In today’s environment, carriers have an opportunity to transform their business and gain competitive advantage leading into an upcoming market upturn. In a marketplace that continues to be dictated by ever-changing customer needs and their buying behaviors, success for insurers is based on their ability to create more business agility from top to bottom, reduce total cost of ownership (TCO), improve time to market, and increase flexibility across operations.
To address this, insurers have sought to transform one of their most important business capabilities, policy administration (PA). According to Capgemini and Efma’s 2012 World Insurance Report, 67 percent of North American insurers say policy administration transformation is their top priority over the next two years.
Historically, insurers have been tied to a variety of legacy business practices, several involving the PA function limiting their capacity to create business agility resulting in higher TCO and inhibited ability to compete in the marketplace. However, according to the 2012 World Insurance Report, by making investments in core, back-office levers of PA, insurers could potentially improve their business and technology efficiencies by up to 30 percent, lower total cost of ownership by up to 40 percent, and lower cost-per-policy by up to 30 percent.
Four Back-Office Levers
Insurers have kicked off their PA transformation strategy by investing in those core back-office levers that most directly impact the customer and include confirmation of coverage and policy issuance; policy/contract maintenance; billing and premium invoicing; and premium reminders and renewals. These areas provide immediate efficiency and financial benefits and lay the foundation for other parts of the system including rate and quotes or product introductions.
Confirmation of Coverage and Policy Issuance
Since the introduction of the Internet and email, the industry has gradually moved toward electronic formats, retiring the paper-filing processes of the past. We found that 78 percent of non-life insurers and 68 percent of life insurers have adopted electronic formats to distribute contract documents.
As the online channel becomes the focal point for how agents, customers and insurers interact and do business, a shift is occurring from electronic document distribution to the growing demand for self-service capabilities. Self-service functionality not only provides more flexibility to the customer but also to insurers managing the documentation. Insurers’ investment in this area will multiply as reliance on the Web and mobile grows, positioning self-service tools as a competitive differentiator in the eyes of the customer.
Due to the role that financial change requests play, it comes as no surprise that policy and contract maintenance is an area primed for proactive investment. According to the 2012 World Insurance Report, 79 percent of life insurers and 65 percent of non-life firms are making the case to move toward automating processing capabilities for both financial and non-financial policies as well as contract changes.
Insurers who have moved to automated policy and contract maintenance capabilities have reported increased agility in maintenance functions along with an ability to support long-term customer relationships. We also found that insurers with higher levels of agility in this function tend to have superior customer service and better retention levels.
Billing and Premium Invoicing
Today’s tech savvy customers expect more flexibility and convenience in how they both receive and pay their bills. And insurers have listened. According to the 2012 World Insurance Report, nearly 80 percent of insurers are now offering flexible billing with multiple payment options integrated with email and the Web.
New investments in the billing and invoicing function have allowed many insurers to offer account-level and channel-focused billing to support product co-branding and customization. As a result, insurers are now able to have an invaluable, single view of the customer to generate better insights and real time decision-making.
Insurers have long sought to minimize the infamous paper trail associated with policy renewals and are now making major headway, taking necessary steps to make these processes seamless and uncomplicated.
One way insurers are accomplishing this is by using historical claims data to provide automated policy reminders and renewals to customers that prove to be good risks. Improving this process enables insurers to easily meet their customers’ needs while also creating an opportunity to leverage cross promotional product programs.
Investment in this area is also enabling insurers to integrate policy reminder and renewal activities with external and internal systems including enterprise analytics platforms.
Investing in Analytics
By proactively investing in these four areas, insurers are striving to generate more business agility with their PA function. And their agility is likely to increase by investing in more technologies like analytic platforms and tools to utilize in other back-office levers.
More than 47 percent of non-life insurers and 27 percent of life insurers are already leveraging analytics tools for their underwriting and risk analysis and rate and quote functions. By leveraging more analytic tools for the underwriting process, insurers will slowly eliminate the chances of adverse risk selection and allow staff to focus on other core risk assessment activities.
Analytics usage will garner a desired outcome where insurers are able to extend automated rate and quote capabilities to all external entities, including banks, point-of-sale and other channels and partners, facilitate risk-profile evaluations, and provide more real-time rates and quotes to customers. Several firms have already reached this goal.
Where to Invest Next?
While so many areas of policy administration are directly felt by the customer and thus placing it at the top of the priority list for investing, insurers cannot overlook other key areas of their business driven by the continual rapid evolution of consumer behavior.
Look no further than the mobile space. As self service through smartphones and tablets become the preferred medium for customers and agents, the lines between front and back office are dissolving. No longer can these capabilities operate independently. The full integration and investments in front office systems, document and workflow management capabilities along with policy administration transformation is essential.
According to Forrester Research, spending on enterprise mobility is anticipated to reach $1.3 trillion globally by 2015 and spending on mobile IT is expected to double over the next five years. Many insurers have already begun devising and integrating mobile strategies and investing where needed to capitalize on this shift.
Although many insurers have started seeing positive outcomes from investing in several back-office levers they’re well aware that more investment is needed to transform the entire policy administration function and other areas of the business. Insurers must continue evaluating the needs and demands within their ecosystem of employees, customers, agents, brokers, and others in order to decide where to invest next and to what extent.
By executing an investment strategy that prioritizes the needs of the ecosystem, insurers will avoid spreading their investment dollars too thin and instead make larger investments that generate shorter and long term impacts on a specific business process and ultimately the bottom line.