Top-performing life insurers are growing at over 9 percent a year and are achieving returns on equity of 15 percent or more—while reducing operational costs. That success is impossible without the right engine in place.
No matter how good a driver you are, your skill counts for little if your car’s engine is not able to do what you ask of it. Many life insurers find themselves in this position as they struggle to meet analysts’ expectations. No surprise then that many life insurers are giving such attention to modernizing their legacy platforms.
Many, however, remain uncommitted because such initiatives represent a large investment and pose certain risks. In the course of these blogs, I will argue that doing nothing is even more risky, and those who remain uncommitted to modernizing their back-office engines are in danger of being rendered irrelevant. Insurers need to have a broad strategy to become digital players, and platform modernization should form part of it.
I’ll also show that methodologies exist to help life insurers make the right decision, and embark on a structured modernization journey that has every chance of reaching its goal.
But let’s first remind ourselves of the burning platform on which life insurers are standing. There are five main sources of heat:
- Tough economic climate. With demand in existing markets dampened, and tighter margins, insurers have to be better at retaining existing customers and streamlining operations.
- Demanding, disloyal customers. Customers are moving online, often using mobile devices, and expect consistent, personalized experiences across multiple channels from providers—including life insurers. If they don’t get what they want, they are predisposed to switch providers. Read more about what today’s customers want—and the potential $400 billion “switching economy” at risk in the Accenture 2013 Consumer-Driven Innovation Survey.
- New global market structure. Regulatory environments are becoming more stringent just as pressures for companies to operate globally are mounting. Complying with everything is a burden that leading insurers are turning into a way to drive transformation.
- Opportunities in unexpected places. The pressure to develop global operating models is a function of life insurers’ desire for growth. However, these new markets in emerging economies are governed by unfamiliar dynamics: go-to-market channels are very different, products must be low-value and operational efficiency is key. Technology is the non-negotiable foundation for success in these markets. For many, acquiring local players will be an attractive option, but M&As bring their own challenges.
In mature markets, investment strategies will also be changing as customers age and retire.
- The war for talent gains momentum. As existing workforces age and retire, life insurers face the challenge of replacing those skills and obtaining new ones suited to new technologies. Many of these skills are scarce, and are anyway located far from their core markets. New computing models such as cloud computing and “everything as a service” come to the fore.
All of these factors—and each has many facets—are making it imperative for life insurers to replace aging, inflexible legacy infrastructure and systems. Next week, we’ll look at the reasons why some insurers continue to put off modernization.
For more information and to learn more about Accenture’s capabilities and experience in this area, please download Reducing costs and time to market through life platform modernization.