Life Insurance: Closed Book of Business Challenge and Opportunities

Transcription

1 Life Insurance: Closed Book of Business Challenge and Opportunities Sairam Mandalika NIIT Technologies White Paper

2 CONTENTS Introduction 3 Problem Statement 3 Key Challenges of Closed Book 3 Traditional Approaches 3 The Solution 4 Benefits 5 Summary 5 References 5 About the Author 6 About NIIT 6

3 Introduction In the wake of increased competitio n and dynamic economic environment, the insurance industry today faces the daunting challenge of maintaining operational efficiency. Closed books are policies that are no longer sold but are still on the books of a life insurance carrier as premium-paying policies. Closed books are caused by either discontinuin g unprofitable products or as a result of acquisitions and mergers. The hardware and application maintenance costs for the legacy systems that run the closed books are high. Insurance carriers are looking for cost savings, operationa l efficiencie s and ways to get closer to their customers. This whitepape r evaluate s various solution s for cost-effective management of closed books for global life insurance carriers. Problem Statement Most vendor product applications are derived from IBMs 62 CFO product - for example Vantage-one, Cyberlife, LifeComm, LIDP, Life/70, and Life400.Thes e application s are also derived from homegrown products that are modeled on IBM s products. They are in third generatio n languages like COBOL/Assemble r on Mainframe. Product companie s also introduce their own complexit y to ensure continue d dependenc y of insuranc e companies on their applications. Key Challenges of Closed Book In-house management of closed book operations presents many obstacles for businesse s looking for agility in an increasingly competitive environment. These challenges touch most areas of the business, making it harder to reduce operational costs, complicating financial reporting, and obstructing new selling opportunities. 1. Maintaining Legacy Systems Closed funds are usually maintaine d on old Legacy Policy Administration Systems which have very high maintenance costs 2. Operational Cost Management As no new policies are sold, the portfolio size steadily decreases over time. Steadily decreasing portfolio size demands parallel reduction in policy administration costs to keep the business profitable. 3. Regulatory Penalties The workings of a closed book is likely to be scrutinized by regulators and capital markets 4. Deteriorating Customer Service Due to inter-play of factors like transition management and bad publicity, customer service may suffer in a closed book. 5. Staff and Agent Attrition As portfolio size decreases in closed books business, any unexpected surrenders or terminations can prove disastrous. Clients in closed books busines s may not have any advisor/agent for on-going advice or service. Traditional Approaches Outsource Closed Book Administratio n to a Third Party Companies hire high-end resources for providing certain services that cannot be met by the internal staff. They utilize these resources on need basis and get the critical work accomplished instead of spending time on upgrading the existing team s knowledge. This model works during introduction of new products but in the closed block scenario, this is expensive as there is no 3

4 return on investment. In addition to costs, the existing team does not gain any knowledge out of this engagement. Dual Shore Support Model Most insurance companies moved from outsourcing support to high cost product companies to the dual shore support model. In this model, the cost gets reduced as the offshore team provides support. With this model, insurance companies continue to have control on day-to-day operations. Though this model gives benefits every year, it has its own set of challenges. Continued increasing operational costs Infrastructure - Hardware - License costs - Several tools - Connectivity Management - Added layers of management (Internal/Vendor) - Retention of high end resources (BAs/SMEs) Utilizing Third Party Administrators (TPAs) In this approach, the entire support of the product is moved to a TPA. TPA administer s the contracts on his infrastructu re and provides feeds to the internal systems for reporting and compliance. This eliminates the redundancy of dual management layers and reduces infrastructure costs too. The TPA approach creates more expenses in the customer contact areas like BPO etc. as resources need to be trained on TPA applications. To circumvent this, insurance companies try to outsource even the BPO operations to TPA. This may not always work, as many of the TPAs do not have customer contact application support in their solutions. In addition, there is also a one-time major cost of converting to a TPA system. It comes with the risk of reconversion cost, if the insurance company decides to break away from the TPA. TPAs have home grown application s that are proprietar y, and reconverting back to the insurance company s products is a major effort. Moreover, as TPA s products are in-house, it becomes mandatory to use only TPA s resources for reconversion. Insurance companies are forced to continue till the end of all contracts, as they find it difficult to move out of TPA contracts. This per contract cost is high in the long run. Though there is minimal or no activity on many contracts, insurance companies have to bear the support cost. The Solution Obtain a Vendor Product Since all insurance products are based on IBMs 62 CFO, obtaining license for any one of these products (NTL-INSURE) is one solution. As these are closed blocks of business, any of the earlier versions of the product will serve the purpose, thereby reducing licensing costs. In addition, the changes required for administering the system s product features is minimal. This is because most of these products that have been a part of the closed block of business and would have been issued a long time ago. They have similar type of benefits and riders across multiple insurers. Most of the older versions of the vendor products have almost all features and little or no changes are required for the product specific feature. Most of packages have company based processing logic that can be leveraged for setting up different businesses under the same insurance company and for multiple insurance companies. It is best to get NTL-INSURE application converted to Linux platform which requires less operational cost. Expertise in NTL-INSURE product administration must be built by acquiring Subject Matter Experts (SMEs) and Business Analysts (BAs). By utilizing their expertise and NIIT MATRIX methodology learning plans and certifications specific to the application can be built. It helps ramp up of resources easily. A non-intrusive conversion approach has to be defined. In this approach reusable components have to be built to perform conversion from any source system. The design is such that a common set of information is obtained from the source system, irrespective of whether it is a vendor product or home grown product. This is then converted into NTL-INSURE by reusable conversion component. These tools ensure that the information in the system is returned back to insurance companies for further reconversion in case of contract terminations. It saves on conversion costs and eliminates the dependency of insurance company on NIIT Technologies for reconversion purposes. 4

5 An end-to-end cost based contract service rather than current per contract charges must be provided. This ensures the elimination of unnecessary costs incurred for contracts that have had no activity in a given period. Benefits Minimal Conversion Cost Conversion cost is minimal for the insurance company when they map to the business layout provided by NIIT Technologies. Very little effort is needed from insurance company. Smoother Transition Conversion to and from NTL-INSURE is relatively smoother as it involves little or no external resources. Faster Response Time As these contracts are administered on other platforms, the response times are much faster than on legacy platforms. In addition NIIT Technologies Smartserve s best practices ensure continuous improvements. Reduced Operational Costs When closed block of business is being administered by NTL-INSURE, insurance Companies can easily implement changes in their existing systems with less impact and cost. Summary Closed book of business is a major issue in insurance industry where contracts are serviced for very long terms. These contracts need support till the last contract in the book is active. Owing to the complexity and multiplicity of vendor product systems, acquisitions, and several touch points, administering becomes expensive. The current model of getting high-end work done through contractors, outsourced dual-shore support or employing a TPA for support are not proving to be cost effective solutions. The NTL-INSURE solution caters to this problem effectively. It ensures that the insurance company gets the required support at a very little cost. At the same time, the company will have the flexibility of reconverting the contracts at minimal cost. Reduced Maintenance Cost As insurance companies pay according to services rendered, rather than per contract basis, there is a lot of cost reduction. Improved Customer Services Being CMMi Level-5 entities, NIIT Technologies and NIIT Technologies Smartserve provide superior customer services. 24X7 Services Having offshore infrastructure support and by providing dual-shore or near shore operations, there can be extended hours of customer support resulting in increased customer satisfaction. 5

6 About the Author Sairam Mandalika is Delivery Head Insurance practice at NIIT Technologies. He has done fellowship in Insurance, LOMA-Level-1, ITSM, PMP, and is a certified Actuary. Sairam has over 28 years of experience in the Insurance domain Life, Annuity, P&C, Multiple Insurance vendor policy administration products. He was instrumental in designing and implementing solutions for all the Life Insurance operations. About NIIT Technologies NIIT Technologies is a leading IT solutions organization, servicing customers in North America, Europe, Asia and Australia. It offers services in Application Development and Maintenance, Enterpris e Solutions including Managed Services and Business Process Outsourcing to organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. With employees over 7,000 professionals, NIIT Technologies follows global standards of software development processes. India NIIT Technologies Ltd. Corporate Heights (Tapasya) Plot No. 5, EFGH, Sector 126 Noida-Greater Noida Expressway Noida , U.P., India Ph: Fax: Americas NIIT Technologies Inc., 1050 Crown Pointe Parkway 5 th Floor, Atlanta, GA 30338, USA Ph: Toll Free: NIIT Fax: Over the years the Company has forged extremely rewarding relationships with global majors, a testimony to mutual commitment and its ability to retain marquee clients, drawing repeat business from them. NIIT Technologies has been able to scale its interactions with marquee clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into extremely meaningful, multi-year "collaborations. NIIT Technologies follows global standards of development, which include ISO 9001:2000 Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO information security management certification. Its data centre operations are assessed at the international ISO 20000IT management standards. Europe NIIT Technologies Limited 2 nd Floor, 47 Mark Lane London - EC3R 7QQ, U.K. Ph: Fax: Singapore NIIT Technologies Pte. Limited 31 Kaki Bukit Road 3 #05-13 Techlink Singapore Ph: Fax: A leading IT solutions organization 21 locations and 16 countries 8000 professionals Level 5 of SEI-CMMi, ver1.2 ISO certified Level 5 of People CMM Framework Write to us at marketing@niit-tech.com D_06_120413