Improve business results by first improving your vendor selection
Executive summary Don t let your legacy be your legacy systems. For years, life insurance companies have been unable to leverage many of the latest technology revolutions due to the limitations of their legacy systems. The capabilities offered in the marketplace right now are inadequate. Both traditional and new vendors are providing products that are insufficient to solve current business problems and meet the needs of the dynamic consumer market. Why? They were all architected to push products and not to focus on the customer. Tech-savvy Millennials will very soon become the dominant generation. They grew up in a world of customization, demanding technology and easy processes. Traditional products and sales methods have not worked with this group, which carries smartphones and is attached to the internet at all times. Communicating with Millennials is not easy, but it is essential to make them feel that they are connected. Each generation has its own preferences in terms of insurance platforms, and those must be accounted for to answer their questions and drive transformation. As insurers reach out to Millennials, they cannot ignore the needs of baby boomers and an aging population that is living longer and adopting healthier lifestyles in their retirement years. In spite of the diversity of their customer base, insurers must take advantage of transformative technologies (innovative business models, digital channels, data and analytical capabilities) to remain competitive. Some companies have already started; more of these innovations are expected in the future. Competition from many sources will continue, and new entrants into the marketplace will be unburdened by legacy constraints. The traditional approach to system selection and implementation has produced poor results, as the methodology has largely not changed since the client-server era. How can insurers expect transformative results with antiquated methods of evaluating partners and potential platform solutions? This paper outlines five steps to choosing transformative technologies (innovative business models, digital channels, data and analytics) that will help life insurance and annuity companies evolve and compete: 1. Leave your comfort zone 2. Recognize that progress has been slow 3. Learn from the history and thrive 4. Measure and manage risks but take some! 5. Take on a new selection process Improve business results by first improving your vendor selection 1
1 Leave your comfort zone 2 Improve business results by first improving your vendor selection
Leave your comfort zone The industry is on the precipice of a spike in activity around core systems in life insurance and annuities. For the last 10 15 years there has been very little activity in the marketplace. As a result, vendors and consultancies have become complacent. Vendors found it more cost effective to warm over or modernize their platforms with a services veneer as opposed to truly re-architecting and innovating a solution forward. While there has been inactivity in selecting platforms, there has been frequent transactional activity for consulting firms in evaluating the stale marketplace that exists and providing a point of view that has not really changed in 20 years. The usual suspects solutions are selected because the way we evaluate solutions has not evolved. New vendor entrants into the marketplace do not believe in industry boundaries. You know your business, and they know their solution. Single-source solutions are becoming groups of solution providers who can integrate well to give you only or all of what you need. Life insurers and annuity providers will need to prepare to work with others for growth. Improve business results by first improving your vendor selection 3
2 Recognize that progress has been slow 4 Improve business results by first improving your vendor selection
Recognize that progress has been slow From the 1950s through the 1980s, insurers were primarily executing manual client acquisitions, underwriting, product development and service. With few exceptions, they were largely solving the problems themselves or buying from only a few chosen vendors. These functionally limited, monolithic solutions were early attempts to automate portions of the value chain. From the 1980s into the late 1990s, vendors began to develop much more functionally robust platforms that automated processes. However, they failed to orchestrate them cohesively, leaving numerous hand-offs and manual work. From the mid-1990s to 2012, vendors and providers worked to incrementally improve their integration to close these handoff issues and develop more new products. In the past, this had been done through business process management systems. Nowhere was the technology moving in a new direction. Process and functionality was the main lever for selection because organizations were focused on process enablement and process automation. Improve business results by first improving your vendor selection 5
3 Learn from the history and thrive 6 Improve business results by first improving your vendor selection
Learn from the history and thrive Now, as companies move into the digital age, the need for greater operability and exposure of underlying data has become the forefront of what is needed to take them to the next level. However, some companies are using the antiquated mode to analyze these platforms and therefore selecting them as high value and high scoring, when in fact they fail to meet the needs of the digital age. Inoperability is more important than ever, yet there is still a lack of focus on underlying technology and data models, and too much focus on functionality. It is incumbent on technology executives, carriers and their strategic advisors to re-evaluate the process and core questions that are being asked in the vendor market. Only then will the inadequacies of the current vendor landscape be revealed and a new breed of technology emerge to support the next generation of insurance transactions. Findings from the EY Global Consumer Insurance Survey reveal that as consumers embrace digital, insurers must rethink their distribution strategies and partner relationships. More than 80% of consumers expressed a willingness to use remote and digital interactive contact channels for many tasks and transactions. This represents a seismic shift in the distribution landscape. The time has come for insurers to retake control of the consumer relationship by adopting digital channels and collaborating with those distribution partners that share their commitment to delivering value to consumers. Improve business results by first improving your vendor selection 7
4 Measure and manage risks but take some! 8 Improve business results by first improving your vendor selection
Measure and manage risks but take some! Software allegiances with particular vendors have led to subjective software selection methods. Consultants, as well, are selling an approach that simply paves the way to entrenched relationships, under the guise of objectivity. For true objective assessment, it is important to solicit information and perspective from broad industry vendor analyses (Gartner, Celent, Novarica) that provide independent evaluation and unbiased views. Life insurers have tried to replace their legacy systems, spending significant amounts with little return on their investment. In short, they have failed miserably over the years. Studies by industry analysts show failure rates of 40% to 70%, depending on the project. This was due to poor implementation, missed deadlines, inadequate budgets or simply an inability to deliver a better solution. The cultural shift in insurance has moved the focus from product provider to customer solution provider. As a result, insurers must reorient their systems and definition of what they expect from vendors. Only when they do this, and the evaluation of these vendors comparatively suffers, will there be a call to action to change the solution currently being offered in the market. These are generational decisions that have been used far longer than ever originally intended. Some date back to the 1950s. EY Global Consumer Insurance Survey findings reveal there is an opportunity for insurers to become true risk mitigation partners. This will require delivering more than just policies: they must develop integrated multichannel capabilities, offer digital self-serve functionality to targeted customers and engage strategic distribution alliances to co-develop customer relationship strategies. Improve business results by first improving your vendor selection 9
5 Take on a new selection process 10 Improve business results by first improving your vendor selection
Take on a new selection process The truth is that if life insurers have achieved anything productive from a vendor landscape perspective over the past 20 years, it has been functional richness. Platforms more than adequately solve the processing issues. Now, insurers need to evaluate and re-emphasize the functional risks, focusing on only that which would be differentiating among their peer group. Niche offerings, boutique products and services will support increased assessment on technical and nonfunctional requirements and the associated underlying data model: Focus less on the ability of platforms to handle process automation or certain products. These are now table stakes. Focus on interoperability. EY has established a set of questions and evaluation techniques designed to identify platform interoperability. Focus on scalability and processing power. Can the platform successfully scale in the cloud? Can it successfully enable new paradigms like multi-tenancy? The market demands an evaluation methodology that matches these new requirements! Rewarding customers for healthy living A major US life insurer recently entered an exclusive partnership with a global leader offering wellness benefits with life insurance products. The new innovative insurance solution provides financial protection to policyholders and encourages them to take steps to improve their health. In addition to potential savings on annual insurance premiums, policyholders can accumulate points for simple activities such as exercising, annual health screenings and even getting a flu shot. These points translate into discounts and rewards from leading retailers for travel, entertainment and shopping. The program is a win-win for the insurance company and vendor. Policyholders benefit by receiving personalized health goals and automated tools that are integrated with personal health technology. The savings and rewards afford a greater incentive for them to live longer and healthier lives. Signs of innovation in the industry John Hancock s new life product includes an exclusive partnership with Vitality to integrate life insurance with a comprehensive healthy living program for US consumers. New products like this will require carriers to better integrate with third parties. They offer potential for savings on annual premiums, as well as discounts and rewards for policyholders. Current platforms make this too difficult. Carriers continue to select systems today that will impede these operating models, because while the platform is new to them it is old news technologically. Improve business results by first improving your vendor selection 11
12 Improve business results by first improving your vendor selection
How EY can help EY offers a different approach and can help with solutions that lead to transformative results. As life insurance and annuity providers review their vendor selection process, they should consider: Increasing risk appetite as a requirement for innovation Defining their target operating model with an emphasis on nonfunctional requirements Creating a technology transformation road map that re-evaluates legacy systems and processes to identify what is essential and what should be eliminated Evaluating legacy platforms in comparison to others the delta needs to be compelling Contact Matthew T. O Mara matthew.omara1@ey.com +1 610 329 1787 Improve business results by first improving your vendor selection 13
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