Should insurers digitize policy administration systems?

Insurers' tech strategies have expanded but enterprise-level policy administration systems remain a vital backbone, like the spine keeping your insurance carrier upright. What does a cutting-edge, insurtech-powered policy administration system look like and how do these core platforms drive digital innovation at carriers?

The insurance industry has evolved over decades with new products emerging all the time – even your pet hamster can now get coverage. However, the core capabilities needed to administer policies have remained largely the same, still dependent on legacy PAS running on code older than your VHS collection. These digital dinosaurs plod along but can't keep up with demands for modern products and experiences.

Established carriers have clung to their creaky legacy PAS over many years, for good reasons, making upgrades seem as appealing as a trip to the dentist. Large-scale PAS overhauls run into the hundreds of millions, with many falling short of expectations, but insurers keep these less-than-stellar projects hush-hush to avoid bad PR, and the consultants involved walk away unscathed, having pitched rosy visions that didn't fully materialize. Not that consultants are solely to blame – these complex projects involve many parties and factors. 

Cloud has been around for decades but it's not enough to just lift legacy PAS into the cloud. These core systems contain decades-old code that can't be neatly ported over. Trying to shift PAS to the cloud really requires a full ground-up rewrite and re-architecture. Not to mention the regulatory hurdles around data privacy, sovereignty and residency that moving to the cloud raises.

Strict data regulations like GDPR make it extremely tricky to take advantage of cloud PAS capabilities, even when the tech promises more agility. Carriers must evaluate providers carefully to avoid data snafus becoming PR nightmares. Working closely with regulators on modernization is key. Trade-offs between legacy and cloud PAS are complex, weighing hefty transformation costs against long-term gains.

Those are the challenges, but here are the potential benefits when an insurtech delivers the modern PAS capabilities needed today: 

Digital integration is essential, enabled by APIs linking PAS to vast external data sources and services. Insurtech facilitates this integration through agile development and modern microservices architectures. APIs allow core policy data and functions to be accessed seamlessly from digital channels. This enables streamlined workflows across websites, portals, mobile apps, and partner ecosystems.

Insurtech leverages APIs to facilitate emerging technologies like IoT, telematics, on-demand insurance, and embedded offerings by tightly integrating PAS with these capabilities. More opportunities emerge for insurers to participate in ecosystem models through PAS APIs, embedding insurance within e-commerce, real estate, auto, travel, and more.

APIs decouple PAS functions from channel apps, making it faster for insurtechs to launch new products, expand to fresh segments, and modify experiences without core system changes. Today's customers expect unified digital experiences across channels. PAS APIs empower insurers to deliver this through insurtech innovation.

Advanced data analytics and AI abilities are now essential given oceans of collected data. Insurtech applies modern data pipelines and analytics engineering to unlock insights from PAS data that inform products, pricing, risk management, and strategic planning.

Machine learning algorithms applied to PAS data enable real-time calibration of prices, charges, discounts, and risk scores based on the latest loss data and conditions. Insurtech data scientists inform new personalized and usage-based products tailored to emerging consumer niches.

Rich analytics applied to PAS data give insurtechs robust inputs for strategic planning around market entry, partnerships, and new ventures. Meanwhile, modern open PAS architectures simplify connecting policy data to analytics tools.

Customer-centricity is now expected, with today's consumers demanding seamless digital experiences, personalization, and on-demand service. Insurtech uses PAS integrations and data to enable omnichannel delivery and individualized engagement powering lifetime value models, cross-sell insights, personalized pricing, automated workflows, and more to boost loyalty.

Speed and flexibility are crucial. Configurable PAS with reusable components and templates allow insurtechs to launch new products in weeks rather than years. Modern architectures permit real-time changes to product rules, rating algorithms, underwriting guidelines, enabling quick responses to market shifts.

Open API ecosystems mean channels, partners, and data sources can be rapidly onboarded by insurtechs to expand distribution and offerings. Flexible systems empower product managers to continuously refine offerings without IT bottlenecks. This agility is key to anticipating evolving risks, expectations, regulations, and competitive conditions. Modern PAS enables quickly testing and refining new concepts and pricing without prolonged development.

Lower costs are now achievable as policy administration system technology commoditizes. The days of exorbitant software licenses and inflated premium shares are ending. Insurtechs choose flexible usage-based pricing models that optimize costs and prevent overinvestment in unused capacity.

The future demands increased PAS digitization, customer-centricity, speed, and efficiency to drive differentiation and profitability. By modernizing legacy platforms, insurers can achieve all of this and more through an insurtech approach to stay competitive amid ongoing disruption.