Simplifying the way Insurance is done
In recent years, the insurance industry has been finding new ways to simplify. Complex products are prone to low discoverability by distribution channels, higher chance of customer fatigue in the fulfillment process, and resiliency to tailoring and compliance. Increased reliance on digital distribution is also forcing carriers to simplify their offerings and adjust to risk-based atomic selling compared to ‘catch all-risks’ products.
Demand for Personalized Insurance Offerings
As analytical offerings evolve, so too, the need for personalized offerings. Simplified risk-based insurance, when unbundled, is easier to target during the customer life cycle. Hence, this helps carriers tailor offerings, increase customer retention, and supply the distribution ecosystem with offerings that can be attached to multiple sales points. These smaller units of products are easier to track for compliance purposes and easier to iterate and scale without significant upfront investment. Product innovation in smaller iterations also allows traditional carriers to stay relevant in increasing competition from InsurTechs (firms that use technology innovations designed to squeeze out savings and efficiency from the current insurance industry model).
With COVID-19, insurance carriers are faced with the choice of rapidly introducing products to support the new pandemic risk. Carriers also have been experimenting with more modern adjuncts like wellness riders to improve risk profiles. In addition to changes in the regulatory landscape, pressure from InsurTechs has also forced insurance carriers to look at micro-insurance products. These products are additive and attach to existing contractual constructs for simplified delivery and service.
Detaching from Monolithic Systems to Unbundled Products
The trend toward detaching from monolithic traditional insurance systems toward a smaller manageable risk-based product eventually leads to unbundled products. Products geared towards a need with simplified processes are easier to target during the customer’s life stage. They are easily discoverable, easily composable, and friendly towards digital delivery.
As more of these products are sold, insurance carriers find themselves at a crossroads with legacy monolithic systems that can neither iterate fast enough with the changing market or compliance requirements. Increased merger and acquisition activity have saddled carriers with a highly fragmented enterprise and a need to simplify without exorbitant costs. Unbundling a saleable product also increases complexity within the system of record.
The record system should be able to aggregate product unbundling for visibility and process efficiency while maintaining the granularity for compliance. Risk-based compliance reporting in IFRS17 is friendly towards unbundling, but not at monoliths. Increased scrutiny from Design and Distribution Obligation regulations will not help the one size catch-all structures. Therefore, an existential need for insurance carriers to look at different solutions that are nimble enough for change yet mature enough not to increase the enterprise complexity to unmanageable levels.
Revamping Product Structure with Existing Legacy
Carriers often have existing business books in legacy systems that are not nimble enough to change the marketplace rapidly. Carriers choose to replace, rebuild, rehost, refractor or revise these existing systems with their risks and costs.
With a framework driven approach using Oracle Insurance Policy Administration System (OIPA), carriers can write their new books in OIPA. They can leverage the rule-based flexibility of OIPA to innovate and provide customers with in demand risk coverage rapidly. The older benefits or products would still reside in the legacy with OIPA serving as a wrapper for those risks. To external systems, service would be through the unified OIPA window as the cumbersome processing in legacy systems is replaced gradually via simplified and automated processes in OIPA. This allows for a phased sunset of legacy systems.
Using the flexible Business Rule Engine in OIPA, carriers are now free to develop a risk-based approach where each risk can be treated as a rider. The benefits sold to the end consumer are then tracked through this umbrella policy, acting as an aggregation point for simplifying all service lifecycles. OIPA allows the transfer of policy composition rules from design time to selling time and is still flexible enough to enforce compliance on a granular need. It enables you to transfer policy-based decisions and regulations to a rider/risk level by redesigning your business processes. With changes in how we evaluate businesses through a lens of IFRS17/LDTI, this risk-based unbundled approach to product administration will allow carriers unparalleled flexibility. This will also ensure that pages are not tied down by legacy systems or dependent on insurance product vendors to innovate. You can read more about speeding insurance product development and consolidation here and here.
Figure ‑1 OIPA as an aggregator in a fragmented enterprise
Product catalog as a service
With simplified products, the product catalog as a service to digital distribution channels becomes a reality. This enables a higher level of composability in financial needs analysis. A higher level of composability adds to the product’s comprehensibility. This occurs both in digital systems, for intermediaries, and makes it easier for the end customer. Here are key ways to help improve that product service:
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