Insurers that outsource the IT and administration of policies underwritten years ago can improve customer satisfaction, lower costs, and even reduce capital requirements. DECEMBER 2010 • Matthias Daub and Ferruccio Lagutaine Source: Business Technology Office
Life insurance is a long-tail business: decades can elapse between the time when a policy is sold and the claim is made. Managing a portfolio of these policies, each with its own approximately 40-year time horizon, can present an operational and IT headache.
As more and more policies expire, the overhead and servicing costs for the systems that manage legacy products are spread across a dwindling number of active accounts, driving per-policy administration costs higher. Since insurers are required to book capital reserves against future expenses, those costs and their anticipated increase over time can weigh heavily on the balance sheet.
The outsourcing of “legacy books” (or “closed books,” as they are also called) can provide a big lift to the industry, freeing insurers from managing the processes and IT that support these mature product lines. In addition, engaging providers that specialize in these areas typically yields substantial cost savings and can help insurers lower their capital requirements.
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