How To Manage Insurance Run-Off?
For managing insurance run-off, IT strategies include complete outsourcing of the end-to-end IT operations and platform-based IT or business process outsourcing
Is it too much for consumers to expect steady income streams from dividends off annuities, life insurance policies, and the like? The answer - theoretically, at least - should be a resounding yes. But try telling that to life and annuity providers in today's world, who are going through a challenging period. You name it and they're dealing with it: sustained low interest rate, fierce competition, increased regulatory scrutiny, and changing customer preferences.
So the pressure is on to find new ways to extract value from every corner of the company so that consumers don't get stuck with flimsy returns. Is it any wonder, then, that some prominent insurers are spending significant time, money, and resources to manage their closed block business? This business has become the 800-pound gorilla in the room. Closed blocks have piled up over the years because of the discontinuation of unprofitable or non-strategic products.
The latest research from Celent Insurance estimates that some 40 percent of premiums written in the insurance industries in both the United States and United Kingdom are expected to be derived from non-strategic or closed blocks. Considering the magnitude of this block of business, you might think insurers would have a solid strategy to manage these blocks. Not true, however. On the contrary the most common strategy remains to be passive management of run-off, internally.
The cost associated with internal management of the closed block business is too high. Inevitably, insurers are looking for alternate approaches that make better business sense. Some of the popular strategies include a complete transfer of run-off assets and liabilities to another company, solvent schemes of arrangement, strategic commutation and reinsurance. While the benefits associated with these strategies are immense, many insurers prefer to continue with the passive management of closed blocks. That's where having the right technological approach comes handy. I can't stress enough the technological propositions and capabilities, including options, that are tailored to carriers opting for passive management of the run-off business. IT strategies include complete outsourcing of the end-to-end IT operations, platform-based IT or business process outsourcing, monetization of the existing platforms or a Software as a Service (SaaS) based model.
These strategies all come with their own set of advantages. Insurers need to have proper due diligence processes covering the financial viability, business alignment, and future envisioned IT landscape - not to mention the functional and technical orientation and implementation complexity to select the best-fit strategy. Effective management of closed blocks will enable a more efficient cost structure and improve profitability.
I see insurers warming up to these practices. They are analyzing the various alternatives available. Several insurers opting for passive management of their run-off business are partnering with strategic IT vendors to lower the total cost of operation (TCO), improve margins, unlock human and financial resources, increase operational efficiency, and (last but certainly not least) enhance the customer experience.
Irrespective of the strategy - insurers should carefully evaluate the benefits and develop a detailed business case before taking the plunge. When customers' hard earned investments are at stake, a half-hearted or not-well-thought-out approach can be counterproductive. Yet another reason to ensure a multitude of benefits from implementing the right IT.