Situation: Insurance carriers are in the process of undergoing a once-in-a-generation business transformation and replacement of core systems including policy administration, claims, and billing platforms. Most insurance carriers are placing policy administration system (PAS) transformation near the top of their to-do lists in order to achieve desired growth and profitability. These carriers have known for years that their aging legacy systems were on the verge of being outdated, but have largely worked around the problem with modernization efforts. However, the frequency and complexity of changing market dynamics have made a modern and flexible PAS platform the price of admission for any successful carrier. Companies that do not adapt, risk losing market share while experiencing continually escalating costs.
The convergence of aging legacy platforms, complex market demands, and a more mature vendor landscape have ushered in a unique period of policy administration transformation where it is possible for carriers to embark on this journey by taking on less risk than before.
Complication: Most carriers are taking a technology-driven approach without the benefit of a guiding business strategy and associated capabilities focused on yielding the greatest benefits. By only replacing or modernizing the legacy systems, carriers are taking on higher risk and missing opportunities to create a significant competitive advantage like a cost efficient operating model or a superior agent/customer experience. These carriers feel compelled to move forward with the transformation, but haven't quite determined how it aligns with their business priorities. In other words, these carriers are firing at a target before they fully understand where they should be aiming.
Solution: Before moving forward with a policy administration transformation, it's important for carriers to fully understand their business case, product mix, geographical presence, distribution channels, and overall market dynamics. Carriers planning policy administration transformation must evaluate specific business drivers as a diagnostic for assessing how a transformation will impact profitability. Through this process, carriers will gain executive alignment and confidence that available capital is aligned with the highest business priorities. It will enable the carrier to target functional enhancements that have the most significant impact on their business. Most importantly, carriers will be transitioning from a technology-led to a business-led approach in setting policy administration direction, hence reducing risk of firing at the wrong target. Leading carriers are getting behind this approach by measuring their transformation initiatives against 10 prominent industry business drivers aimed at improving market responsiveness and operating leverage. It's important to realize that not all of these are relevant to every carrier, which is why it is imperative to understand what is driving your future profitability and how a policy administration transformation can be aligned to enable those drivers.
Market Responsiveness: Focus on the Customer
1. Simplify Customer View - A modern policy administration platform provides the foundation to enable a single customer view, which enables more timely and accurate customer service leading to improved customer retention and cross-sell opportunities.
2. Improve Customer & Agent Experience - A modern policy administration platform provides the foundation to enable higher quality and more efficient customer and agent interactions, which leads to strengthened relationships and customer retention.
3. Enhance Multi-Channel Distribution Strategy - A modern policy administration platform is imperative to enabling an effective multi-channel distribution strategy. Increased effectiveness and consistency of product distribution through multiple channels will improve customer relationships, and improve profitability for carriers who view direct channel capabilities as an industry differentiator.
4. Enhance Information Management - A modern policy administration platform provides the foundation for gathering reliable business intelligence and analytics that can be used to formulate key insights for both real-time and longer term decision making that will enable carriers to grow market share profitably.
Market Responsiveness: Improve Market Agility
5. Introduce New Products to Market More Rapidly - A majority of legacy platforms are not designed to handle the rapidly changing customer demands and competitive forces at play in today's marketplace. A modern platform is imperative for those carriers who have identified new opportunities that will drive profitability while the competition struggles to react.
6. React to Regulatory Change More Rapidly - A modern policy platform is essential for carriers to become more agile in responding to changes in state regulatory requirements. This is especially critical for multi-state carriers where the cost of compliance can rob investment in new capabilities.
Improve Operating Leverage
7. Improve Operational Efficiency - A modern policy platform can enable immediate and direct impacts associated with more automated underwriting, decreased data entry points, and increased customer self-service that can lead to decreased expense ratios and an opportunity to focus resources on higher value tasks.
8. Increase Delivery Assurance - A modern policy platform will consolidate IT skills requirements and instill greater confidence in future initiatives/enhancements aimed at transforming the business in a timely and minimally disruptive fashion.
9. Eliminate Legacy Platforms - For many carriers transformation will enable consolidation of multiple systems thus migrating toward a modern and efficient technology platform. This can lead to immediate cost reductions and a decrease in overall expense ratio when properly planned.
10. Reduce Cost Pressures - A modern policy platform will fundamentally decrease the cost to compete thus enabling carriers to achieve sustainable cost reductions through financial management.
It is imperative for carriers planning a policy administration transformation to evaluate their objectives against key business drivers as a diagnostic for assessing business/technology alignment. Through this process, carriers have an opportunity to gain valuable insights, executive alignment, and confidence that available capital is allocated to the highest business priorities. Most importantly, carriers will be transitioning from a technology-led to a business-led approach in setting direction for their policy administration capabilities, hence reducing investment risk by understanding where to aim before firing on the target. Ready...Aim... Fire at the right target!
About the Author: Imran Ilyas, partner with PwC's Advisory Services insurance practice, specializes in property and casualty with a focus on policy administration systems transformations. He can be reached at 312-298-6884 or [email protected].
Postscript: In subsequent articles we will discuss how policy administration can improve market responsiveness and operating leverage in greater detail. The next article will focus on the direct impact that a policy transformation can have on operating leverage, thus decreasing a carrier's expense ratio and enabling opportunities for valuable resources to use their time more efficiently.
T. Josh Knipp and Josh Schwartz of PwC's Advisory Services also contributed to this post.