian Carey

The life and annuity industry faces a significant challenge that spans decades: Life insurance policies are living in outdated legacy systems in need of replacement. At the same time, new policies are being issued and housed in those same systems.

Retiring these old systems isn’t straightforward. Due to the coexistence of multiple systems within insurance companies, the process involves sifting through layers of complexity — in a sort of technological archaeological dig — and potentially encountering unexpected challenges along the way.

To address this challenge, life insurance chief information officers are turning their attention to policy administration system modernization projects. This strategic shift is reinforced by the findings of a recent Equisoft webinar survey. Among participants, 50% indicated that their modernization projects are actively in progress, while 30% are currently deliberating whether to pursue policy administration modernization initiatives.

For CIOs and digital transformation leaders looking to embark on a policy administration modernization project, here are five best practices to guide you.

Leverage a Greenfield approach to PAS modernization as a proactive response to technical debt and outdated systems.

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

The reason the Greenfield approach is gaining popularity is that many insurers face significant technical debt and risks associated with their outdated systems.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, customers, and regulatory agencies.

Ensure alignment among all project stakeholders.

The key to a 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. To do so, collaborating with a strong product owner, typically from the customer side, is vital, as is alignment across stakeholders on project goals and objectives and a clear scope control through strong governance and empowered product owners.

Establish a robust methodology.

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

This road map 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 strategy. Since PAS modernization contract negotiations can impact implementation timelines, it’s important that all stakeholders outline their processes and define the project goals from the beginning. This includes prioritizing an elongated Sprint Zero for thorough refining and detailing of project requirements.

Set up organizational change management strategies.

Although 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, 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.

Prioritize customer feedback, future readiness and cultural fit when seeking PAS modernization partners.

PAS modernization projects can be challenging, which is why some insurers turn to third-party vendors for assistance. Doing so can help alleviate some of the administrative, technical and workforce burdens that come with these projects, but insurers need to confirm that the vendor is a good match.

While it’s crucial to consider factors like functionality, price, efficiency and speed to market to overcome challenges posed by old systems, there are other considerations to take into account. These include assessing the vendor’s competitive position and technology road map. However, above all, insurers need to gather customer feedback, ascertain future readiness and ensure alignment between their 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 such as artificial intelligence 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.

Positioning life insurers for success

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, can help avoid the pitfalls of recreating past systems and foster 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. A proactive approach to PAS modernization, such as leveraging a Greenfield approach, also offers a promising solution to address technical debt and outdated systems.

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

Brian Carey is senior director, insurance solutions, Equisoft. Contact him at [email protected].