The case for consolidating policy administration systems

By Brian Carey

Every life insurance carrier has a policy administration system. In fact, 66% of life and annuity carriers have two or more systems, with some carriers even operating upwards of 10 systems. But not all these systems were created equal, nor do they uniformly age or scale well.

This creates challenges for carriers as technical debt mounts. Carriers eventually reach the point where they must consolidate their systems to make operations more efficient, centralize essential organizational data and integrate new technologies into their operations. Although the end goal of these transformation projects is to create a cloud-based PAS, they often fall short because of internal vision misalignment, project scope or organizational culture, among other things. And, instead of a comprehensive PAS, carriers are left with a patchwork quilt of policy admin systems that are jury-rigged with other Band-Aid solutions.

Modernization “solutions” are meant to enhance PAS functionality, but if they fall short of retiring the legacy platforms or even fail, the company can end up in a worse position than before. A new PAS that doesn’t replace the old system is one more thread in an already too complex web. Botched or incomplete transformations result in a hodgepodge of policy admin systems that will only hurt a carrier in the long run because of the maintenance costs, lack of access to full functionality and value, and compounding data issues.

Older PAS maintenance can become costly

As the multiple policy admin systems age, they become increasingly expensive to maintain. Each one may have its own unique architecture, technology stack and data model that require specialized skills. Additionally, the aging systems may require increased upgrades, patches and maintenance to ensure they’re running smoothly. All of these can become resource-intensive and costly to an organization.

On top of that, the retiring information technology workforce means that the internal knowledge of how these systems work is being lost. Much of the younger workforce is only being trained on more modern technologies; they don’t know older languages such as COBOL and training them could eat up resources better spent on other technology imperatives.

If life insurers want to increase the efficiency of their operations, appeal to younger workers and reduce costs in the long run, then they can’t “make do” with cobbled-together policy admin systems. They must invest time, money and resources into creating an all-encompassing modern system.

Carriers can’t extract the full value of multiple systems

An Equisoft survey conducted during an Accelerate webinar revealed that 38.9% of attendees viewed the integration of multiple systems and vendors as the biggest challenge to leveraging data to generate value. As these core systems diverge, vital organizational information can become fragmented across various systems and departments. This makes it difficult to draw connections or gain holistic views of customers, policies and claims.

Each department may have its own data repository in which vast amounts of data have been collected over decades. But if the information can’t easily be accessed in real-time, the value of that data to the enterprise is greatly reduced.

The increased use of analytics, artificial intelligence and generative language models within the life insurance industry is also putting stress on the patchwork core systems. Legacy policy admin systems lack the compatibility and integration capabilities required to seamlessly connect data to modern use cases. The new technologies and AI models are inherently driven by data, and they operate in direct proportion to the quality and quantity of data they receive.

If these distributed policy admin systems make it difficult to locate, process and augment the data they contain, then life insurance carriers may not be able to fully leverage new technologies being released. This can impact organizational efficiency and the customer experience. And leaving these systems “lying around” also prevents carriers from being about to unlock real-time and straight-through processing across their enterprise.

The systems compound preexisting data issues

The data challenges don’t stop there. Data formats evolve over time and the data siloed in aging platforms may eventually no longer be usable by modern solutions. Even worse, in most companies, a large percentage of the data stored in legacy systems isn’t usable in modern contexts. This "dark data" makes true transformation with digital applications nearly impossible, and costly, unless it’s extracted and transformed.

The siloed data also creates openings for duplicate data to exist. When software and processes lack standardization and consolidation, organizations find themselves dealing with a “system stew,” where data gets duplicated and multiple iterations of it exist within an organization. As the systems continue to diverge, and change isn’t coordinated or recorded, determining the true source of information or the core set of facts becomes difficult. Companies struggle to make quality data-driven decisions when there is no "one source of truth" they can rely on.

At the same time, if carriers don’t consolidate their PAS, they’ll end up with multiple systems that only have slight variations in capabilities and perform similar tasks, such as billing, collection, administration and account valuation. Not only does this duplication increase technical overhead, but it can also create an archipelago of data islands that isolate data from the wider technology ecosystem.

Carriers should seek outside help in creating a simplified PAS

Life insurers’ efforts to consolidate core legacy systems can be complex, burdensome and costly. And, in many cases, the fruit of these efforts fails to meet expectations. The unsuccessful digital transformations can cause some executives to throw in the towel and settle for a patched-up network of policy administration systems. But no matter what size a carrier is, consolidating the systems into fully functional, modern, cloud-based PAS will always be the best option.

A way to avoid past PAS modernization mistakes is to bring in an outside SaaS vendor who can help relieve some of the technology burdens and create a system that works for that specific company. There are a number of factors that go into determining whether a specific vendor is the right fit; chief among them is whether an organization has a data migration need as well.

Data migration projects are often planned as part of a PAS modernization, but they require unique skills, experience and expertise that don’t exist in-house. In fact, the necessary capabilities are rare enough that many modernization vendors are not qualified. Selecting a vendor who doesn’t have data migration experience, and the client references to prove it, can result in long, expensive, frustrating and risk-laden migration efforts — or even data corruption or loss, which no carrier can afford.

The proliferation of multiple policy admin systems within life insurance carriers’ IT environments presents a complex challenge. As these systems age and technical debt increases, maintenance costs escalate, data fragmentation worsens, and opportunities for efficiency and innovation diminish. To successfully navigate the modern business market, carriers must confront the reality that piecemeal solutions to modernization are unsustainable in the long term.

Consolidating PAS into ones that are modern and cloud-based is imperative to unlocking operational efficiencies, enhancing experiences for all stakeholders, and harnessing the full potential of emerging technologies. While these transformations are complex, they don’t need to become excessive burdens on IT or the company. By seeking assistance from an experienced SaaS vendor, life insurers can mitigate transformation risks and ensure that their core systems and organization are primed for success.

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

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