3 Industry Problems Life Insurance Companies Can't Afford to Ignore (and How to Solve Them)

In the wake of economic uncertainty and pressure to modernize, the insurance industry is reshaping—but evolving in kind has proven difficult for many life insurers, who have long relied on the status quo.

As customer demands rise, new opportunities emerge, and inefficiency becomes a focal point, life insurers face several problems they must solve to stay viable.

1. Market evolution & emerging opportunities

In the next 30 years, the global population over 60 will nearly double. But even advanced economies are struggling to fund their government retirement programs, creating a global pension gap worth nearly $41 trillion. The disconnect presents a unique (but challenging) opportunity for life insurers to provide much-needed coverage as people of all ages become less confident in programs like Social Security.

But legacy systems that require significant manual intervention slow product innovation significantly. So although a clear opportunity exists, many life insurers cannot move quickly enough to capitalize—particularly when they’re competing with agile insurtechs.

Relatedly, the rapid modernization of the insurance industry has begot distribution model shakeups. The increased commoditization of many life insurance and annuity products, coupled with pressure created by the rise of insurtechs, has led many life insurers to move away from captive or affiliate distribution models.

While relying more heavily on third-party distributors expands life insurers’ reach, it compounds the same kinds of process inefficiencies that make product innovation difficult, creating extra work for IT teams and contributing to rising costs.

2. Rising operating costs and slow premium growth

Since 2003, costs as a share of revenue have increased by 23% for life insurers, compared to 5% for P&C insurers. In roughly the same period, nominal GDP grew at a compound annual growth rate (CAGR) of 4%, but premium growth came in at a comparatively sluggish CAGR of 2% in the US.

In other words, premiums haven’t kept pace with economic growth, and operating costs are outpacing revenue. But why?

The answer, in part, lies with the IT team. For more than a decade, technology spend as a share of operating costs has risen steadily among life insurers, and that trend is accelerating. To clean up complex legacy systems and keep up with customer expectations, shifting business models, and more agile ways of working, even life insurers in the top quartile of total costs to gross premiums written have increased their IT spend from 2% to 3% of gross premiums written in the last 4 years—a 50% jump.

Although investing more heavily in technology may seem the most logical way to stay relevant in a shifting industry, life insurance companies that add new tools to their tech stack without eliminating the use of legacy or homegrown systems are often creating more work for IT teams. In turn, operating costs go up and new technology fails to deliver the expected ROI.

3. Back-office inefficiency

Despite investing heavily in modernization, many insurers haven’t seen the expected ROI. This is partially due to the complexity of IT environments—as insurers update some systems, they rarely leave behind homegrown or legacy systems entirely, creating a hybrid environment with poor interoperability.

Since so many business-critical processes span policy, claims, and billing systems, not to mention a variety of ancillary applications, these behind-the-scenes inefficiencies translate to a slow and stilted pace of business that directly impacts customers.

A forward-thinking fix for right-now problems

Despite feeling the pressure of a shifting industry, most life insurers are too entrenched in the status quo to respond effectively. To address these (and other) problems, they need to solve the key challenges that underscore them:

• Siloed systems inside complex environments create manual breakpoints and slow down virtually every process. Since different teams use different systems that don’t “speak the same language,” IT teams are constantly saddled with untangling a complicated web of solutions to keep workflows moving.
• The forced trade-off between modernization and efficiency puts life insurers in the impossible position of choosing to either keep up with the times or keep up with customer expectations. Since most insurers can’t entirely eliminate the use of legacy and homegrown system, any shift to modern platforms only creates more complexity and manual work, ultimately sending costs higher—not lower.
• Business-critical processes crowd out strategic projects when IT teams are so focused on managing the work necessary to keep the business running they can’t dedicate any bandwidth to higher-level objectives, like true digital transformation.

What to do about it

The solution to these core challenges is simpler than you might imagine: automation. An advanced workload automation and orchestration (WLA&O) solution harmonizes disparate systems, thus dismantling silos, simplifying environments, eliminating manual tasks, and unlocking greater ROI from existing tech investments.

With WLA&O, IT teams can orchestrate cross-platform workflows that previously required manual intervention from a central point of control, freeing time to focus on business-advancing projects. And because WLA&O platforms enable processes to flow freely within hybrid environments, life insurers can confidently pursue modernization while still using legacy systems without compromising efficiency.

Many life insurance companies have already taken strides to address the industry’s most pressing issues; automation is the final step to unlocking the full value of those efforts. Learn more about how automation helps solve the most urgent insurance problems and the ways you can leverage workload automation and orchestration in your business.