For decades, Group insurers enjoyed unprecedented stability as brokers, employers, and employees worked with carriers in predictable ways. Now the opposite is true.
The insurance marketplace is transforming, creating both challenges and opportunities. Many Group insurers are discovering that their existing policy administration systems (PAS), billing, claims, case installation, and enrollment solutions are unable to address new challenges. Outdated technologies and antiquated development methodologies, along with other structural constraints, contribute to the inability to modify legacy core systems quickly or effectively enough.
In our view, this also means carriers have an unparalleled opportunity to gain competitive advantage by transforming their legacy systems. Modern technology architectures provide the necessary capabilities to succeed in this new environment. New technology platforms can even empower business users to make adjustments that once required dedicated IT staff. This provides insurers with greater agility, resulting in the ability to be more responsive, improve customer centricity, and launch new products and services more quickly.
Based on our experience, the most successful core system modernizations start with a business-led model rather than a technology-led approach. Many considerations will determine where a carrier’s core system capabilities are most in need of an upgrade. Needs vary by market focus, distribution strategy, product strategy, and should be measured against current gaps.
Analysts suggest exchanges could dominate the health care benefits market by 2020*
* S&P Capital IQ, “The Affordable Care Act Could Shift Health Care Benefit Responsibility Away From Employers, Potentially Saving S&P 500 Companies $700 Billion,” April 2014.
Most Group insurers have underinvested in their core systems and technology platforms over the past two decades. With the rapid and significant changes now occurring in the Group market, existing systems are increasingly unable to meet current demands. In our view, large-scale transformation is a superior alternative to continuing to patch antiquated legacy systems.
Carriers are looking for growth through expansion into adjacent markets, serving both the employer-supported and individual markets. Diversity in these markets, the nuances of serving varying case sizes, and the need to support different product offerings and varied distribution channels require a high degree of responsiveness and flexibility in supporting technologies. Legacy administration systems inhibit carriers’ speed to market and often delay their abilities to reach new markets.
In our view, insurers will need to make adjustments to stay competitive under health care reform. They will need to develop new systems for managing, and providing access to, plan data for both employees and employers. Since benefits will be transferrable if an employee leaves a company, portability will also be critical to an insurer’s ability to retain that employee as a customer. This is particularly true for capturing revenues from younger workers, where job tenures are shorter. Due to inherently larger policy volumes, the ability to automate processes will be key to remaining profitable.
Evolving distribution channels are also driving the need for transformation. In our view, the ongoing development of exchanges by brokers will result in employees moving away from the acquisition of benefits as stand-alone products.
A carrier’s ability to partner with brokers, and their exchanges, to offer attractive product bundles will become critical for retaining, or gaining, market share. Carriers will need systems, processes, and products that can leverage the defined-contribution approach, which aligns employee risks with product offerings. PAS systems will also need to support effective direct-to-consumer sales tools, advanced online customer experiences, and adoption of straight-through processing to speed underwriting and service.
However, the road to transformation includes many questions that need to be answered:
We believe organizations should move forward on a transformation initiative as soon as organizationally feasible to reap these critical benefits:
Group carriers should approach their PAS transformations as an opportunity to enable carefully targeted business benefits through modernized technology. Before moving forward, they should fully understand their business case, evaluate specific business drivers, and assess how a transformation will impact both those drivers and overall profitability. This process will not only help executives gain executive support, it will help them make sure that they align available capital to the highest business priorities.
As shown below, we recommend that Group insurers adopt guiding principles for a PAS transformation. Guiding principles help keep all decisions (from selection to timing to implementation tradeoffs) aligned to primary business goals and ultimately support better realization of business benefits.
Insurance Technology Leader
Juneen Belknap Kirk
Advisory Financial Wellness Leader
Principal, Data and Technology