Life Insurance Portfolio Migrations: Finding Opportunity in Complexity
In an era of rising administrative expenses, life insurers are increasingly looking for ways to streamline operations and reduce costs. One strategy gaining more attention is portfolio migration. While complex, these migrations can provide significant benefits if planned and executed strategically.
The Current Landscape
Between 2019 and 2023, the average administration expenses ratio for life insurers, calculated as administration expenses over life reserves, has risen significantly, from 0.36% to 0.43%. This represents a nearly 20% increase. This financial pressure makes portfolio migrations – the process of transferring insurance policies from one platform to another – a more attractive option.
Benefits of Portfolio Migrations
When done correctly, portfolio migrations can provide several advantages, fundamentally improving the insurer’s bottom line and operational efficiency.
Platform Rationalization
Rationalizing IT platforms offers several key benefits:
- Cost Savings and Efficiency: Fewer systems translate to reduced maintenance costs and a more streamlined IT architecture. Developing new functionalities becomes easier and faster, as only one platform needs adjusting, which leads to a faster ‘time-to-market’ and a lower total cost of ownership.
- Standardized Processes and Accelerated Onboarding: A uniform IT environment shortens onboarding time, allowing employees to focus quickly on complex, value-adding processes.
- Compliance and Regulation: A streamlined and standardized IT landscape helps insurers to better meet regulatory requirements, such as those outlined in DORA (Digital Operational Resilience Act), and reduces vulnerabilities.
Navigating the Challenges
Portfolio migrations, however, are often perceived as complex, and there are several hurdles to overcome for a successful outcome:
Data Migration
The transfer of data is one of the biggest challenges. Legacy systems often contain inconsistent or incomplete data, or there is a lack of knowledge within the firm about the structure of historical applications. A focus on migrating the minimum data set required to ensure contractual agreements is essential. It’s important to avoid migrating too much data from the legacy system; non-key data should be archived.
Complexity of Business Processes and Products
Life insurance products and associated business processes can be complex, with multiple versions or unique processes. A product rationalization can simplify the migration substantially. Where necessary, commercial migration can be applied, where products are surrendered by the insurer or changed without compromising contractual obligations. A cost-benefit analysis per product can assist in this.
Business Continuity
Ensuring the continuity of customer-facing and regulatory processes is crucial. A clear plan that guarantees continuity for each end-to-end process is essential. The focus should be on minimal disruption and preventing backlogs.
Change Management
Employees need guidance during the transition to new systems. Building trust in the new system is crucial.
Administration expenses are increasing, making portfolio migrations more relevant than ever. Between 2019 and 2023, the average administration expenses ratio (administration expenses over life reserves) skyrocketed from 0.36% to 0.43%.
Conclusion
Portfolio migrations present a significant opportunity for life insurers to improve efficiency, reduce costs, and enhance their capacity for innovation. While the process can be complex, a strategic approach based on a thorough understanding of the challenges and careful planning can help insurers successfully navigate this journey and position themselves for future growth.
