Select the Right Insurance Policy Administration System for Life and Annuity

Determine the value that an effective policy administration system (PAS) can bring to your business.

Analyst Perspective

Ensure that your PAS vendor meets your needs.

Your policy administration system is the center of your life and annuity insurance business. But what if your existing PAS no longer meets the needs of your customers or the business? The life and annuity insurance business is evolving quickly. Customers expect a better experience – an experience that is fast, efficient, and available 24/7 through whatever channel they prefer. The business wants to launch new and innovative products and features that align with increasingly competitive market demands.

Meeting customer and business demands requires a PAS that is flexible, open, and highly automated. As AI continues to impact the life and annuity insurance market, your PAS must provide access to your data. The ability to use internal and external tools will become increasingly important to the future of your PAS, so you must ensure that there is an integration path for these new tools as they emerge.

David Tomljenovic Head of Financial Service Industry Research Info-Tech Research Group

Executive Summary

Your Challenge

Your team may struggle to find time to research the PAS market in depth and may not see the value in switching systems, putting your business at risk for missed innovation.

Selecting the right vendor – the vendor that offers the right features, functionalities, and opportunities – can be challenging for an insurer.

Your business may be unaware of the opportunities and risks of a new policy administration system, as well as the features that need to be considered.

Common Obstacles

Sometimes a team doesn’t know where or how to begin to engage the right people, model the business, and drive value with a new policy administration system.

Digital transformation has accelerated across every industry, organization, and department, and CIOs must maneuver this change to keep pace in a digital-first world.

The business and IT often focus on a project's immediate value, ignoring the holistic value that the project will provide today and in the future.

Info-Tech’s Approach

Comprehend the trends and deployment models within the policy administration system market.

Define an organization’s key capabilities through cost and competitive advantages to understand the current state of the organization and the need for a new PAS, vetted through a value chain analysis.

Review the functional criteria of vendors. Info-Tech analyzed eight of the dominant players in the PAS market to help you compare their functional capabilities.

Info-Tech Insight

To meet customer expectations and be competitive, insurers must evolve with the market and focus on differentiating capabilities to meet business objectives and goals. Your policy administration system is essential to your organization’s success.

A PAS manages all aspects of your insurance operation

Product sales processes are critical for enabling sales. The PAS will help insurers to design, create, and launch new product and services.

Product support processes are needed to administer issued policies. The PAS will affect all areas of your insurance operations as well as your products. Customer experience is a key area of focus.

Business support processes provide indirect operational capabilities. Increasingly, the insurance industry is moving toward ecosystem-based products and features. The indirect features can have a direct impact on your core insurance products.

Understand the PAS environment in depth before evaluating solutions. It is also important to understand your specific requirements before you begin to evaluate the PAS solutions that are available.

Info-Tech Insight

Your PAS will facilitate all functions, from product design and development, policy quotes and issuance, and claims management through to payment processing, fraud and risk management, customer relationship management (CRM), and data and regulatory reporting.

An effective PAS will deliver superior customer experience while driving more profitable sales

A PAS allows an insurer to improve customer experience while enhancing overall operational capabilities. A PAS offers integrated capabilities that will allow customers to interact with the company more easily, while the company can use its capabilities to reduce risk, fraud, and costs to drive sales and profitability.

Improved Customer Experience

• 24/7 availability through automated self-service capabilities
• Omnichannel/multichannel capabilities
• Support for innovative product development
• Greater personalization
• Faster, more responsive sales and support

Your PAS should make your company more efficient.

40% increase in productivity due to the elimination of low-value tasks (ScienceSoft, 2023).

Greater Sales and Profitability

• Intelligent processes to power greater sales through increased personalization
• Automation to enable scale by reducing manual effort across all processes
• Integration to reduce costs by offering connected risk, fraud, and support capabilities

A modern PAS will result in new products and sales.

Up to 60% reduction in operational costs due to reduced labor costs from optimized workflows (ScienceSoft, 2023).

PAS market disruption is coming from customer expectations

Insurance consumers expect the same digital experiences that they have elsewhere.

• Omnichannel is now essential. Customers want to be able to connect however they choose, which is increasingly digital.
• 24/7 service is now the norm. Customers want to be able to engage with their insurer at whatever time they choose.
• Real-time engagement and service is essential for building customer engagement and satisfaction. Customers will no longer fill out paper forms and wait days for a quote or for their claim to be addressed.
• New and innovative products and features are required to compete with financial technology (fintech) and new digital startups, which are using new capabilities and data to disrupt the life and annuity market.

Delivering on customer expectations requires mature product and business support services, including:

• Claims management: This is among the most important capabilities for producing strong customer satisfaction. Fast and accessible digital tools must be able to service customers.
• Policy servicing: Increasingly, insurance is more of a service business and less of a product business.
• Data and reporting: Insurers must have very mature data capabilities to drive automation and innovation. Customer insights come from data that flows into new products and capabilities.
• Regulatory reporting: The regulatory environment continues to grow in complexity. Your PAS must be able to automate your regulatory reporting in order to minimize effort while assuring compliance.

Understanding customers will drive sales.

AI-guided insurance product sales can add up to ... 15% ... more revenue through more effective pricing and cross-selling (ScienceSoft, 2023).

Compliance rules are becoming increasingly complex.

A PAS can ensure ... 100% ... compliance with legal regulations due to automation of compliance rules and real-time monitoring (ScienceSoft, 2023).

Key disruptors in the PAS market are driven by technology

Disrupting Factors

1. Deep customer understanding: New competitors are delivering innovative products and services that use customer understanding as their core. Traditional insurers must build data capabilities that will provide a deeper understanding of their customers.
   • 74% of insurers are investing in data science and data analytics capabilities (InsuranceNewsNet, 2024).
2. Product and service agility: Competition is driving innovation and competition. Traditional insurers have tended to have long product development and usage cycles. Insurers must be nimbler, which requires agile systems and capabilities.
   • 60% of insurers are investing in legacy systems and modernization (InsuranceNewsNet, 2024).
3. Shift to real-time mobile engagement: Customer engagement is a major center of competition. Mobile apps are enabling real-time customer engagement. Insurers must ensure that their technology is capable of delivering real-time, 24/7 services.
   • 66% of insurers are investing in customer service technologies (InsuranceNewsNet, 2024).
4. Delivery of ecosystem-based capabilities: New life and annuity products and services go well beyond the sale of traditional policies. Customers are receiving holistic products that focus on their overall wellbeing though ecosystem-based partnerships.
   • 60% of insurers are investing in cloud capabilities and 52% are investing in distribution technology (InsuranceNewsNet, 2024).
5. Operational efficiency: Digital enablement is linked to greater agility, speed, and, most importantly, reduced costs. Traditional insurers must leverage technologies in their PAS, as well as automation and data, to streamline operations and reduce costs.
   • 77% of insurers are investing in digital automation and 61% are investing in business process management capabilities (InsuranceNewsNet, 2024).

Deliver superior customer experiences and efficient operations with the right PAS

To remain competitive and meet the expectations of modern customers, insurers must evolve with the market and focus on differentiating capabilities to meet business objectives and goals.

The Disruptors

• Deep Customer Understanding
• Product and Service Agility
• Shift to Real-Time Mobile Engagement
• Delivery of Ecosystem-Based Capabilities
• Operational Efficiency

The Solution

1. PAS Deployment Models

   Consider the different PAS deployment models, technical requirements, and costs to understand which model best fits the insurer and its objectives.

2. Value Streams, Capabilities, and Processes Within Scope

   Define the organization’s key capabilities through cost and competitive advantages to comprehend the current organizational state and what it needs from a new PAS, vetted through a value chain analysis.

   Insurance Value Stream

   

   Business Capability Map

   

   PAS Processes

   • Design
   • Service
   • Report

3. Analyzed PAS vendors

   Review the functional criteria that Info-Tech analyzed for eight key players in the PAS market with functional viability for your company.

Consider risk versus reward when deciding whether to buy/license or build a PAS

Buy/License

Rewards

• Sticking to the core business of insurance may be better than becoming a software company.
• Implementation is quicker and easier than building.
• It is significantly cheaper to buy an off-the-shelf PAS than to build a PAS.
• Buying/licensing is suitable for small, medium, and large insurers.
• There is no need for a PAS development team.
• Vendor products can provide in-depth functionality.
• Vendor support can make enhancement easier.

Risks

• There is limited customizability, so all needs may not be satisfied (depending on the system).
• There may be vendor lock-in.

Build

Rewards

• Unlimited customization is possible. The system can be built to meet the specific needs of the insurer.
• Vendor stability is not a factor since everything is in-house.

Risks

• Building a PAS from scratch is a heavy financial burden. The probability of technical debt turning into a technical deficit is higher.
• It is also time consuming to build a PAS from scratch.
• Building a PAS is more viable for large insurers.
• The need for frequent updates can take valuable developer resources away from other projects.
• Resources and budgets are usually limited.

Consider the different PAS models

Info-Tech Insight

The right model depends on each insurer's unique circumstances. An insurer will need to consider existing infrastructure, operations, and IT capacity and capabilities. The insurer will also want to evaluate its future technology roadmap when choosing which model is correct for its business.

Determine how the PAS impacts the business

Illustrative Example

Insurance Life and Annuity Business Capability Map

In business architecture, the primary view of an organization is known as its business capability map. A business capability map consists of business capabilities and value chains.

A business capability defines what a business does to enable value creation, rather than how.

A value chain is a high-level analysis of how the industry creates value for the consumer as an overall end-to-end process.

A business capability map provides details that help a business architecture practitioner direct attention to a specific area of the business for further assessment.

The highlighted capabilities receive a cost and competitive advantage through an effective PAS.

Activity 1.1 Define your organization’s key capabilities

1-2 hours

Input: Insurance reference architecture

Output: Highlighted capabilities of cost and competitive advantage creators for your organization

Materials: Whiteboard/flip charts

Participants: Project manager, CIO, Relevant stakeholders (accountable for PAS-related decisions)

1. Determine the cost advantage creators. Focus on capabilities that drive a cost advantage for your organization. If your organization has a cost advantage over competitors, the capabilities that enable this cost advantage should be identified and prioritized. Highlight these capabilities and prioritize the programs that support them.
   1. What is the source of your cost advantage? IT should support the capabilities that drive the cost advantage.
   2. Is the industry you operate in sensitive to price fluctuations?
   3. Do not focus on capabilities that create an unsustainable cost advantage. Take a long-term perspective and allocate your resources wisely.
2. Determine the competitive advantage creators. Prioritize the capabilities that give your organization an edge over its competitors. If your organization has no cost advantage over its competitors, determine whether it can deliver differentiated end-customer experiences. Once you have identified the competitive advantages, understand which capabilities enable them. These capabilities are critical to the success of your organization and should be highly supported.
   1. Does your organization provide any products or services that customers consider superior to competitors’ offerings?
   2. Which capabilities enable the competitive advantage?
   3. How easy is it for competitors to neutralize your competitive advantage? Focus on capabilities that are difficult for competitors to replicate, since these create a more sustainable advantage.
   4. Don’t just determine the competitive advantages. Incorporate various perspectives from throughout your organization to truly understand how your organization competes in the marketplace.

Activity 1.1 Define your organization’s key capabilities

Analyze your policy administration system with value chains

Illustrative Example

Activity 1.2 Complete a value chain analysis

1-2 hours

Input: Business and industry context

Output: Value chain analysis for a PAS

Materials: Whiteboard/flip charts

Participants: Project manager, CIO, Relevant stakeholders (accountable for PAS-related decisions)

1. The first step in delivering value is defining how it will happen through the PAS being considered. Use the organization’s industry context to start a discussion on how value is created for stakeholders (internal, such as staff, or external). Working back from the moment that value is realized by a stakeholder, consider the sequence of steps required to deliver value in the business and industry.
2. Identify value streams, chains, and stakeholders that are associated with the PAS being considered. Typically, the stakeholders are those who benefit from the value chain.
3. Once the key value chain has been identified within the value stream, evaluate the individual business capabilities within the value chain and identify areas for transformation.
4. Evaluate each capability based on:
   • The level of pain or risk experienced by a stakeholder to accomplish the capability or process.
   • The financial impact that the capability or process has on your organization.
   Capabilities that pose both a high level of pain or risk and financial impact should be prioritized for transformation.
5. Further analyze the prioritized capabilities for transformation by determining the greatest risks, complexity, key benefits, dependencies, and financial revenue of the PAS being considered. This should address how the PAS would improve the value chain and its transformation.

Activity 1.2 Complete a value chain analysis

Templated Worksheet

PAS capabilities and processes

Illustrative Example

Expanded insurance business capability map to PAS processes

Activity 1.3 Identify opportunities through a PAS assessment

1-2 hours

Input: Outcomes from Activities 1.1 and 1.2

Output: Expanded reference architecture for your organization, Assessed PAS processes, Identified opportunities for a PAS solution

Materials: Whiteboard/flip charts

Participants: Project manager, CIO, Relevant stakeholders (accountable for PAS-related decisions)

• Business agility is essential for staying competitive and developing resilience to changing market conditions. Your application portfolio, especially your policy administration system, must support business needs and advantages sufficiently through functional flexibility and efficiency.
• Assess the current state of your PAS with the following criteria:
  • Green: Process is well-supported by the PAS.
  • Yellow: Process is moderately supported by the PAS.
  • Red: Process is somewhat supported by the PAS.
  • Black: Process is unsupported by the PAS.
• Adopting a value-chain-based approach to assess your current PAS will enable IT and business units to identify opportunities to:
  • Rationalize the PAS processes and features.
  • Automate tasks through the strategic selection and implementation of PAS processes.
  • Integrate applications that have cross-capability functions with the PAS.
  • Eliminate redundant or legacy applications and features that deliver insufficient value.
  • Identify areas of customer and employee friction and potential areas of return on investment (ROI) drivers.
• The color-coded areas in this activity will address the capabilities that your organization should focus on for a new PAS solution and vendor.

Download Life and Annuity Insurance Industry Business Reference Architecture.

Activity 1.3 Identify opportunities through a PAS assessment

Templated Worksheet

Customize this business capability map with your organization’s key value chains, capabilities, and processes to assess your current PAS.

Improving your PAS should deliver measurable results and higher profitability

61% of insurance executives say that shifting consumer preferences have accelerated their reinvention strategy (“The Case for Composable Architecture in Insurance,” Accenture, 2022).