Using COTS to transform distribution
In reality, these business needs coupled with frequent legal and regulatory changes put great stress on carriers to modify their legacy platforms. In our estimate, around 80% of the IT operation cost incurred by carriers are due to these frequent changes to be carried out.
It is possible to modernize and move legacy distribution systems from being product-centric to being customer-centric. But there is an underlying risk. Such systems are expensive and affect time-to-market. Additionally, the flexibility and scalability of such upgrades to accommodate business or regulatory changes could remain in question.
Our global engagements with carriers suggest that the optimal solution lies in implementing Commercial-off-the-shelf (COTS) platforms similar to the core systems modernization. The advantages of the COTS trend lie in quicker implementation leveraging industry best practices, faster ROI with scalability and periodic version upgrades.
With COTS platforms, carriers can expect faster and simpler onboarding and licensing processes based on automated workflows. This frees up the sales team to hunt for additional business. COTS enables new channels for self-service with pre-underwritten products, leading to substantial reductions in operational expenses. More importantly, COTS caters to the evolving needs of agents and partners to create custom campaigns and accurately calculate commissions and incentives (even in hierarchy structure involving complex customized products).
COTS platforms offer interesting features that can be unlocked, promising several benefits to carriers. We have seen carriers benefit from the ability of platforms to arrest pilferage of commissions related to free look and mid-term cancellations, distributor-wise and LOB-wise system-generated P&L reports, analytics-based campaigns designed to incentivize agents to fuel business growth, and methods to isolate fraudulent agents and cancel their licenses.
Caveat Emptor (Buyer Beware!)
COTS implementation initiatives come with a caveat. Given that the insurance business varies across geographies, COTS product selection and implementation can go completely wrong. It is, therefore, critical to choose the right consultant and implementation partner even before selecting the product.
A partner that combines business consulting capabilities with global implementation experience is ideal. Such a partner can analyze the current business and technology landscape to design futuristic technology stacks in line with industry best practices. This results in bridging the functionality gaps between existing and proposed systems in a shorter span of time. It also ensures out-of-the-box functionality or customization demanded by a LOB or distribution channel can be met by the chosen product.
In a growing number of conversations with carriers across the world, we have noted the tendency to accelerate the process of analysis to find the right product match with or without the help of any consulting partner and a rush for implementation. This brings with it the downstream risk of roadblocks and poor product fitment, resulting in a loss of money, time and opportunity itself.
Carriers should ideally select partners who are experienced in the industry, that have the best-suited industry alliances and bring with them the right tool set and techniques for modernization. That is the single insurance required for an effective distribution upgrade.