7 Steps to a Successful Core System Transformation for Life Insurers

7 Steps to a Successful Core System Transformation for Life Insurers

23 August 2021

Samantha Chow

 

Digital transformation is a priority for most life insurers, but few are adequately prepared for the process of replacing aging core systems. Here are the steps for a successful implementation that creates long-term value.
Many CIOs and CTOs of life insurance businesses equate replacing a policy administration system to open-heart surgery. This shouldn’t be surprising since anyone who has been part of a major transformation effort — including its ups and downs, delays, and hiccups — can tell you transforming core systems has been fraught with risk.

The good news is the deployment and integration of new technology is no longer the grueling, multi-year endeavor it has been in the past. At least it doesn’t have to be.

Life insurers now have options to retire legacy systems in favor of modern, efficient cloud-native platforms and do so in a compressed time frame with incremental deployments and Agile methodologies that minimize business disruption. However, as you begin the process of adopting new technology, it’s essential to take a measured approach to the transformation, following seven basic principles:

1. Define desired business outcomes.
All technology buying decisions should be driven by business needs and desired outcomes. As life insurers evaluate their policy administration and other core systems, it’s easy to get lost in an exhaustive list of features. Although comparing one system’s features to another’s is important, it’s always best to focus on outcomes — in other words, what you’re trying to achieve. These established outcomes will provide the reference points you use to measure your success.

According to PWC’s “Insurance Trends 2020: 23rd Annual Global CEO Survey,” one of the top drivers for insurance innovation is improving the customer experience. However, a modern core goes well beyond an insurer’s most obvious needs, with the capacity to accelerate innovation, increase distribution through insurance ecosystem partnerships, and create more advantageous cost structures.

2. Identify functional requirements.
Once you’ve determined your business goals, it’s important to align those outcomes with the platform functionality required to achieve them. For example, life insurers seeking to deliver hyper-personalized experiences and policies will need a platform capable of applying data to every user or customer experience, workflow, decision, product, and action. To create this high-performance data environment, insurers should look for a platform that includes a customer-centric data structure, an extensive library of open APIs, rich analytical capabilities, and automated data flow powered by event- and rule-based tools.

The last thing you want is to go through an implementation effort and realize that a system doesn’t fully meet your needs. For help aligning desired business outcomes with platform functionality, download our “Buyer’s Guide to Insurance Core Systems.

3. Ensure consistent alignment at the top.
The most successful implementations have one thing in common: leadership embraces the project and establishes a shared expectation for accountability, organizational change, and its benefits. It’s not merely a matter of signing off on the financial investment. Executives must agree on the purpose, scope, and timeline for the digital transformation. If there are differences, and there likely will be, they should be addressed and resolved early and include a shared set of acknowledged common goals.

4. Involve employees in the transformation from the outset.
Change is hard. Many life insurance companies that prioritize rapid implementation tend to overlook a critical limit on their transformation efforts: the speed at which employees can adapt to change and operationalize it.

A digital core system implementation typically replaces outdated or manual systems that employees and agents have been using for a long time. When they aren’t able to adapt quickly to new technology, or simply choose not to, this presents a challenge that can endanger your project’s success.

Insurers who are committed to a successful implementation must involve employees in the project. By gaining a granular understanding of the work environment, processes, and protocols, leaders in the organization can anticipate and remove obstacles to change, reduce risks, and help employees navigate the transition to a new digital way of working.

5. Choose the right technology partner.
After you’ve determined your business goals, it’s time to begin the all-important process of identifying and evaluating vendors. When choosing a partner, one of the first things to consider is whether the vendor can support your goals now and into the future. Since life insurance is riddled with regulations and complexity, it’s imperative that the vendor can demonstrate insurance experience and a deep bench of services professionals and systems integration partners.

From a technology perspective, several core architectural principles have become foundational to digital transformation across all lines of business. If a core platform is deficient in these areas, it’s a telltale sign that the vendor is selling an aging system that they’ve “lifted and shifted” from an on-premises environment to the cloud. These principles include:

Cloud-Native: Enables the vendor to conceive, build, and deliver more value to your business faster, which is essential to avoiding disruption in today’s rapidly changing world.
API-First: This allows you to integrate with any internal or external system, data source, or insurtech so you can apply data everywhere it’s needed.
Microservices and Containers: Breaks an application into independent, loosely-coupled, individually deployable services to accelerate implementation.
SaaS Deployment: Delivers the platform as a service, which reduces technical debt and offloads maintenance, support, and hardware costs.
The partner should also have a documented implementation methodology they can walk you through — including content, templates, and other tools specific to the life insurance industry — to help you accelerate time to value. Lastly, be sure to ask about post-implementation support, particularly managed services.

6. Ensure there’s a strong network of implementation, integration, and advisory partners.
Most life insurance IT organizations don’t implement new core systems regularly. This inexperience can lead to poor planning that will inevitably lead to project delays. It’s important to collaborate with a systems integration and implementation partner with global resources and a track record of successful core system implementations. This support will cut down on costly project delays and time spent by their teams working on avoidable issues.

If the technology vendor is leading most implementations themselves, it’s often a red flag that there aren’t enough outside resources committed to supporting the transformation and system. This can become an internal resource constraint issue and prevent future system evolution or ecosystem development.

7. Implement in stages (assuming your platform allows it).
Because modern core life insurance systems are built on microservices and containers, you don’t have to implement all of the functionality from day one. As a result, your business can address priority requirements and processes (such as claims) first. Taking a phased approach will help you succeed sooner and begin generating the ROI you’re seeking.

A core system or policy admin system replacement can seem daunting. However, keeping these seven factors in mind will help your life insurance company reduce risk and accelerate your digital transformation efforts. For more helpful guidance on evaluating and buying core life insurance platforms, download our “Buyer’s Guide to Insurance Core Systems.

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