In this series of blogs, my colleagues and I will look at the insurance sector in emerging markets, with a particular focus on technology, digitization, platforms and ecosystems.
Life and P&C insurance companies share similar driving forces in their need to modernize core systems. After all, they face many of the same challenges, including digitalization, the rise of platform competitors, changing customer expectations and the need for online service.
However, life insurance companies face unique challenges when it comes to modernizing core platforms. As a result, their choices are more complex, while the ways in which they can implement the necessary changes also differ.
Awash in paper and old code
The differences are largely due to the time factor: life insurers' products cover much longer periods ̵
In addition to this, even if the insurer knows the product rules, migrating policies to a new system is a complex and risky exercise. Some of my clients have tens of millions of insurance policies. Extracting these from old systems and moving them to a new one that has a very strict set of data rules is a logistical nightmare. And unlike P&C insurance companies, there are very few compelling software solutions – although Accenture's life insurance platform (ALIP) is an exception to that rule.
The complexity is increasing because life insurance companies need to solve data conversion. This is a challenge because the data rules of the old systems have usually been long forgotten, while all the experts who maintain them are approaching retirement. It's not that they do not want to; after all, no CIO wants to be responsible for a dozen inefficient systems that are costly, poorly run, and written in a language few people can maintain. This is because it is not easy to act. If it were, life insurers would have done it many years ago.
Many life insurance companies are therefore in a similar position: they operate a number of separate systems at high cost and with limited efficiency. It is not possible to migrate policies from old systems, they have simply accepted that they need to keep them all running. For example, a client in France had 17 separate living systems.
The decoupling lifeline
There are four strategies open to life insurance companies that want to change their core systems, with the best option depending on the carrier strategy, technology stacks and product types. Let's look at the first three:
- Replace: it's usually about using a cloud-based platform and SaaS and is best suited for standard product types in large geographic areas. As mentioned above, converting old policies is a fundamental challenge.
- Platform: The older core platform is ported from mainframes to the cloud, with conversion factories converting, for example, COBOL to Java. In practice, however, a poorly developed design in COBOL becomes a poorly developed design in Java, which means that this does not provide flexibility and the need for a truly digital architecture.
- Pension: aspects of the system are put in drain mode and the core functions are reduced. This is usually of little use to life insurers.
It's right now that life insurance business customers often ask: Well, what can do?
The answer is to rearchitect . This means that digital decoupling and erosion of the core takes place. I will go into this topic in much more detail in an upcoming blog series, but in short, this approach sees the insurer develop a strategy that gradually replaces the system's features and reduces the scope of the applications used. This provides flexibility, improved time in the market and better travel for digital distributors and customer travel.
As the diagram shows, life insurance companies have a couple of options when it comes to defining the right decoupling strategy. In both cases, they remove business rules from front-end and back-end systems to avoid duplication and hollow core of the older system by using APIs and microservices to run processes. Strategy B differs by incorporating real-time access to a data lake to ensure immediate updating and processing. easier to choose from many alternative software options.)
For life insurance companies that handle multi-year products and lack of software options, disconnection is usually the best way – as one of my clients in Asia found. This client had multiple group life systems and very complex policies and could not process information in real time. the company's culture so that it could implement agile development methods. This ensured that the local activities in each country could go their own way, but still they still functioned according to the decoupling template.
Today, this client has an extremely efficient system that quickly develops new products and updates information for customers and businesses in real time. (The backend system is updated late, but it has no effect on what the customer sees or on the insurer's business.) With this in place, it can leverage its agility and digital architecture in all of its markets and place it well ahead of
, digital platform places both life and non-life insurance companies in an excellent position to search for partners and expand their customer base. As we will see in my next blog, partnerships provide both opportunities and challenges.