ITA Pro Magazine - February 2014

The life insurance industry will never be as explosive an area for software solution providers compared to what goes on with carriers on the P&C side.

“You can see it in the number of vendors,” says Karen Monks, an analyst with Celent and author of a new Celent report on policy solutions for life insurers (North American Policy Administration Systems 2013: Life, Health, and Annuities ABCD Vendor View). “There are many more P&C insurers as well, which is part of the reason, but the market is fairly stable from year to year.

Life insurers investigating new systems generally face two issues: There’s a long tail to the process of pricing policies; and it is harder for them to justify the expense of a modern system because legacy systems run well for them.

“Older systems are stable, but insurers have difficulty introducing
new products,” says Monks. “Depending on how often they want to
introduce new products, that’s the big decision they have to make on
whether they replace their legacy systems or not.”
One reason they don’t do replace their systems is the life
products, which on average last for 40 years. Also, there is not
a lot of interaction between life insurers and policyholders,
certainly nowhere near the amount of communication that goes
on between a P&C carrier and its customers. The main driver
for investment in new systems is the modern platforms have the
ability to quickly introduce new products to the market.

“If life insurers think there is cost effectiveness, they may replace their legacy system,” says Monks.

It normally takes insurers about a year to replace their legacy systems, but with new systems insurers get varying points and Monks thinks carriers could bring that timeline down to a more reasonable three or four months.

“Sometimes the difficulty is not in the systems, it is in the
state insurance departments,” admits Monks. “You’ve got so
many tied systems in life insurance. You have to develop a new
product on the policy system, but also on the illustration system
as well. The application and the rates have to be approved and
once that is done it flows back into the policy system. The illus-
tration system may be a critical path, but more times than not
it’s the insurance regulators.”
Newer systems allow carriers to configure the products, but
Monks explains that it is important they have the template or, at
the least, the ability to clone a previous product and the ability
to change rules based on the template.

“Quite frequently, that’s what speeds them up,” says Monks.
“Having web services and open architecture that interfaces
more frequently allows them to work quickly.”
Conversion of old data usually is the last thing done, ac-
cording to Monks. Normally, carriers take new business and go
forward and slowly convert the old data. The conversion of old
data is a carriers’ biggest headache because the systems don’t
open easily and matching the data fields is difficult.

“There may not always be an equal place for it to go or data
points are missing that the new system would require,” says
Monks. “Depending on how old the product is, it is not unusual
to have many policy administration systems running at the
same time. Forty percent of all premium today is closed book,
but the policies are still being administered.”
Since some policies may be 30- or 40-years-old, Monks feels
it might not be worth the conversion.

“I always look at it as the majority of the new products are
frequently sold for new product lines,” she says. “The existing
system might not have the capability of handling the policies or
getting into a variable product. If they are going to replace older
legacy systems it is to move forward with the conversion of
older policies coming later.”
Newer systems are able to collect a lot of data and quite a
few are moving to where the system can pull out data related
to policies themselves, but with the core features of policy sys-
tems—issuing the policy, being the system of record, underwrit-
ing—it’s not as clear cut on the life side as it is for P&C.

“There are quite a few systems where, if a carrier decided to
use all that data, they could potentially go into applications, un-
derwriting, policy, and claims,” says Monk. “You can get a good
picture. The ability to do something with the data is out there.
Analytics isn’t the strong point, but the data flows fairly clean if
they are using all the life-cycle aspects.”
Monks believes some of the new systems that have come into
the market since 2011 have been eye opening for some of the
staid carriers that had been using the same systems for decades.

“About 45 systems were sold over the last 30-month period,” says Monks. “This market is a lot smaller than the P&C market, so I don’t see vendors on the life side introducing a lot of new products. What we have found is insurers are so concerned about sales that they would rather spend money on the front office, with things like illustration tools and then send the data to the back office.” ITA