The Cloud for Life Insurance Policy Administration

Despite its myriad benefits, the adoption of cloud computing in policy administration life insurance is still low.

Historically, policy administration cloud computing occurred as business units bypassed IT departments, typically in small or niche circumstances, to achieve a lower cost point or more rapid time-to-market.

As carriers express concerns over regulation, security, complexity and integration, some are considering the cloud for policy administration and are carefully testing the water.

Cloud computing as a life insurance policy administration solution contains distinct benefits when it comes to:

Smaller insurers

Smaller insurance carriers have largely been unable to take advantage of robust IT solutions due to the high upfront and ongoing costs of traditional licensed software products. Cloud computing offers the opportunity to reduce the cost burden and IT expertise needed in the traditional approach and enable them to compete more effectively with larger organizations. Early adoption of cloud technologies can perhaps provide a smaller organization with an opportunity to transform its service models, change perception and gain a competitive edge. It is, therefore, expected that adoption of the cloud among smaller carriers will initially be higher in comparison to the rest of the market.

New product launch

Often, the investment to launch a new product in the carrier’s traditional licensed software environment can prevent the product from actually coming to market. The hurdle rate is simply too large. IT department backlog and dealing with current production issues can limit the timelines. We talked recently with one carrier where  a “simple” new product launch was going to cost over $1 million and system work could not even begin for 15 months (if approved quickly). Carriers thus compromise on product design and features or miss market opportunities due to this environment.

Some carriers are turning to the cloud as an alternative. Once the initial interplay with other enterprise systems is in place, a cloud provider should be able to provision a new product in a much more cost-effective and timely manner. The real potential of the cloud is to provide the opportunity to enter new markets and offer new services that result in a competitive advantage during periods of rapidly shifting markets.

Specialty lines and products

Andesa has nearly 30 years of experience in the life insurance industry, serving the unique needs of the COLI and BOLI market for several of the largest life insurance carriers in an outsourced environment. In addition, Andesa has helped its carrier clients target specific markets or products with complex designs and features including Private Placement, Stable Value Wrapped, Hybrid products, Market-Value Adjusted products, Experienced Rated products, Illiquid Fund Processing, etc.

To avoid the diversion of focus and resources from the carrier’s main strategy, consideration of the cloud for niche lines and products is gaining momentum as an alternative.

For specialty, niche or complex products, a carrier can obtain a well-designed and supported cloud solution vs. an inefficient and costly work-around alternative from their core system.

Closed Blocks

Carriers want to control current and future costs. For a variety of valid reasons, many carriers have a number of closed blocks (no longer actively being sold and positioned for run-out). For a carrier focused on the future, closed blocks are often treated as non-core operations.

Outsourcing closed blocks of business is gaining acceptance. Depending on where that particular carrier finds itself in regard to cost position, manual processes, size and nature of the product and strategic focus, there are a number of possible cloud solutions. Carriers can consider outsourcing to the cloud for a technical solution – or outsourcing the full business process and customer support as well.