Transformation in Group Benefits: Why Preparation is Everything

Because profits are comparatively low in the Group Benefits space – typically around 2%-4% – it’s harder to show a clear route to positive ROI and make the business case for transformation compared with other insurance lines of business.

Group Benefits have other complexities that also make transformation more of a challenge. Public sector organisations, for example, often come with union agreements that need to be supported.

Large organisations are often in a position of power when they negotiate group policies, because they offer large quantities of premiums. That negotiating power often leads to highly customized and non-standard group policies, which makes it difficult to simplify and rationalise client offerings to prepare for transformation.

Due to their complexity, Group Benefits tend to be distributed through intermediaries such as brokers or third-party administrators. These intermediaries are highly experienced in dealing with complicated products and have an interest in the status quo, as this complexity justifies their role in the process. This is another barrier to product simplification.

Some distributors and technology players are now also assuming administrative tasks previously carried out by insurance carriers. This means that carriers need to be able to support a variety of different operating models, including one where they handle an even smaller portion of the value chain, from quotation to administration to claims.

Group Benefits insurers frequently rely on in-house legacy systems, often developed decades ago. These systems are often not well documented, and it can be difficult to determine all of their exact functionalities.

As a result, system administrators have frequently developed workarounds to compensate. These workarounds, as well as the systems’ other peculiarities, have become the norm.

These systems are also often highly tailored in-house for the very specific needs of the insurance carrier, making it harder to move to a streamlined system. When the time comes for the move to the cloud, these factors can make it difficult to change the mentality of the staff and introduce them to an entirely new system.

Firstly, all stakeholders must fully understand the executive vision and motivation for the transformation. Across stakeholder groups, there may be many different goals from a business and technology standpoint, such as moving into new markets, reducing operating costs, or introducing new technical capabilities. Identifying these different goals (and making sure that all stakeholders are on the same page before the transformation begins) avoids project and budget creep, which can even lead to the project being cancelled further down the line.

In cases of specific stakeholder groups that are more resistant to the transformation, the business case needs to be introduced and explained much earlier on in the process.

If the initial profitability is low, the first version of the business case may not show a positive ROI. Additional time might be necessary to describe the business benefits in greater detail and identify areas that have been missed (such as business retention, new sales, greater market share, more operating efficiency, and less time maintaining IT systems).

Making the project scope too large can be tempting once the business case has been fully accepted by all stakeholders. Smaller and more feasible scopes, however, reduce the chances of project failure. This approach allows greater agility, delivers results more rapidly, and provides more value than a larger project that ultimately fails to deliver anything.

Many Group Benefits insurers find that transformation is a good opportunity to tackle the necessary rationalisation that has never risen high enough on the priority list. This often identifies further benefits for the business case, and highlights areas that need greater optimisation.

Product and business role rationalisation makes the project more cost-effective and accelerates implementation. It’s important to consider whether any exceptions are absolutely necessary, as we often see large numbers of exceptions that increase complexity but do not create much value.

Group Benefits solutions tend to be less prescriptive and more configurable than in other insurance lines such as P&C. Because of this, taking more of an ‘adopt rather than adapt’ mindset means the system’s potential is more likely to be realised.

At the same time, it’s also important for insurers to develop a clear vision of how they’re going to work within these solutions. In some instances, they don’t come with standard processes, so these particular systems won’t provide all the answers.