Overall, the life and pension (L&P) insurance industry held steady in 2020, showing sufficient resilience to the COVID-19 pandemic. However, according to
The L&P insurance industry is known for being complex and compliance heavy. The challenges brought by the pandemic underscored for L&P insurers the inefficiency of reliance on manual interactions and paper-based, fragmented processes. As a result, many insurers are looking to simplify their operating models by investing in the following initiatives:
- 1. Efficient capital management through divestitures: Most L&P insurers have a great deal of capital tied up in capital-intensive products such as guaranteed products and legacy blocks. Adding the high maintenance costs of disparate legacy systems, the capital that could be allocated to new innovation investments remains insufficient. Thus, proper capital management is the need of the hour, and many insurers have divested out of capital-intensive businesses or legacy blocks to free up resources and, in some cases, reduce debt.
- 2. Expansion into strategic growth markets: Leading L&P insurers across the board are simplifying their geographical portfolio strategies and focusing on the markets that they consider lucrative in the long term, rather than stretching themselves too thin.
- 3. Product alignment and innovation: Customers have become more aware of the importance of life insurance and retirement planning; however, they want to be offered more relevant products that are suitably customized to their specific needs and stage of life. Insurers also realize that only protection or coverage is not enough; value-added services such as financial wellbeing advisory are becoming more important than before.
- 4. IT modernization: L&P insurers' technology infrastructure remains a key shortcoming when it comes to innovation. L&P insurers largely rely on an IT and data architecture that is legacy, inflexible, and complex to navigate. Work environment changes during the pandemic forced insurers to provision a more flexible and remotely enabled IT landscape, and leading insurers are now concertedly taking other corrective measures as well.
- 5. Digitalization of processes and channels: COVID-19 thwarted insurers' usual manual and paper-reliant processes and drove a surge in online customer traffic, forcing insurers to quicken the pace of digital adoption. Digitalization is not only important for end-customers, but also for improving the productivity and efficacy of other stakeholders, such as agents, brokers and employees.
To achieve these strategic priorities, many insurers turn to the outsourcing ecosystem. Most of the large carriers already have outsourcing relationships with business process services (BPS) providers, so it is small-sized carriers that are creating new activity.
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