The Future is Now for Group Insurance Carriers
Rob McIsaac | December 12, 2014
As economists see it, the Great Recession has been over for more than five years. That said, the journey back from the high unemployment and negative growth rates that characterized the period has been anything but a "quick turn to bright." From an insurance industry perspective, one of the interesting attributes of the period was the slowdown in investment in the Group Benefits space. With labor markets in turmoil, finding ways to "batten down the hatches" to survive the storm became Job #1.
As a result, carrier technology lagged the general market. Doing just enough to get by, while dealing with a range of compliance and regulatory issues, became "good enough." From some perspectives, after all, group carriers were in relatively good shape. While some lines of business struggled with 40-plus-year-old core systems, the group insurer technology stack was frequently only half that age. How bad could it be?
Unpacking those numbers can tell a different tale. The oldest legacy systems are typically mainframe based, run variants of COBOL and Assembler, use VSAM and DB2 for databases and, as long as care is exercised, can be rock steady in operation. They may be hard to maintain, slow to modify, and arcane to diagnose, but resources can be found that understand the environments and can nurse them along with reasonable availability while alternative modern capabilities are explored.
For group carriers, however, the story is frequently different. While core systems may be "newer" in relative terms, they frequently are based on technologies that don't have the support structures that were as pervasive with COBOL. One result is that those systems actually carry with them more operational risk than some solutions twice their age.
Layer on top of that a period when IT organizations were not positioned to enhance/replace those capabilities which fostered the growth of shadow IT organizations armed with end user tools (e.g., Microsoft Office), good intentions, and just enough skill to get something into production (not to be confused with "production ready"), and you have a near Perfect Storm for carriers to grapple with.
The deployment of Access databases and Excel macros actually made many carrier environments even more brittle than they would otherwise be; end users are invested in the tools they have built and mastered and, even if they aren't perfect, they are better than doing nothing. And, for some operational areas, the budget squeeze following the most recent recession was even tighter than it was for IT groups.
Compounding all of this further have been fundamental changes in the business and regulatory environment that carriers need to be prepared to address. While unemployment rates are down sharply, the nature of careers for millennials will be very different than what Baby Boomers expected early in their working lives. More frequent job changes and less tenure are now the norm.
Moving ahead may well mean moving out first, which makes the idea of benefit portability potentially more attractive. The advent of the Affordable Care Act and the resulting Health Insurance Exchanges, have opened employees to access to more and different types of benefits. Concurrently, as was the case a generation ago when the move from defined benefit to defined contribution retirement plans began in earnest, group insurance carriers now need to be in a position to support both group and voluntary benefits, which has major implications for the management of, and access to, plan member data.
With all of these changes underway, there simply may not be enough lipstick to put on the pig of aging systems to get them to do what is required to both protect existing business lines, while creating the capabilities to go after new and emerging market opportunities.
Fortunately, the technology vendor market appears to be maturing at just the right time to offer group carriers a path forward. Technology adoption in insurance almost always happens first in the P&C world, with high transaction volumes and customer centricity driving a need to adopt innovative and better approaches to solving business problems. Solution providers have had the better part of a decade now to "cut their teeth" in this space and even Tier 1 carriers now focus on buying new solutions rather than building them. It is an extremely positive development for the impacted lines of business.
We are now seeing the same trends emerge for group carriers, with real options now existing that can support functions from new business/underwriting all the way through billing and claims. This is offering the promise of a much improved technology stack for carriers in the future, which can allow them to focus less on building technology and more on what they can do to create sustainable competitive advantage in a highly competitive and crowded market.
The timing could hardly be better for group life/disability carriers contemplating new group opportunities in the voluntary benefits arena; both individual life and group health carriers have had the exact same idea, which means the race is on to get to market with compelling offerings that can support the portability and convertibility needs of the post-recession labor market.
Of course knowing what to do, and knowing how to do it, are two completely different things. Many group carriers have not made a core systems selection decision in the better part of a generation. They frequently lack both the institutional memory for how to make these decisions in a reasonable time frame and the organizational muscle to deliver satisfactorily for their business unit partners. Finding a partner, such as Novarica, who routinely helps carriers make these types of decisions, can provide a solid foundation on which to build future success. Sometimes "on the job" training is perfectly acceptable to develop future skills. Selecting core systems, like packing parachutes, may not be the best place for organizations to test “OJT” theories, however.
One irony is that I began my career in group insurance helping to implement solutions that were well ahead of the capabilities being used in other lines of business at the time. It was a heady and exciting time that positioned us well in the market. But that was then; those footsteps you hear now are the sounds of companies like Google and Apple changing customer perceptions (forever) around what good service delivery and product flexibility feel like. There's no time like the present to start preparing for the future, which is really already here.
(The author, Rob McIsaac, will be the featured speaker at the upcoming Zags-Microsoft Seminar: Transforming New Product Development in Group Life, on Tuesday, January 20, in New York City.)
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