COVID-19 forced L&P Insurers to simplify operations and drastically reduce their reliance on manual interactions and complex, paper-based processes; modernization of IT and digitalization are among key investments being made in 2021 to future-proof the industry.
Overall, the life and pension (L&P) insurance industry held steady in 2020, showing sufficient resilience to the COVID-19 pandemic. However, according to Everest Group, COVID-19 undeniably made one significant impact on L&P insurers: they were forced to recognize the need for change and innovation.
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:
- 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.
- 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.
- 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.
- 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.
- 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. Everest Group estimates the growth rate of the L&P Insurance BPS market at 4-6% for 2019 to 2020 and projects growth could accelerate to as high as 9% by 2022.
These findings and more are shared in Everest Group’s recently published report, “Life and Pensions (L&P) Insurance BPS State of the Market Report 2021: Insurers’ Complex Journeys to Simplification.” This report provides a comprehensive picture of the key investment trends in the L&P insurance outsourcing market across various dimensions and includes Everest Group’s L&P Insurance BPO Services PEAK Matrix® Assessment of service providers for 2020.
About Everest Group
Everest Group is a research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global companies, service providers, and investors. Clients use our services to guide their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com