Insurance carriers need to be better prepared to face the unique modern challenges of the Asian insurance

business. Mr Ashwin Rodrigues, Product Marketing Manager, Mastek Ltd, gives tips on how to avoid the IT traps and how to get the most from your investments to create business impact.

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Asian life insurers have a problem of plenty with a market that’s widely untapped. New entrants fear the cost and risk of delaying their start-up, while established insurers miss opportunities in being able to quickly launch new product lines.

Distribution models continue to change and all experience the cost of having to experiment. Policy administration has changed from the days it was limited to underwriting and policy servicing to today which starts from the first interaction with the customer through the entire life of the policy.

Insurance carriers have to wake up to the new dawn of policy administration – to make themselves more agile, customer focused and competitive.

Business challenges of insurers in Asia

• High volume – Low value policy business Asian insurers operate in a low value policy business. The volumes however are high. It is driven by various things including the size of population and the low per capita income. This necessitates a low per policy operations cost.

• Operational inefficiency The last thing that an insurer wants to have in his organisation is operational inefficiency. However, inefficiency has plagued organisations due to varied reasons including resistance to change, to not being able to keep up with the times. Needless to say it’s a matter of good sense for insurers to overcome this bottleneck at the earliest.

• Demand for product innovation There has been a fair amount of product diversity and innovation in Asian markets given the nature of the target market, the large middle class, the low affordability and its younger population. A high volume market demands new products to cater to different sections and groups of the society. There is a wave of change in the industry with new products like hybrid products, unit-linked insurance plans, micro-insurance and invisible insurance. While creative conceptualisation of the product is one part of the challenge, often times, introducing it into the market could be the other challenge as the entire organisation’s service chain will need to support the product.

• Changing distribution models In the distribution space, the move has been away from tied agents to bancassurance to independent financial agents and to even more innovative channels. The distribution landscape has evolved over time to include non-traditional and multi-tier channels with complex channel structures and multiple levels of reporting. Channels operate dynamically and dynamic channels have deeper compensation challenges. Channels have become more demanding than their erstwhile counterparts.

• Customers want to be serviced better The customer today is spoilt for choice. Unique discounts, offers and products render customer loyalty a difficult thing to achieve. Retaining a customer through better servicing is a key concern for insurers today.

Technology has the answer
Before we dwell too deep into how technology has an answer, let’s take a quick look at how technology in the past has actually become a bottleneck for most insurance companies in Asia and how to avoid the IT trap.

Traditional policy administration systems: The IT trap
The role of the core policy administration system was to process and service policies. As business users became more sophisticated, many insurance companies even the relatively new ones, added more front end systems like new business underwriting, claims adjudication, automatic claims processing which have all got layered on
top of the basic policy administration system.

The only way to add these were to build point to point interfaces with each sub-system talking to multiple systems which resulted in a big mess in terms of the number of interfaces.

On top of it the web technologies and third party interfaces have added one more layer of complexity into the
whole thing. The base set of modules of policy management and servicing has got replicated several times over with hundreds of point to pint connections making the entire IT system extremely complex and this is the state in many large companies.

With a complex structure like that, making a small change in the business context results in a large complicated
change with the need for all systems to cater to that change because all interfaces have to be managed. With a base like that, technology can become a bottleneck. In start-up insurance companies, especially those that have foreign principal, there is an underlying assumption that if the systems have worked for the foreign insurers, it
works for them whether it is from third party vendors or home grown systems.

So in reality Asian start-up insurance companies inherit a mess that was needless in first place. A lot of insurers have got into this mess and are now seeking measures to get out of it. For those, who haven’t ventured this
far, it is best to learn from the experience of your Western counterparts and avoid the IT trap.

CORE is MORE: The new age policy administration (PAS)
Today, platforms support the entire value chain, from distribution to reinsurance. Straight-through processing ensures that operating costs are minimised while IT costs are kept low by using low cost hardware and open platforms. The IT investment is an answer to not just your need today, it also has to meet certain needs of an unpredictable tomorrow – adapting quickly to new business scenarios as it arises.

A modern policy administration system minimizes the need for various other peripheral systems by making key business functions a part of the core. The functionality rich PAS delivers more value to the business while creating a
sustainable platform for growth in the long run. Some key business functionality that a modern PAS should have besides the policy administration and servicing include:

• Product configuration Pre-configured products supporting multiple lines of business with varied product combinations help in getting a new product configured and go live to the market with minimal effort. With modern systems new product introductions can happen over a matter of just three days.

• Straight through processing for new business By automating the process for data collection and using the same across the policy lifecycle makes repeated data entry redundant. The same policy data can be used right from quoting to underwriting to policy issuance and even claims. Straight through processing increases efficiency and enables tracking of new business proposals for both operations staff as well as the sales person.

• Automated Underwriting with exception handling While underwriters are the experts, automated underwriting systems can minimise the load on the experts through auto approval of regular cases and handling exceptions. Underwriters can thus focus on special cases. Automated underwriting and straight through processing reduces errors due to minimal manual intervention.

• Claims processing By reducing claims processing time, businesses benefit through maintaining a lower float and better customer service. Streamlined claims processing helps automatic adjudication of claims, auto identification of suspicious claims based on defined business rules and auto payouts to multiple beneficiaries.

• Distribution management With an evolving distribution landscape, it becomes imperative to manage and control the channels through a single view of the entire distribution landscape down to the last producer. This helps in producer and channel performance evaluation and compensation consolidation across lines of business and channels.

• Third party integration Third party service providers like external reference check agents, reinsurers and brokers have an impact on the transactions of an insurance business and need to be well integrated with the business. Automated integration for example auto-reinsurance with reinsurance partners creates better efficiency for the business.

• Finance management Finally, an integrated monetary management makes reporting and financial accounting comprehensive. A complete system not just supports book keeping, accounts receivables and payable, but enables management of non-policy transactions and payouts as well. Investing in a modern comprehensive system is one part, but equally important is the need to cater to the unavoidable changes in the future. Fortunately the technologies of today offer a component based approach, ready interfaces and broader functionality that allow meeting the modern challenges through a configurable model that was not possible a few years back. The modern policy administration system can encapsulate all the requirements of the entire set of products that insurance companies are likely to handle and then have systematic neat interfaces with the third party interfaces. So instead of point to point interfaces, the service oriented architecture creates a service bus just like in circuit boards. There is service bus to which you connect and through the service bus you can connect to all the third party systems and your own front end systems thus making the whole process of upgrading and supporting business transformation very easy.

The way forward for insurers

If you are starting with a clean slate, the best is not to get into the mess. Seek the latest platform, a technology which will support you for the next 15 to 20 years. Companies that are starting afresh have an advantage of moving straight to a platform like this.

Even the existing companies need not take a big bang approach to transformation. It’s in your best interest to transform the existing legacy over a period of three to five years depending how complex it is so that there is minimal business disruption.

IT cost is important in the overall scheme but how do we optimise business impact is critical in making a decision
like this. Businesses have come to recognise that technology spending is a very small part of the total operation cost and if one tries to reduce IT cost, one may actually end up increasing business operation cost. It’s a proven fact that the overall cost of operations can be significantly lower if technology costs are spent wisely and appropriately. The focus then shifts to the operating cost and not just at the IT cost which is a far more important determinant of profitability for an insurance company.

Use IT as an enabler and not as the blocker of innovation. You have a plethora of choices but make the wisest
choice. You need to have very high expectations out of IT. Be demanding on your IT, be demanding from your vendors, expect far more from your core and look at the business impact rather than just IT cost.

Reference- AsiaInsuranceReview