Lingering Pressure Suggests a Shift in Strategy
According to a recent A.M. Best industry report, the US life and annuity industry is in for continued challenges exiting the pandemic-plagued 2020 campaign.* Low interest rates lead the list of stress points, intensifying spread compressions and suggesting reserve increases, or asset adequacy reserve charges, in response. The resulting pressure on top line growth is straining company balance sheets already burdened by rising costs associated with legacy assets and systems. Weak demand associated with high unemployment, elevated mortality and morbidity risks, sales disruption due to social distancing restrictions, and ongoing financial market volatility add to the negative forecast – even as the pandemic persists into first half of 2021.
Few would argue that managing costs while improving digital services will be a key focus to support any semblance of growth moving forward. Even as firms acquire new businesses, retaining customers in transition will be a challenge in an industry deeply invested in aging technology, manual processes and departmental hierarchies.
So, to support growth, maximize efficiency and promote a more customer-centric business model, at speed, technology will have to enter the strategic discussion.
Digital will need to be viewed as more than just an enabler. Digital will need to align with business initiatives as part of an integrated roadmap, to improve speed-to-market, customer experience and lower total cost of ownership.
Is it time the industry got serious about going all in on cloud-based services? In our view, the industry cannot move forward without it.
Cloud Points the Way
Gartner reports that the most critical capabilities CIOs look for in a cloud-based platform today are resiliency, digital business capabilities for persona-specific services, third-party integration and digital reporting with e-docs. The number of life insurance CIOs choosing off-premises hosting is up. More than 70% of new deals closed in 2019 were either hosted or managed solutions deployed on the cloud.
Policy System administrators now admit that custom infrastructure and applications have created an overlapping cobweb of technology that restricts agility and creates cascading security challenges. The result is rising costs, with typical in-house maintenance and monitoring expenses consuming over 70% of IT budgets, leaving no room for innovation.
No wonder insurance leaders are seeking cloud-based models for bundled service offerings. The cloud offers:
- Reduced total cost of ownership and upfront expenditure via a pay-as-you-go model.
- Better integration over the wider technology ecosystem.
- Best-in-class peripheral services backed by professional guidance.
- Ability to focus on business issues, rather than technology and technology debt.
- Exponentially improved speed-to-market.
- Integrated expert cyber security.
A thoughtfully designed future technology roadmap aligned to new business realities will allow carriers to adopt cloud-native solutions at a pace that serves business requirements without increasing risk.
"According to Gartner, the insurance sector experienced a 388% increase in cloud initiatives globally during the period 2015-2019. North American insurers showed the strongest adoption, accounting for 73% of the initiatives Gartner examined.** "
Cloud Adoption One Step at a Time
With one foot in the old world and one in the new, many insurers feel stuck, not sure how to move into a new digital state. But the fact is, existing systems can be optimized, while transitioning to an open services platform. It’s called a hybrid approach, and it enables the first steps toward digital to be taken with a high degree of confidence.
As insurers reflect on where to compete and whom to serve, simplification should be a top planning priority. A hybrid approach supports this, without necessarily going “100% cloud” vs. “no cloud” at all.
It’s not a one-size-fits-all plan to be sure. It’s rather a cloud adoption strategy that can open options, enabling a flexible digital transition, while also accelerating results at minimal cost and risk.
You Don’t Have to Do It Alone
Finding qualified cloud enablers and resources in today’s advanced digital environment is easier than it used to be. In other words, leave the burden of knowing everything behind, and lean on proven service providers and partners who live in the digital realm daily. They can help establish a custom technology and services roadmap, including identifying and managing a comprehensive applications portfolio, freeing in-house resources to focus on strategic business initiatives.
Traditional policy administration, organic peripheral applications and legacy architecture typically represent a major portion of an insurer’s annual IT investment and capital expenses. Many service providers offer comprehensive solutions for policy administration, hosting service models, pre-negotiated rates for cloud services, along with cyber security monitoring, data security and compliance services, all under a single SLA.
With the right partner, firms can leverage industry best practices around a hosting solution that incorporates a variable cost model, while trading their traditional, capitalintensive, on-premises data center model for streamlined, predictable, pay-by-you-go economies of scale.
Establish a Technology Roadmap
Begin with a top-down business case for cloud adoption. A comprehensive technology roadmap will identify systems and applications that need to be refactored for the cloud, sunset or migrated systems based on lifecycle value, and enable future applications that can add mission value later in transition.
Separate near-term priorities for quick wins, with an eye on longer-term priorities as business opportunities dictate. For instance, it may be beneficial to continue some combination of traditional technology for policy servicing, while new, future-looking applications on the cloud support operations at per-usage rate. The goal is to achieve a system that works as “one factory producing many products,” ultimately moving the technology stack to a future state of digital efficiency on the cloud.
Manage Data Governance and Security
While the cloud makes data available efficiently, anywhere, anytime, many insurers are justifiably concerned about security, especially in the area of personally identifiable information (PII), protected health information (PHI) and other payment related information governed by global regulations such as HIPPA and GDPR.
Fortunately, ensuring data integrity and safety, while also keeping data access and storage efficient, has become a decided advantage of cloud-based systems over recent years. High availability and integrity layer (HAIL) and provable data possession (PDP) are just two security methodologies common on the cloud today, along with many other data security solutions that help enhance data masking, encryption and classification.
Combined with high data availability, reduced redundancy and lower total cost of ownership, these security measures make a strong case for cloud adoption compared to maintaining a physical legacy infrastructure. What’s more, cloud-based operations open new possibilities to leveraging state-of-the-art regulated and protected data storage solutions, as well as disaster recovery services not possible in an on-premises technology infrastructure.
Focus on Customer-Centricity
As the industry moves from batch systems, web portals to ever-connected cognitive systems are enabling customercentricity for next-generation policy services. Any digital strategy involving cloud adoption should encompass persona-based services if a firm is to stay in step with, or ahead of, the competition.
Cloud scalability provides the necessary compute power to run extensive analytics and support next-generation AI/ ML business models. Using persona-based systems, firms can serve and predict user interactions by combining an actor’s role and intent. Further, by focusing on the needs of personas, including customers, producers and claims adjusters, insurers can design a rich user experience for individuals and glean valuable insights from them based on experiential data gathered and analyzed over time. Understanding personas and tailoring products and information to the unique needs of each is mission-critical to long-term, sustainable success in the digital insurance world ahead.
Enter the Digital World with Confidence
The way to wean off of legacy systems designed for departmental operations, and move into a more nimble, cost-effective and innovative digital reality, is to adopt a cloud-based technology platform deliberately, as part of a strategic transition, with the help of a qualified partner who understands the industry.
EXL has the insurance domain experience, technology expertise and proven partnerships in place now to implement an enterprise-wide cloud adoption program that fits your specific needs going forward. Our best-in-class solutions represent cloud-native thinking around insurance-based personas that can help you lower total cost of ownership, improve data security, and deliver a superior customer experience on a connected ecosystem, built to scale across your entire policy life cycle.
Achieve the agility, savings and customer-centricity you need to grow during trying times. Explore a comprehensive offering that can accelerate your digital transition journey. Connect with EXL and start a discussion today.
3. https://www.mckinsey.com/industries/financial-services/ our-insights/what-drives-insurance-operating-costs
5. https://www.pwc.com/us/en/industries/tmt/library/ covid19-cloud-infrastructure.html
6. AM Best Market segment outlook US Life and Annuity report 2020
8. Celent Report: North American Life Insurance Priorities and Pressures - 2021 Annual CIO survey results
9. Sham Gill, Cloud Heat Map for Insurance, 2020, Gartner, March 18, 2020
Vice President, Global Products and Platform, LifePRO®
Pronay Kanti Chakraborty
Development Lead, Global Products and Platform, LifePRO®