Life insurance portfolio migrations: from complexity to opportunity

As administration costs rise, life insurers should embrace portfolio migrations. The long-term benefits far outweigh perceived complexities.

In brief:

• Life insurers face rising administration costs, making portfolio migrations increasingly relevant despite their complexity.
• Strategic planning and expertise in migration can lead to improved operational efficiency and compliance with regulations.
• By rationalizing platforms, insurers can streamline processes, reduce costs, and enhance their capacity for innovation.

Many life insurers hesitate to execute portfolio migrations of their life insurances due to their complexity. However, administration expenses are increasing, making portfolio migrations more relevant than ever before. Over the period 2019- 2023, the average administration expenses ratio (i.e administration expenses over life reserves) skyrocketed from 0.36% to 0.43%, which is an increase of almost 20%. On top of achieving cost reduction, portfolio migrations result in multiple benefits for the firm, such as enhanced efficiency and innovation capacity of the life insurer.
 

The benefits of platform rationalization 

Platform rationalization brings multiple benefits. Some major ones are:

1. Cost savings and efficiency

Rationalizing IT platforms has a significant impact on maintenance costs. Fewer systems mean less maintenance and a leaner IT architecture. Additionally, developing new functionalities will become easier: only one platform needs to be adjusted instead of multiple ones. This leads to a faster 'time-to-market' and a lower total cost of ownership.

2. Standardized processes and accelerated onboarding

New employees often face a steep learning curve when working with various legacy systems. A uniform IT environment shortens the onboarding time, allowing employees to focus more quickly on complex processes that truly add value for the customer.

3. Compliance and regulation

Regulations such as DORA are increasingly pressuring organizations to make their IT systems more efficient and robust. A streamlined and standardized IT landscape helps companies better meet these requirements and reduces the risk of operational vulnerabilities.

The challenges of a successful portfolio migration

Despite these benefits, many life insurers remain wary of portfolio migrations. The complexity of data migration is often one of the biggest challenges. Data migration refers to transferring data to ensure that business processes remain uninterrupted and contractual obligations to customers are guaranteed.

The key to a smooth transformation is to have a thorough understanding of the main challenges, which include:

Lack of data knowledge

Legacy systems often contain inconsistent or incomplete data or a lack of knowledge within the firm about the data structure of historical applications. Therefore, it is essential to focus on the minimum data set required to ensure contractual agreements. This approach facilitates migration significantly. Too often, business tends to migrate too much data from the legacy system to the new one. Instead, one should focus on migrating the minimum amount needed to proceed, and non-key data should be archived.

Complexity of business processes and life insurance products

Over time, business processes are often stacked upon one another. Specific discounts for certain target groups or unique procedures for historical customers are only a few examples of this. It must be evaluated whether these processes still provide added value. Instead of adapting the target system to existing processes, it is recommended to re-design these processes in line with the target policy administration system.

Additionally, Belgian life insurance products are very complex as often many different versions exist. In most cases, a product rationalization could simplify the migration significantly. If required, a 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

The continuity of customer-facing and regulatory processes is crucial for a smooth migration. A clear plan that ensures continuity for each end-to-end process is essential. The focus should be on minimal disruption and preventing backlogs as a result of the migration.

Change management

Employees need to be guided through the transition to new systems, with attention to resistance and adaptation. Building trust in the new system is crucial in this regard.