This is how at inforcehub we look at the discipline of in-force management at insurers.
The five pillars represent the different types of levers that can be pulled to create additional value from the in-force. Within each of these five pillars there are many different levers that life insurers can use – around 100 levers in total.
Let’s walk through each pillar in turn, with some examples.
Pillar 1: Re-engage in-force customers
Insurers have a lot of long-standing policyholders, but they are often little more than that – holders of a policy. This is a function of the insurance business model, but it is clearly not in anyone’s interest.
Re-engagement done the right way will often significantly improve outcomes for customers and give extra value for insurers. To do so insurers need to build a holistic understanding of each customer’s circumstances and define a proactive and tailored response to this.
Pillar 2: Product simplification
A typical life insurer will face a complex systems landscape of different products administered on different administration systems. This leads to a periodic choice between maintaining these old expensive systems or an equally expensive and risky system transformation.
Yet, there is third way, which is to encourage their customers to agree to simplification of their product or a transfer to a more modern product. Incentives and compensation for the loss of features may need to be offered, and there is always a risk that not all policyholders cannot be reached or will accept. However, analytics can help to target the right customers with the right offer and successful examples of such conversion programs, accepted by regulators, have now started to emerge.
Pillar 3: Cost-efficiency
Cost efficiency is natural value driver of in-force management and it has been a priority for insurers for some time now. Robotics applied to operational processes is now providing another level of improvement. For example, the keyboard strokes for staff navigating the old admin systems for different policy events and alterations can be observed, codified and executed by machines.
Pillar 4: Technical optimisation
The fourth pillar covers initiatives that improve the profitability and/or capital position associated with the in-force. This often has an actuarial or commercial nature, such as bonus-setting or renegotiation of asset management mandates. Solvency II also provides some clear opportunities for capital optimisation.
Pillar 5: Structural solutions
The final pillar deals with solutions where insurers outsource, reinsure or pay to transfer all or parts of their liabilities to third parties. These solutions obviously come at a price but are already well established in the UK and US markets.
We find this five-pillar framework helpful to talk about in-force management. The first two pillars, improving customer engagement and product simplification are particularly challenging and we will go into more detail on these in subsequent blogs.
Please contact Michel if you like to know more.