Why Insurers Are Putting the Back Office in the Driver’s Seat

After having spent years on enhancing front-end customer experiences, wise insurance carriers are taking a hard look at the rest of their outdated systems and moving them to the cloud. Read more to learn why.

Jim Gahagan April 11, 2019
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Dealing with uncertainty comes naturally to the insurance industry—after all, insurers are in the business of mitigating risks—but today’s challenges are vastly different from years past. Digitization is causing all sorts of disruption, including new types of competitors and higher consumer expectations, while the regulatory landscape keeps growing in complexity.

And the dust is far from settling. While many legacy insurance carriers have made innovative strides by upgrading customer-facing touchpoints, it’s the agility of the back office that propels companies forward.

Venturing Into the Cloud

The insurance industry has a reputation of being risk-averse when it comes to technology, but actually, it has a history of embracing innovative methods including being an early adopter of mainframe computing in the mid-20th century. The digital revolution marched forward, bringing forth a rapid-fire of technological advances—personal computers, spreadsheets, the Internet.

Then along came the cloud. Running software or storing data had long required on-premise infrastructure. With the cloud, companies could have their software delivered by a software-as-a-service provider, and also store and access their data in the cloud. As it’s matured, the cloud has made it possible for businesses to gain insights into real-time data from multiple sources, even bringing in artificial intelligence capabilities such as machine learning.

The cloud also changed the nature of scaling in the traditional sense. Even in a highly regulated industry like insurance, new players can enter the market outfitted with robust computing power, and with configurable software that meets their industry-specific needs that can be updated instantly over the internet.

Yet for many established insurance companies, digital transformation has primarily occurred in consumer-facing aspects of the business. That’s not enough to remain competitive in the marketplace. Insurers have to take their digital transformation one step further—or rather, a step back, to update their back-office operations.

In fact, carriers who can effectively leverage the cloud for business operations and analytics are in the best position to navigate current and future challenges shaping the industry.

Capitalizing on Operational Efficiency

Insurance companies have more legacy systems than meets the eye—many customer-facing touchpoints like sleek apps or user-friendly dashboards are connected to aging mainframes. Some carriers find themselves having to manage multiple claims, cash, and policy systems inherited with mergers and acquisitions. It takes intensive effort to maintain a myriad of different processes, costing efficiency and profitability.

A continuously updated cloud-based computing system enables insurers to focus more time on delivering customer value and less time on manual processes, which paves the path to increased productivity and profitability. In some cases of ERP deployments, the cloud reduces about 50 percent of the time it takes to prepare reports, according to research conducted by our customer value realization team.

Reducing operating costs is among the top business priorities named by 40 percent of global insurance purchase influencers in the January 2019 Forrester report, “How Five Drivers Will Shape Insurance Business Technology Investments in 2019.” “Insurance firms have big plans to fund new initiatives with savings wrung out of the business,” according to the report.

Arvind Mathur, CIO of Prudential Assurance Company Singapore, told Forrester: “If we get operational efficiency right, we will generate the cash to invest in further enhancing customer experience.”  

That’s why after having spent years focusing on enhancing front-end customer experiences, wise insurance carriers are taking a hard look at the rest of their outdated systems and moving them to the cloud. Some are choosing a single cloud ERP system to plan, execute, and analyze their business because all of their data is in one place, and are using that cloud platform’s open technologies to create custom extensions for their own specific business needs.

Uncover the Drivers Affecting the Business

Data has always been central to insurance—after all, it’s necessary for calculating risk and insurance premiums—but today’s business landscape requires data to have another dimension: real-time insight.

Consider this: historically, customers were loyal to buying insurance from a local agent in their community. But as technology evolved, customers started to look beyond their local insurance companies and shop online for the best deal. In today’s landscape, purchasing insurance policies online doesn’t always require speaking to a person.

The online nature of the modern consumer requires insurance companies to understand all their risks so they can make the best decisions about how to price competitively without losing money. Access to real-time data, both internal and external, helps insurers, for example, determine how to price home insurance based on catastrophic weather risks or price health insurance based on consumer lifestyles, and to better understand both their losses and profitability from claims.

It’s a sentiment shared by Workday customer Shelter Insurance: “We want to know the reasons behind the numbers,” said Mark Stinson, director of corporate accounting at Shelter. “We want to be able to look at losses by state and even lines of businesses within each state, so we can understand what is happening related to an uptick in losses in a region.”

It’s no longer necessary to make decisions based on old data. With cloud-based tools, insurers can gain real-time insight into current financial, human resources, and other operational data—all needed to understand and make the best decisions for the business.

Staying Ahead of Evolving Regulations

Historically, meeting regulatory requirements was a people-intensive effort. Compliance reporting was not part of a financial system’s fixed code block, so companies had to “throw bodies at the problem,” so to speak, to manage numerous ledgers and consolidate data into spreadsheets.

But using brute force for ad-hoc reporting isn’t sustainable, especially given that one of the most significant shifts in regulatory reporting is on the horizon: International Financial Reporting Standards (IFRS) 17, which goes into effect in 2021. Insurance in the U.S. is regulated at the state level, but IFRS 17 establishes a worldwide accounting standard that facilitates apples-to-apples comparisons of global insurance companies’ financial statements, increases transparency of policy profitability, and reduces incorrect valuations.

It’s one reason why addressing regulatory compliance is a top priority for 40 percent of respondents in the Forrester report cited above. “Product innovations delight customers and capture behavioral data — and catch the eyes of regulators who can deadlock new revenue generators,” the report says.

The fixed code block typical in a legacy system limits the ability to easily meet regulatory hurdles. Instead, companies need a back office system that can capture data ahead of looming and ever-evolving regulations. Consider Shelter Insurance: to get insights into day-to-day events like expenses and transactions, the company leverages additional dimensionality to reshuffle hierarchies and reporting elements. Carriers can leverage this functionality to adapt to new regulations and prepare for future and uncertain regulatory requirements.

Insurers are more than willing to help others minimize risk, but when it comes to mitigating a rapidly changing landscape, how can they maximize their own ability in handling uncertainty with confidence?

That’s why investing in the back office should take the front seat. Established insurance companies have heavily invested in technology upgrades to customer touchpoints, and it’s time to apply that same rigor to upgrading backend systems. Real-time data and agility will make all the difference in responding to current and future challenges shaping the industry.

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