Know What’s Changed: The Modernization Spirit Looms in Life and Annuities TPA – Insurer Partnerships
Third Party Administration (TPA) providers in the insurance sector are not new. TPAs can service the Life and Annuities (L&A) insurance value chain end-to-end and tend to manage processes such as policy servicing and reporting, claims processing, premium collection, intermediary management, and regulatory support.
However, TPAs still focus much of their L&A work on the support and maintenance of existing policies. As these offer limited options for new product launches, TPAs are potentially missing the opportunity to generate added value. As the industry matures, providers increasingly need to fulfill a dual mandate. They must deliver on the heightened expectations of newer segments such as millennials, an evolving consumer base, while simultaneously boosting profitability by focusing on three key areas: product innovation to develop flexible solutions, rapid product launch to improve competitiveness, and personalization to deliver superior experiences. To capitalize on these opportunities TPAs should upgrade their service offerings and invest in capabilities that align with these evolved buyer priorities.
The traditional TPA partnership model
Cost challenges, the burden of legacy and capital realignment needs led life insurers to sell blocks of business predominantly to Private Equity (PE) firms and reinsurers which typically did not have the requisite back-office capacity to administer the run-off blocks, so they began to leverage third-party administrators in the life insurance industry. The trend of offloading discontinued products to TPAs and focus on strategic blocks has lasted until now, as insurers have faced a long period of low interest rates, which has put pressure on them to find cost-effective alternatives for policy administration. In the past, insurers generally ran closed blocks on their dated, legacy Policy Administration Systems (PAS), which burdened them with higher operational costs.
Offloading and converting these blocks to TPAs, which utilized their own proprietary platforms, was one viable option. This approach, however, came with problems of its own. Data conversions from insurers’ legacy systems were risky to handle, given that the underlying architectures of the source and destination systems were very different, and many leading insurers had multiple legacy administration systems serving different Lines of Business (LoBs). Streamlining and mapping multiple non-standard business rules and processes before migrating the block, and dealing with complex products increased the difficulty, and these complexities often derailed the expected roadmap to value realization. Until recently most TPA involvement in the L&A industry was associated with life insurance and annuity blocks so their capabilities were limited to servicing these products, but insurers are increasingly engaging TPAs to service other products such as retirements or group life.
Evolution to a modernized TPA engagement model
L&A insurers’ strategic focus on bringing digital to center stage and driving superior efficiencies is making way for an evolved, modernized, and digital-led TPA model – one which can enable breakthrough customer experiences while bringing in significant reductions in (re)insurers’/PEs’ administrative spends. The TPAs’ role has evolved from acting as outsourcing vendors for a given block of business and offloading the cost of administration, to being strategic partners in insurers’ transformation journeys. The key characteristics of a modern TPA that would support forward-looking endeavors for their insurance clients include
- Offer strategic support
- Enable an advanced technology ecosystem
- Leverage modern conversion methodologies
- Act as a consulting partner with flexible solutions
- Razor-focused on digitalization and modernization of customer journeys
- Global and adaptive delivery and talent model
Robust information security ecosystem
While data has been important, ensuring its protection causes tense undercurrents in almost all industries, and notably in life insurance and retirement. Personal health, medical, and credit/debit card information stored by insurers or their TPA partners needs to be stringently protected and the regulatory authorities have rules in place to enforce its protection. This is a global phenomenon and is not restricted to any region, although different geographic markets might be at different levels of maturity when it comes to establishing requisite standards and laws for data protection.
Mature TPAs have been in the data processing business for some time and understand the responsibilities associated with data protection. For example, most leading TPAs would have security certifications such as ISO 270001, HIPPAA, SOC 2, and PCI DSS. A recent change in data protection regulation requires data protection measures to be implemented at employees’ places of work, and not just within delivery centers.
Agile and mature TPAs were quick to respond to this transition and invested in a slew of measures such as laptop distribution, secure VPN-only login, digital workforce management tools for effective monitoring, and data security training for employees. However, information security measures are constantly changing and modern TPAs view them as a continuous cycle of investment which includes creating and updating response playbooks based on advancements in breach methodologies, continuous phishing tests, sensitizing the organization at all levels through simulation tests and training, adapting governance programs, and continuous threat modelling.
Conclusion
The L&A insurance industry is evolving at an unprecedented rate. Most carriers are accelerating their investments in modernization as enterprises seek to profit from the evolving market. The trajectory they have set themselves is not going to be smooth as they have many hurdles (such as a sustained inflationary environment, tightening regulatory scrutiny, data security concerns, and evolving consumer product and purchase preferences), to overcome to realize set outcomes.
In such cases, opportunities open for external third parties to step in and provide the expertise that insurers lack in-house to accelerate these modernization agendas. A next-generation TPA would be one with adequate digital capabilities to harness the power of data to support business outcomes that have eluded the L&A space until now – rapid product launches, quicker policy issuance, minimum paper trails, and higher straight-through claims processing. TPAs in this evolving industry would need to move beyond a one-size-fits-all approach and deliver flexible solutioning based on the nature and characteristics of the blocks they are servicing.
In addition, TPAs need to broaden their range of product capabilities in line with insurers’ growing demand for niche segments beyond life insurance and annuities, such as group benefits, and retirements. A successful digital TPA model will adapt to the developing market dynamics while drawing on its existing strength of operational expertise in the insurance sector