Insurance. White Paper. Transforming Legacy Systems to Meet the Insurers' Top 5 Business Priorities

Transcription

1 Insurance White Paper Transforming Legacy Systems to Meet the Insurers' Top 5 Business Priorities

2 About the Authors Samuel Medina Vice-President and Head of Strategy and Transformation, Insurance & Health Care Sam Medina is a global business transformation executive who specializes in business operations and information technology, with rich experience in the insurance industry. Prior to joining Tata Consultancy Services (TCS), Sam served as the Global CIO and CTO for companies such as Willis Group, and General Reinsurance/Berkshire Hathaway. An expert practitioner in guiding companies through the transformational changes necessary to enable them to successfully compete in the global arena, Sam has conducted business in over 100 countries and territories, including establishing over 60 new offices for companies that grew into multi-national corporations. Arunashish Majumdar Chief Architect, Insurance Arunashish (Arun) leads the TCS Insurance Technology Practice in North America. He specializes in transformation initiatives for improving customer experience, business agility, operational efficiency, and technical currency. Arun has handled strategic initiatives to define and deliver enterprise digital strategy, IT portfolio simplification, and core systems modernization for several TCS customers. Arun is a CPCU, a Distinguished Architect (from The Open Group) and holds a Bachelor's degree in Engineering. Bonny Kurian Director, Global Delivery, Insurance Bonny has been with TCS for 23 years and has handled several responsibilities in insurance and financial services, including Large Transformational Program Management, IT Architecture Consulting, Global Delivery Management (IT, BPO and Infrastructure), and more. He has published multiple papers on insurance and IT, and has been quoted in The Computerworld, ACM News, and The National Underwriter. Bonny holds a Bachelor's degree in Engineering and a Master's degree in Computer Science. He has also attended Executive Management programs conducted by the University of Michigan, the Singapore Management University and the Tata Management Training Center.

3 As the economy continues to recover, the competition in the insurance marketplace is intensifying. Based on this new reality and the lessons learned from the difficult years of the downturn, insurers are focusing on positioning their companies for the future while making their businesses more profitable. Budgets continue to remain constrained and insurers need to do more with limited resources. They are looking for ways to raise the quality of their services and to achieve operational efficiencies. This translates to investments in initiatives to improve customer experience, increase customer acquisition and retention, and shorten the time to deliver new products and services. These changing industry dynamics are creating mounting pressure for insurers to pursue major IT as well as business transformations. Over years of working closely with many major insurers, we have delivered technology based business solutions that enable them to successfully navigate business transformational challenges. Based on this experience, we have arrived at the top five priorities that we have observed in the insurance industry today. This whitepaper talks about these priorities and the strategies, solutions, frameworks and methods to help insurers address these priorities and to achieve their business transformation goals.

4 Contents 1. Introduction 5 2. Five Priorities 5 3. The evolution of Digital insurers 7 4. Legacy modernization for business transformation 7 5. Must Have for every Legacy modernization program 9 6. Conclusion 12

5 Introduction Economic, social and regulatory changes around the globe coupled with consumerization of technology have significantly impacted what an average consumer expects from their insurer. Today, when shopping for insurance, consumers expect insurers to offer anytime-anywhere service at a competitive price point. The same customer also expects their insurer to be the most informed financial advisor with the highest risk management capabilities when securing their future investments or risks. As the market grows increasingly competitive and regulations tighten, insurers globally are reevaluating their strategies to identify new avenues for growth while sustaining current business. Five Business Priorities for Insurers This challenging industry scenario has made it necessary for insurers to ensure compliance, enhance customer service and deliver new products and solutions, cost effectively. Efficient and smooth operations have a direct bearing on these strategic goals. Given this, insurers are assessing how best to leverage emerging technology innovations to address their top five priorities. Growing the Business Containing Costs Improving Customer Experience Improving Risk Management Meeting Regulatory Compliance By modernizing its 40 year old legacy Policy Administration System, a leading US insurance and financial services company aimed to enable self-service and improve product design. The solution reduced time to market for new products by 80% and reduced maintenance costs by 20%, while introducing self-service capabilities and increasing productivity by 15%. Figure 1 Top five business priorities for insurers 1. Growing the business. Insurers are focused on both organic growth, and growth through mergers and acquisitions. Leveraging newer products and harnessing the power of emerging channels will help insurers accelerate this growth. Technology can help insurers grow their business in a variety of ways. For instance, technology supports and facilitates growth through: Pricing innovation: The amount of data available in the public domain, including social media, can provide significant insights into customer behavior and risk. Apart from this, there are also sources such as vehicle 5

6 telematics, call center data, textual data related to claims and others, which can offer additional information. Having the right analytics will help insurers leverage this data and price products optimally. Improving product density per household: If insurers are able to create a comprehensive view of every customer by leveraging the volumes of customer data, there is a higher probability of understanding the customer's life events and their true needs, which will, in turn, help boost retention and share of wallet. Complete customer information has typically been separated by various lines of business silos throughout organizations. In our study, typical insurers use only 10-15% of their data for insightful decision making. The burgeoning amount of structured and unstructured data flooding insurance organizations can be overwhelming and intimidating, but with the right technology solutions it can help insurers achieve substantial benefits. Insurers that can harness and harvest Big Data can perform predictive modeling and advanced analytics for actionable insights, giving them a competitive advantage. Insights gleaned from analytics can enable insurers to better target tailored offers to individuals and also improve upsell and cross-sell efforts. Expanding into new markets and attracting new customer segments: Technology can support the adoption of new and emerging channels. For instance, traditional agency-based insurers are now using technology to enable the direct channel so that they don't lose out on attracting Gen Y customers while serving Gen X and Baby Boomers as well. Having the right digital platform can also help lower the barriers to entry into new markets such as in the Asia-Pacific region, where a direct-to-consumer model enables a faster entry than establishing a fully operational, local agency channel. 2. Improving customer experience: Insurers are increasingly concentrating on improving customer experience in order to boost customer satisfaction and engagement a critical requirement for increasing customer acquisition and retention. The consumerization of technology is leading to higher customer expectations. Consumers are becoming more demanding. They now routinely use smartphones, tablets and computers in most areas of their lives, from entertainment to communication, and from performing research to shopping for and purchasing products of all types. A high percentage of consumers are willing to share information (previously considered private- such as telematics data capturing travel habits) with insurers if it helps in receiving a better price point. Consumers expect their insurer to offer products and pricing that are individualized for their needs and to deliver an omni - channel experience that is uniform across any of their preferred channels (through agent or call center or direct). 3. Containing costs: The economic meltdown resulted in budget cuts. Though many insurers are seeing an increase in IT budgets, they still have to do more with fewer resources, implying they need to gain operational efficiencies wherever possible. Many insurers are looking to technologies that can help them automate processes, streamline workflows, and minimize human intervention, ultimately leading to greater cost savings. 4. Improving risk management: Getting a good handle on risk management with steps that enable insurers to price more accurately and manage risks has become essential. Technology makes it possible for insurers to improve risk management in a myriad of ways, for instance, by enabling commercial underwriters to more accurately price policies using geo-spatial data. Insights gleaned from analytics can enable insurers to control fraud and manage anti-money laundering efforts more effectively. 6

7 5. Meeting regulatory compliance: Meeting new and stricter regulatory requirements is always a top priority for insurers. Changing regulations make it essential for insurers to change business rules, whether rating rules or insurance form related rules. For example, the US state of Maryland introduced a regulation in May 2013 making it mandatory for any insurer selling Homeowners policies that have the 'anti concurrent causation (ACC) clause' to provide policyholders with a notice clearly and specifically describing the ACC clause, every year. This regulation came into effect the very next month. A flexible system can enable insurers to incorporate these rules more easily and meet regulatory compliance requirements cost effectively. Modernizing rating and output management are essential for achieving this goal. The evolution of Digital Insurers To achieve these five business priorities, insurers today are not only transforming their IT systems but also their business model. Enabling this is the convergence of multiple technology innovations such as mobile, social, cloud and big data analytics. A new business model has emerged that emphasizes collaboration and ubiquity, and requires insurers to perform analytics to obtain actionable insights. To drive this new business model, insurers are developing a new generation of systems focusing on a multi-channel experience for customers and partners. Typically, these systems will be lightweight interaction and collaboration systems that sit atop core applications. Legacy Modernization for Business Transformation A large US life and annuities insurer wanted to enable cross-sell and up-sell, reduce on-boarding time of agents, and facilitate onboarding larger broker dealers. The implemented producer management package solution, integrated with multiple interfacing applications, went on to win the Celent award for best distributor systems. Insurers have relied on their core systems for many years. These encompass everything from claims and policy administration systems to the systems that support human resources, and from the various systems that support individual lines of business to customer relationship management systems. However, since these legacy systems were not designed to integrate with emerging systems that enable the multi-channel experience, today's insurers are finding it challenging to implement the new capabilities of digital insurer. Many insurers are still running systems that have information trapped in product-centric siloes, which makes it nearly impossible for them to access, analyze and leverage customer information for competitive advantage. These days, integrating the various business lines and becoming customercentric instead of product-centric is critical, and engaging more effectively with customers and agents at every stage of a business transaction is crucial. 7

8 It is apparent that, in order to remain competitive, insurance organizations must have a strong technological foundation that is capable of keeping up with evolving channels and emerging technologies. Insurers will need to modernize their legacy systems to next generation applications to enable this business transformation. Insurers are modernizing their legacy systems in order to better serve their customers, operate more efficiently, get a better handle on risk and meet future demands. Strategies that our insurance customers have successfully adopted include: Portfolio Simplification Legacy Replacement Platform Approach for Closed Block Figure 2- Legacy Modernization Options 1. Portfolio simplification: There has been a proliferation of the core backend systems over time through mergers and acquisitions and/or new systems being put in place without retiring the older ones. For example, insurers typically maintain at least four policy administration systems, with many having portfolios of 10 or more systems in place. This introduces complexity and data redundancy and increases the total run-the-business cost. Portfolio simplification initiatives are enabling insurers to address this challenge. The common trend observed is rationalizing the portfolio at line of business level or geography/region level. A leading global commercial insurance company replaced 57 claim systems across multiple geographies with a Global Claims Solution. The solution helped achieve a 20-30% reduction in claims handling cycle time for higher frequency claims and also improved the insurer s combined ratio. 2. Legacy replacement: Legacy systems have been in place for decades, updated only when insurers need to add to or build functionality on top of them to meet changing business needs. But while these quick-fix updates to core backend systems might have solved immediate and acute problems in the past, insurers are now finding that their core backend systems are limiting them in their ability to meet current and future business objectives. Insurers can either purchase or build in-house a new application and retire the old. This buy vs. build approach typically requires significant customization and involves commercial off-the-shelf (COTS) product selection based on a variety of factors, 8

9 including business direction, gap analysis and package customization. Insurers are increasingly opting for COTS product implementations that offer end to end insurance services for functions such as policy administration, claims, and reinsurance. These products have matured over time and suffice the needs for most insurers today. 3. Platform approach for Closed Block: Controlling the expense ratio on closed block of business is one of the toughest challenges that insurers are faced with. Many insurers are engaging third party service providers to manage the closed blocks of business either on their own or on their partner's hosted platform. Essentials for a Legacy Modernization Program While insurers recognize the need to modernize their systems, considering the number of assets involved, they fear that the transformation could prove expensive, difficult, complex, and risky possibly resulting in disruption of business. Based on our experience working with large insurers on their modernization programs, here are the seven 'must do's' we recommend for the successful execution of modernization initiatives: Legacy Modernization Program Checklist Ensure incremental business value delivery Simplify business processes Extract business rules from legacy systems & decide what needs to be carried forward Enable seamless integration of systems enabling real-time or near real-time processing Define clear strategy for data Plan for early performance testing Sunset legacy Figure 3 Legacy Modernization program essentials 1. Deliver value as soon as possible It is important to note that legacy modernization efforts do not have to be full blown, multi-year, big budget initiatives. Choosing smaller projects that are well aligned with the organization's goals and objectives can provide measurable results and plenty of incremental business value to the organization. Breaking down larger projects into smaller steps is always helpful. For instance, an insurer that is modernizing a policy administration system should consider breaking up the project into smaller rollouts - for quoting, rating modernization, underwriting sophistication, or by line-of-business and geographical locations (for example, by states in the US or regions for Europe). 9

10 Insurers that do commit to a large, multi-year initiative must first secure a credible business sponsor to increase the likelihood of project success, and to make sure the endeavor runs smoothly. Next, the insurer should proceed with an incremental rollout, accompanied by a well integrated and well thoughtout change management and stakeholder communications plan. 2. Simplify processes Existing legacy processes are, in many cases, too cumbersome and not well suited for omni-channel users who typically do not have the time to navigate through multiple steps. Also, a fallout of the proliferation of multiple systems supporting the same business functionality is the resulting variations in the processes across these systems. Insurers must simplify processes to make them consistent and available across multiple channels. 3. Extract rules Core legacy applications typically perform many intricate functions. Not capturing all these functionalities and business rules precisely at the beginning of a Legacy Modernization effort poses a major risk. Therefore a key necessity for the insurers performing these modernization initiatives is to first embark upon a focused exercise to extract the rules (such as product, rating, underwriting, account or forms related rules) from all the legacy applications in scope; catalog them based on a common business language; rationalize the rule sets (remove redundancy and/or obsolescence) for the future environment; and ready them for configuration in the new system. As part of a Policy Administration System modernization program, a large US insurer analyzed 14 legacy mainframe applications with more than 20 million lines of code to extract rules. The extracted 67,000 rules were rationalized down to about 30,500 rules for configuring on the target platform. This has delivered cost savings by reducing the number of rules to be managed and created foundation for configuring target application with confidence. 4. Integrate systems Real-time systems integration lets insurers use core application services and data to complete any process initiated through varied channels like the mobile channel. This integration also ensures a consistent channel independent experience. Uniform data must be available and accessible irrespective of whether a user initiates a transaction or communication using a mobile phone, web browser, or with a call center representative or an agent. In the new environment, insurers must implement an enterprise integration strategy that enables multiple points of integration to provide seamless customer experience and information exchange: B2B gateway (third party integration, cloud API integration) Mobile endpoint device gateway (Software Development Kit/Application Programming Interface support) Perimeter security devices/appliances Traditional web security gateway $8 billion in payments per year and approximately 17.5 million invoices annually compelled a leading US insurer to modernize its legacy billing system. The modernized system that integrated with 30 interfacing applications using ACORD-compliant web services enabled the insurer to introduce new capabilities such as billing projections and a centralized payment processing portal. 10

11 Application integration for eliminating Point to Point (P2P) connections, transformation, establishing Service Oriented Architecture patterns using commodity ESB products Software ESB (customized implementations that use open frameworks for ESB function, with contextual usage) 5. Plan for data Data plays a key role in insurers' modernization initiative decisions. Data in insurance is complex and bulky. It is essential to implement a robust strategy to handle legacy data movement, co-existence of the legacy and new system data during a multi-year program, and finally archival. While any migration requires a complete understanding of the legacy and target data models which are often in different formats insurers can incrementally reduce cost and risk by performing data-driven activities such as profiling, cleansing and masking, and customer or renewal-based migration. 6. Ensure performance Given the current customer behavior trends and consumer device technology, a transaction can now be triggered anytime, anywhere. All core applications will have to be available 24x7 with zero downtime. This has implications at the infrastructure, application and operational levels of legacy systems, necessitating modernization. Even as system consolidation initiatives are taken up, considerations needs to be given to the fact that the target system may not have been designed for handling the combined workloads of all the products and/or lines of businesses. For example, the batch windows of the system selected as the target system may choke when batch programs for all other source systems are added to its existing batch cycle. The key to success is capturing the non-functional requirements of performance and scalability in parallel to the functional requirements and conducting early performance testing. 7. Sunset legacy A leading UK insurance company ran a major enterprise simplification program delivering significant savings in operational cost. A dedicated sunset factory was setup as part of the program to decommission more than 1000 applications and migrating close to 14 million policies and 4.5 million claims. The full value of a legacy modernization program can only be realized when the legacy systems that are being modernized are actually decommissioned. If this is not done, the new system simply ends up being yet another system in the portfolio, leading to increased portfolio complexity and even higher cost of ownership. A proven best practice is to establish a sunset factory that is focused only on legacy decommissioning and run that as a separate track. Transparency in communication and effective change management across all stakeholders, which often includes multiple business owners of legacy applications across lines of businesses and/or product areas, application and infrastructure support teams and user communities, are critical success factors in realizing this. 11

12 Conclusion Innovation is key to survival in today's competitive insurance industry landscape. However, dated legacy systems typically make innovation a necessity for insurers today extremely difficult. These legacy systems are proving to be cumbersome and costly to maintain, and inflexible in meeting new and emerging business needs. Insurers know that they need to modernize their legacy systems in order to enhance customer service, improve operational efficiency, better manage and mitigate risk and address future growth opportunities. But modernization initiatives come with their own set of challenges. Some insurers are taking their first steps to meet their current legacy challenges. Yet others are continuing their modernization initiatives after struggling initially. The seven must do's outlined in this paper are field-tested proven success criteria that we recommend insurers adopt in defining and executing their modernization programs. It will enable insurers achieve their top five business priorities driving modernization initiatives and lay foundation for the shift to their future digital ecosystem. 12

13 About TCS' Insurance Business Unit With over four decades of experience in working with insurers globally, TCS delivers solutions and services to help insurers meet rising customer and agent expectations, address non-traditional competitors, manage low investment yields, and drive growth in emerging global markets. TCS has built an unmatched track record in enabling insurers transform, enhance business agility, improve operational efficiencies and increase customer engagement, while ensuring regulatory compliance. 7of the 10 world's largest insurers and over a hundred insurers globally partner with TCS. Our state-of-the-art innovation labs and global solution centers, and cutting edge solutions and technologies set clients apart from their competitors. We leverage the combined expertise of our industry trained and certified (LOMA, LIMRA, CPCU and so on) consultants to support the entire value chain for Life, Annuities and Pensions, Property and Casualty, Health, Commercial and Reinsurance companies. Contact For more information about TCS' Insurance services, visit: global.insurance@tcs.com Subscribe to TCS White Papers TCS.com RSS: Feedburner: About Tata Consultancy Services (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery ModelTM, recognized as the benchmark of excellence in software development. A part of the Tata Group, India s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. IT Services Business Solutions Consulting All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright 2013 Tata Consultancy Services Limited TCS Design Services I M I 11 I 13 For more information, visit us at