Late last week in this forum, Accenture consultants Daniele Presutti and Mitch Ludwig argued life and annuity companies’ need for product speed to market. We thought we’d get some other industry experts’ views on where that desideratum stands among other considerations in L&A carriers’ core system modernization efforts.
First a comment on industry drivers for systems investment: Our friends at Accenture said that industrialized development and delivery platforms are a key to achieving high performance in a business environment characterized by intensified cost pressures, continued market uncertainty and increased regulatory scrutiny. Paul McDonnell, co-lead of PwC U.S. insurance consulting business, offered some corroboration on the cost-reduction issue:
It’s really around operational efficiencies largely driven by organization that have four or five business units that may not share operations and technology. We expect to see major companies seeking to gain those efficiencies.
McDonnell also cited customer experience and the retirement services market as major areas of focus for the L&A sector.
[For more on core system replacement considerations: Insurance CIOs Debate Policy Admin Success Factors at I&T Executive Summit .]
Novarica partner Chad Hersh says L&A carriers' interest core system replacement is being driven by the desire for speed to market, data transparency, flexible processes and workflow, as well as improved distributor and customer self-service. But he points out another increasingly popular requirement:
While vendor marketing messages and many pundits continue to (correctly) point out the need for speed to market, another critical need has emerged: product agility. Speed to market implies the need to get a product to market quickly, but product ability is the ability to add any new product to the system — whether the admin system supports it today or not.
By way of example, Hersh notes that many carriers have had to wait for vendors to make enhancements to their systems in order to be able to add a long-term care rider to an annuity. To illustrate, Hersh adds: "For the next big thing, think Medicare Supp or Medicare Part D as examples of healthcare legislation driving rapid product introduction needs, and look out a year or two at the huge potential changes."
The number of annual new policy admin systems deals and upgrades in the L&A business continues to rise, notes Craig Weber, CEO, Celent, but is likely to reverse before long. For the time being, Weber says:
Carriers are buying into the pitch that speed to market and agility are important. But otherwise as outdated and clunky some legacy systems are, they are still functioning, so it's hard to make a pure business case for system replacement without some such new value brought by the new system. And even if you decide — as many carriers have — to leave existing business on legacy systems without pursuing a conversion, you're just adding complexity to your technology environment, which adds to enterprise TCO — there's always a cost any time you buy a new system without retiring an old one.
Insurers who are moving off life and annuity lines are finding new opportunities to outsource rather than sell of closed books of business, Weber adds: "The calculus of what to do about closed blocks is changing. As more carriers exit these lines of business, the outsourcing model will become more competitive, improving the cost and service level they can expect from the outsourcing model."