Core System Strategies for the Fintech Age: LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 6

Finally, we will speak out the proposal from three perspectives…

  1. Automation to Complex Systems
  2. Core Standard and Local Variation
  3. Review Sourcing Models

Winding down this post series, Celent would like to put forth an approach specifically tailored to helping insurers formulate modernization plans.

This entails determining top-priority business strategy challenges, formulating a solid scope definition sufficiently reflecting a firm’s capabilities, strengths, and appetite for risk, architecture design, and assessing the feasibility of the project.

***

 

LANDSCAPE AND TARGETING

It is important to create a conceptual diagram that will function as a systems map, containing the peculiarities and implied information to give stakeholders a clear overview of the systems.

In addition, using a system landscape, which is an accepted industry approach to convey knowledge (including the constitutive elements of the core systems in the context of business goals and by involved stakeholder), companies can thrust the unique and peculiar elements into relief.

This task will probably be unfamiliar to Japanese insurers who have designed, developed, operated, and maintained their own core systems. In short, it will be difficult to determine

  • What is standardized?
  • What is peculiar?
  • What can be outsourced?
  • What should be internalized?

Identifying modernization targets, along with formulating the project scope definition, will facilitate setting business strategy priorities and will help lead to emphasizing core system priorities based on desired capabilities.

FIG6-1: Landscape and Targeting: Insurer System Landscape

FIG6-1

 

MODERNIZATION THAT AVOIDS RECREATING LEGACY ISSUES

The greatest risk of any legacy modernization project is recreating legacy issues.

Indeed, Celent regards this as more significant than both stable system operation and realizing a business case.

It is of paramount importance that modernization projects do not recreate legacy challenges but rather free firms from them. Celent puts forth the three proposals below to help ensure that insurer modernization initiatives are successful.

1. Automation and Its Application to Complex Systems

The key to attaining a high level of operational efficiency, not only among systems, but also with straight-through processing (STP) of insurance office tasks as well as office and communication processes, lies in applying automated business processes to complex systems tasks (this refers to processes that are excessively concentrated and frequently require exceptions processing).

When it comes to communication among insurer stakeholders (customers, intermediaries and agents, employees, management, and others involved in the market), it is important to look at several things including rethinking stakeholder interaction and communication (reports, contact, and consultation routes that occur in daily operations), making communication possible through a portal, and the possibility of consolidating existing applications such as workflow tools.

The capacity for insurance office activities to be automated (core processes, exceptions processing, eligibility criteria, business rule management, and business process management) is rooted in a common infrastructure and the monitoring tools of this infrastructure. The positions and opinions of many internal staff members, ranging from actuaries, underwriters, and marketing staff to name a few, must be considered when, for example, implementing a monitoring scheme, renewing automated rules and processes, and setting and modifying governance rules. In particular, for changes in rules or processes, the transition must be rapid and be able to respond to increased business volume. In addition, the objective of STP is to minimize exceptions processing. Eligibility criteria need to be used from the initial stages of the process even if conducting appropriate process routing.

FIG6-2: Automation to Complex Systems

FIG6-2

 

2. Establishment of Core Standard and Allowance for Local Variation

The key to realizing agile operations and reducing IT costs is determined by reusability and standardization in lower layers. Of the three layers of presentation, business logic, and data, the first two, must be shared to standardize and make the data layer reusable.

This is difficult as shown by the insurer responses indicating that "data model rigidity" is one of the largest IT challenges. While it may be difficult, if insurers do not address this matter, they are doomed to recreate their legacy issues.

FIG6-3: Core Standard and Local Variation

FIG6-3

 

To avoid being ensnared in this pitfall, Celent recommends referencing the below approach. These are universal issues that are applicable across industries, and Celent hopes to see vendors create tools and strategies that offer better solutions to this problem.

  • Presentation layer:
  • Configuration for unique user interface (even if fixed or common, configure using tool base).
  • Equip with framework for items such as shared user interface, reporting, and audit procedures, security (even if for unique user specifications, configure using tool base). 
  • Business logic layer:
  • Architecture allowing common office processes and unique variations to operate in tandem.
  • Equip with rule library to implement unique variations and common office processes (even if for unique user specifications, configure using tool base). 
  • Data layer:
  • Standard data model and field for adding unique items.
  • Mechanism to allow the use of non-structured data.

FIG6-4: Core Standard and Local Variation (cont.)

FIG6-4

 

3. Review Sourcing Models

Formulating a modernization plan should include a review of sourcing models. This should start with the design phase, involve assessment of the build phase, and sufficiently verify plan feasibility.

Global insurance IT firm offerings are many with options spanning core system build, operation, and maintenance. IT firms have expanded their scope of activities to include areas such as maintenance of existing applications, testing relating to the center of excellence (CoE), and data migration.

FIG6-5: Review Sourcing Models

FIG6-5

 

We should conclude this post series in this page.

KRQ #3: What does an insurer roadmap to modernization look like?

We’ve found the following:

  1. Legacy modernization framework.
  2. Understand your organization’s priority challenges and risk tolerance.
  3. Scope definition.
  4. Ensure that your modernization does not simply reproduce legacy issues.

 

Just published the new Celent reports:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals

 

Core System Strategies for the Fintech Age: LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 5

LEGACY MODERNIZATION FRAMEWORK

Since its inception, Celent has helped host countless events to facilitate financial institutions selecting the optimal next-generation core system.

Sometimes as a project management office (PMO), other times as a third party advisor, Celent has long been deeply involved in working with financial institutions on processes to optimize core systems.

Rooted in this wealth of advisory experience spanning countless projects, Celent has formulated and suggests using the theoretical yet practical framework in this table.

In the modernization project, three things you should know before starting a tender are:

1. VISION AND CONCEPT

  • Initial motivation and direction

2. CHALLENGE AWARENESS

  • Management, systems, products and services, business process and its priority

3. EXPECTED CAPABILITIES

  • Quantitatively, qualitatively, need to measure the ability of your organization

FIG5-1: Legacy Modernization Framework

FIG5-1

 

The next three things you should need are Methodology for the best project execution:

4. SELECTION PROCESS AND POLICY

  • Usually, it is the Constitution of the project, the project charter to be a live document, these seven items are described.

5. SCOPE DEFINITION

  • Not only the solution to be implemented (the new system and the new organizational structure), all of the things that the organization is involved up to its realization, without omission, rather than duplicate, each other without contradiction, MECE (Mutually Exclusive and Collectively Exhaustive) is essential.

6. REVIEW PROCESS

  • Especially in its project members, evaluation team, it is necessary to ensure the cross-organizational human resources:from both sides of the solution evaluation and commercial evaluation.

FIG5-2: Legacy Modernization Framework (cont.)

FIG5-2

 

When selecting a next-generation core system, the important thing is not to depend on industry-specific differences or degrees of complexity, but to establish a methodology that is versatile.

In other words, the essence of legacy modernization is a comprehensive framework.

That should highlights top-priority business strategy challenges, includes architecture design, and fully reflects the scope definition in light of a firm’s capabilities and strengths to assess the feasibility of the project, all while making sure that it is a good fit.

The KFS are Scope Definition; Understanding Your Risk Tolerance and Organization’s Priority Challenges.

FIG5-3: Scope Definition

FIG5-3

 

Factors that will be crucial to determine the success of system modernization projects include firmly understanding your organization’s priority challenges and appetite for risk coupled with a good project scope definition.

This involves determining priority areas, what to procure and build, and what to cut — all within the scope of your risk tolerance.

Maximizing the use of limited business resources to respond to increasingly diverse and sophisticated digital users’ needs cannot be achieved by simply letting things take their natural course; rather, this requires intent and taking the initiative.

FIG5-4: Legacy modernization is a strategic move in digital innovation

FIG5-4

 

 

Core System Strategies for the Fintech Age: LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 4

This post series examines the current status and future directions of legacy modernization in Japan’s insurance industry.

It is based on a legacy modernization survey Celent conducted in 2015. The survey targeted insurers, financial institutions, and brokers. It was supplemented with additional information gathered in follow-up interviews.

The new two-part report is an extension of this work that narrows the focus to the insurance sector.

The Report Part 1 offers an overview of the state of modernization in the industry.

The Report Part 2 builds on this to offer policy prescriptions and suggestions for industry players.

KRQs: Our Key Research Questions are…

  1. Where are Japan’s insurers in terms of legacy system modernization?
  2. What does legacy system modernization mean to insurers and why do they do it?
  3. What does an insurer roadmap to modernization look like?

In Part1 – 3 of this post series, we’ve discussed the KRQ1 – 2.

From Part 4 of this post series builds on this by seeking to answer questions three.

***

 

What about the DIGITAL FINANCIAL SERVICES?

First, we will address the relationship between digitization, innovation, and legacy modernization.

  • Celent advocates that companies revisit how they frame the legacy modernization challenge and stop thinking about it as a system unit or cost center issue.
  • Interviewees told us that it was not that core system business cases were not viable, but that business cases without ownership were not viable. Determining where costs should be allocated and breaking down the attendant benefits are important, but more important is reaffirming that today, success hinges on modernization of core systems and core system business processes for more than half of digital financial services.
  • Companies talk the talk and undertake digital projects, but these are often limited to the front office — that is to say, the contact point with the customer. At the same time, today’s digital consumer is increasingly comfortable with digital processes.

In Europe and the United States, digital native financial services have undertaken modernization of core business processes to such an extent that they will not consider adoption of a process that cannot be digitized. Here, we want to show a diagram that portrays the eight dimensions of digital financial services. Figure 6 draws attention to the importance of core systems of the middle and back office and operational processes, which collectively occupy more than half of the eight dimensions.

FIG4-1: Digital Financial Services

FIG4-1

 

The level of digitization reflects the modernization level of core systems.

In other words, the digitization of customer behavior spurs a shift in the digital processes of financial services (such as STP, automation, and self-service), which in turn drives the modernization of legacy systems — a difficult challenge that many people would rather ignore.

It shows us the stages of digital adoption. It is premised upon a modern core system in the middle and back offices that seamlessly combines with front-end digital channels.

FIG4-2: Digital Transformation

FIG4-2

 

DIGITAL NATIVE INITIATIVES

In the insurance industry, a novel business model is appearing. Still in its early stages, this approach fuses peer-to-peer (P2P) insurance with the traditional insurance model, creating insurance based on small circles or small communities.

This insurance is based on a small inner circle that is akin to a “circle of friends.” This approach has deftly used social networks to find a foothold and niche that meets the needs of digital natives.

It has undergone two or three iterations, is optimizing cost, and growing a new customer base at an extremely rapid clip.

Here also technology is the key to agility.

FIG4-3: Digital Native Initiatives

FIG4-3

 

DIVERSIFICATION OF TECHNOLOGY SOURCING MODELS

In the insurance industry, IT needs have accelerated to an unprecedented pace in the third sector arena, which includes new service sectors such as medical and nursing care, involving the addition of new sales channels and novel underwriting assessment models using AI, the IoT, and robotics.

The securities industry is also experiencing change and heightened requirements in terms of variability and flexibility for core system and back office operations (such as securing availability, variability, and scalability related to processing, latency, and connectivity to accommodate varying transaction sizes).

SaaS and BPO are no longer the latest and greatest technologies. Instead they are only two of the available sourcing model choices to accommodate the level of involvement that financial institutions and their technology partners desire as well as their resource, cost, and risk parameters.

Like best execution and optimized trade market selection, these choices are subject to pressure from sponsors and shareholders. Selecting technology models that can accommodate varying transaction volume and frequency is becoming the norm, and relationships between financial institutions and technology vendors are changing from a more specialized model to a more utility-based model.

FIG4-4: Technology Sourcing Models

FIG4-4

 

 

The 2017 Model Insurer Asia Nominations Start Now!

Every year, Celent recognizes the effective use of technology through its Model Insurer Asia Awards program. We are pleased to announce that the nomination period for 2017 award is now open.

From September 15, we will be accepting Model Insurer Asia nominations. The window for new entries will close on November 30. We are looking forward to receiving your best IT initiatives. The Model Insurer Asia award program recognizes projects that essentially answer the question:

"What would it look like for an insurance company to do everything right with today’s technology?"

It awards insurance companies which have successfully implemented a technology project in five key categories:
•Data mastery and analytics.
•Digital and omnichannel technology.
•Innovation and emerging technologies.
•Legacy transformation.
•Operational excellence.

Past winners include Max Bupa Health Insurance, Ageas Insurance Company (Asia), AXA Asia, Birla Sun Life Insurance, Tokio Marine & Nichido Fire Insurance, Yingda Taihe Property Insurance, Cathay Century Insurance, and Ping An Direct to name a few.

Does your company have what it takes?

If you believe that your company exhibits best practices in the use of technology, please read the Model Insurer Asia Submission Guidelines, and complete the brief nomination form by November 30, 2016.

Asia Insurance CIO Technology Summit에 다녀와서…

2016년9월5-6일에 싱가포르에서 개최된 Asia Insurance CIO Summit를 다녀왔다. 100명 가까이 되는 참가자들이 모여 성황리에 끝났다. 보험사, IT업체 그리고 스타트업들이 모여 자리를 빛냈다.

이틀간에 걸쳐 열린 이 이벤트의 첫날째는 보험업계의 방향성을 논하는 발표들이 눈에 띄었다. 접근방식에 다소 차이는 있으나 고객중심적으로 발전해가야 한다는 이야기가 많았다. 또 첫날째에는 저희 Celent가 심사위원을 맡은 제6회 Asia Insurance Technology Awards 시상식도 있었다. 모든 사례를 보고 수상자 선정을 한 저이지만, 발표를 보고 다시금 놀라웠다. 특히 PetSure (Australia) Everledger와의 만남은 인상 깊이 남았다. 응모용지나 기사에서는 못 느낀 기세를 느끼며 압도 당했다. 앞으로의 계획도 이야기를 나누어 주셨다. 그 이야기를 들으니 더 흥미진진해졌다. Celent에서는 이러한 best practice들을 수집하고 추적 관찰을 하고 있고, 앞으로도 그럴 것이다.

이틀째는 스타트업을 중심으로 한 InsurTech 관련된 이야기가 이어졌다. AI를 활요한 보험업계의 접근 방법, P2P 보험의 진화에 관련된 발표들이 인상에 특히 남았다. 그 중 싱가포르에서 창업된 P2P보험사 Insubee의 동영상을 소개한다.

https://www.youtube.com/watch?v=G-lv_4VHCAk&feature=youtu.be

본격적인 서비스 개시는 내년 초를 게획하고 있다고 한다. 초기에 나왔던 P2P보험의 약점을 보완한 비즈니스모델이라는 평가다. 서비스가 개시된 뒤, 이 모델이 어느 정도 받아들여지는지 궁금하다.

Asia Insurance CIO Technology Summit에 참여해 여기에서는 못 쓰는 이야기들도 다양하게 보고 듣고 왔다. 더 자세한 디스커션을 원하시는 분은 아래 연락처로 연락을 주시기 바란다.

공경순 (Celent analyst) kkong@celent.com  
Mr. Yuya Fukumori (Celent account manager 한국시장 담당) yfukumori@celent.com

 

Announcing the winners of the 6th Asia Technology Insurance Awards

Celent and Asia Insurance Review hosted the 6th Asia Insurance Technology Awards (AITAs) at AIR’s CIO Technology Summit at Mandarin Orchard Singapore on September 5, 2016. The AITAs recognize excellence and innovation in the use of technology within the insurance industry. This year we’ve received over 40 nominations from Australia, Hong Kong, Taiwan, China, India, Sri Lanka, Malaysia, Japan, Singapore and the Asia Pacific Headquarters of global insurers. There were many impressive submissions, from which our international panel of Celent insurance analysts selected the very best to receive the six awards.

Digital Transformation Award
This award honours an insurer who has made the most progress in implementing digitization initiatives. The winner was AXA Asia and PetSure (Australia). AXA Asia implemented Health Claims Portal (HCP), includes a mobile app and a web portal. Portal is available to four key user roles: 1) Customer & group scheme members for digital/self-service, 2) intermediaries including brokers and agents, 3) corporate HRs for their managing their group health schemes, and 4) back-office support and administration. The tool would be available in 7 markets from 12 AXA Life and GI entities. PetSure (Australia) implemented Vet Hub: getting vets to directly submit the claim from within their own PMS system, and a new portal for customer to track progress has been developed.

IT Leadership Award
This award honors an individual who has displayed clear vision and leadership in the delivery of technology to the business. The recipient will have been responsible for deriving genuine value from technology and has demonstrated this trait with a specific project or through ongoing leadership. The winner was Sriram Naganathan – CIO, Liberty Videocon General Insurance. Liberty Videocon General Insurance implemented Digital Enterprise Program including Delivery Platform, Enabling Platform and Data Platform. The vision and leadership in the delivery of technology to business belonged to the company’s CIO, Mr. Sriram Naganathan.

Best Newcomer Award
This award recognizes the best new player in the insurance technology field. The winner was Everledger. Everledger Use blockchain technology, built a permanent, global, digital ledger that tracks and protects diamonds and other luxury goods on their lifetime journey by providing insurance companies, financiers, traders, consumers and law enforcers with an immutable history of an item’s authenticity, existence of ownership.

Best Insurer: Technology
This award honors the insurer who has made the most progress in embracing technology across the organization. The winner was New China Life Insurance and Max Life Insurance. New China Life Insurance implemented Magnum Mobile, the smart mobile underwriting system developed by Swiss Re, built into a point-of-sale tablet for agents. During the FY 15-16, Max Life IT team has executed over 50 significant projects for either improving user experience or productivity, meeting regulatory/statutory requirements or for internal usage, and has made big progress in embracing technology across the organisation.

Big Data and Analytics Award
This award honours insurer or broker who has made the most progress in utilizing data analytics technologies. AXA Hong Kong was the winner. AXA Hong Kong developed a customer retention model and designed retention effort to maximise the long-term customer value including Create Holistic Customer View, Identify High Value Customer, Predict Success Retention Probability and Prioritize Retention Effort.

Innovation Award
Finally, this award recognizes the innovation business model  applying of emerging technology, or the innovative usage of technology. IDBI Federal Life Insurance and Ping An Property & Casualty Insurance Company of China won the award. IDBI Federal Life Insurance creates a new distribution channel platform through which customers can directly purchase insurance products without any intermediary. They launched the e-channel with a different strategy – Think Different, Think Opposite. Ping An Property & Casualty Insurance Company of China implemented Smart Selfi: Mobile platform for vehicle insurance sales force , gave full play to the advantages of the mobile internet. Key Functions are underwriting, connecting the printer, commission discount, team maintenance.

We look forward to more submission in 2017!

 

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