Many insurance companies are grappling with complex IT systems which are past their prime, costly to maintain and do not have the desired technical flexibility to support the requirements of the new digital enabled business environment. The lever-increasing volumes of data that back office platforms must process create demands on the infrastructure that strain its ability to sustain business operations—let alone support the innovation required to remain competitive in a rapidly evolving market.
The modernization dilemma
Insurers find themselves facing a dilemma: continue to patch and upgrade their legacy systems or invest in replacing them with a modern policy administration system (PAS)? For CIOs and CEO’s this once-in-a-generation, often career-defining, decision is made more difficult by complications like the sluggish economy which puts a damper on growth and tightens margins.
Solution 1: Outsourcing
The inability to make either of the two obvious choices work, has led some companies to opt for a third option–outsourcing systems and processes. As part of this approach they ‘lift and shift’ policies from their existing technical environment to a modern policy administration system, hosted by an outside vendor.
The vendor takes over management of the policies and technology, relieving the insurer of the need to commit in-house resources. This third-party administration (TPA) can include everything from technical support, such as application development, software maintenance and infrastructure augmentation, to individual business process management, such as customer billing, printing and mailing.
Solution 2: Platform consolidation
Another approach to PAS modernization is to create a single in-house platform, a kind of a single window custom solution, that rationalizes multiple platforms and software, to create functionality via one solution. This is especially relevant to companies which have grown via mergers and acquisitions or, enterprises which have decentralized policies residing in different policy admin systems. This solution preserves the previous investment made by the company yet enables greater scalability.
Solution 3: External system integrations
Often, insurance companies attempt to enhance the capabilities of their legacy systems by integrating external vendor systems that improve processes like rating, billing and claims. The organization creates interfaces with its legacy systems through a service-oriented architecture (SOA). In this strategy, legacy systems and applications are partitioned, allowing portions of the functionality to be externalized. This allows companies to mix-and-match components to meet the needs of business processes.
When adopting this method, it’s important that the enterprise’s business needs should be the drivers of the scope of integration, rather than IT requirements. Finding the right balance between the two means correctly planning the integrations so that they support business growth needs without increasing the IT complexity to the point where functionality is impaired.
Solution 4: Wrapping strategy
Many CIO’s favor this approach as it helps to provide well-tested functional patterns with predictable costs. This strategy involves wrapping systems with a common user-interface which masks the functional disparities of each system from the user and provides a unified platform like solution. Many IT teams now routinely wrap systems with service layers. This architecture strategy reuses legacy software and creates a new high-level process assembly. Many companies seeking a speedy short-term improvement to specific processes choose this approach because it is economical, stable and sustainable.
Putting it all together
Regardless of an insurer’s unique situation, a key characteristic of any successful enterprise level modernization initiative is the adoption of methodical and flexible, frameworks that include analysis, alignment, modernization, management and continuous improvement of application portfolios.
All successful policy administration system modernization requires formulating a comprehensive strategic plan—one which carefully considers the strengths and weaknesses of the insurer’s existing legacy systems and identifies the transformation approach which will be most efficient, sustainable and best able to support future business growth.
Author: Rana Biswas, Vice President, Wealth and Insurance Solutions APAC
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