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Life Insurance: Closed Book of Business –
Challenge and Opportunities
Sairam Mandalika
NIIT Technologies White Paper
CONTENTS
Introduction
3
Problem Statement
3
Key Challenges of Closed Book
3
Traditional Approaches
3
The Solution
4
Benefits
5
Summary
5
References
5
About the Author
6
About NIIT
6
Introduction
1. Maintaining Legacy Systems
In the wake of increased competitio n and dynamic economic
environment, the insuranc e industry today faces the daunting
Closed funds are usually maintaine d on old Legacy Policy
Administration Systems which have very high maintenance costs
challenge of maintaining operational efficiency.
2. Operational Cost Management
Closed books are policies that are no longer sold but are still on
the books of a life insurance carrier as premium-paying policies.
Closed books are caused by either discontinuin g unprofitable
products or as a result of acquisitions and mergers. The hardware
As no new policies are sold, the portfolio size steadily decreases
over time. Steadily decreasing portfolio size demands parallel
reduction in policy administration costs to keep the business
profitable.
and application maintenance costs for the legacy systems that run
3. Regulatory Penalties
the closed books are high.
The workings of a closed book is likely to be scrutinized by
Insuranc e carrier s are looking for cost savings , operationa l
regulators and capital markets
efficiencie s and ways to get closer to their customers . This
whitepape r
evaluate s
variou s
solution s
for
cost-e ffectiv e
management of closed books for global life insurance carriers.
4. Deteriorating Customer Service
Due to inter-play of factors like transition management and bad
publicity, customer service may suffer in a closed book.
Problem Statement
5. Staff and Agent Attrition
Most vendor product applications are derived from IBMs’62 CFO
As portfoli o size decreases in closed books business , any
product - for example Vantage-one, Cyberlife, LifeComm, LIDP,
unexpected surrenders or terminations can prove disastrous.
Life/70, and Life400.Thes e application s are also derived from
homegrown products that are modeled on IBM’s products. They
are in third generatio n language s like COBOL/Assemble r on
Mainframe . Product companie s also introduce their own
complexit y to ensure continue d dependenc y of insuranc e
companies on their applications.
Client s in closed books busines s may not have any
advisor/agent for on-going advice or service.
Traditional Approaches
Outsource Closed Book Administratio n to a
Third Party
Key Challenges of Closed Book
Companies hire high-end resources for providing certain services
In-house management of closed book operations presents many
that cannot be met by the internal staff. They utilize these
obstacle s for businesse s looking for agility in an increasingly
resources on need basis and get the critical work accomplished
competitive environment. These challenges touch most areas of the
instead of spendin g time on upgradin g the existin g team’s
business, making it harder to reduce operational costs, complicating
knowledge. This model works during introduction of new products
financial reporting, and obstructing new selling opportunities.
but in the closed block scenario, this is expensive as there is no
3
return on investment. In addition to costs, the existing team does
This per contract cost is high in the long run. Though there is
not gain any knowledge out of this engagement.
minimal or no activity on many contracts, insurance companies
have to bear the support cost.
Dual Shore Support Model
Most insurance companies moved from outsourcing support to
high cost product companies to the dual shore support model. In
The Solution
this model, the cost gets reduced as the offshore team provides
Obtain a Vendor Product
support. With this model, insurance companies continue to have
Since all insurance products are based on IBMs’ 62 CFO, obtaining
control on day-to-day operations. Though this model gives benefits
license for any one of these products (NTL-INSURE) is one solution.
every year, it has its own set of challenges.
As these are closed blocks of business, any of the earlier versions of
• Continued increasing operational costs
Infrastructure
- Hardware
- License costs
- Several tools
- Connectivity
Management
- Added layers of management (Internal/Vendor)
- Retention of high end resources (BAs/SMEs)
Utilizing Third Party Administrators (TPAs)
In this approach, the entire support of the product is moved to a
TPA. TPA administer s the contract s on his infrastructu re and
provides feeds to the internal system s for reportin g and
compliance. This eliminates the redundancy of dual management
layers and reduces infrastructure costs too.
The TPA approach creates more expenses in the customer contact
areas like BPO etc. as resources need to be trained on TPA
applications . To circumvent this, insuranc e companie s try to
outsource even the BPO operations to TPA. This may not always
work, as many of the TPAs do not have custome r contact
application support in their solutions.
In addition, there is also a one-time major cost of converting to a
TPA system. It comes with the risk of reconversion cost, if the
insurance company decides to break away from the TPA. TPAs
have home grown application s that are proprietar y, and
reconverting back to the insurance company’s products is a major
effort. Moreover, as TPA’s products are in-house , it becomes
mandatory to use only TPA’s resources for reconversion. Insurance
companies are forced to continue till the end of all contracts, as
the product will serve the purpose, thereby reducing licensing costs.
In addition, the changes required for administering the system’s
product features is minimal. This is because most of these products
that have been a part of the closed block of business and would
have been issued a long time ago. They have similar type of benefits
and riders across multiple insurers. Most of the older versions of the
vendor products have almost all features and little or no changes are
required for the product specific feature. Most of packages have
company based processing logic that can be leveraged for setting
up different businesses under the same insurance company and for
multiple insurance companies.
It is best to get NTL-INSURE application converted to Linux platform
which requires less operational cost.
Expertise in NTL-INSURE product administration must be built by
acquiring Subject Matter Experts (SMEs) and Business Analysts
(BAs). By utilizing their expertise and NIIT MATRIX methodology
learning plans and certifications specific to the application can be
built. It helps ramp up of resources easily.
A non-intrusive conversion approach has to be defined. In this
approach reusable components have to be built to perform
conversion from any source system. The design is such that a
common set of information is obtained from the source system,
irrespective of whether it is a vendor product or home grown
product. This is then converted into NTL-INSURE by reusable
conversion component. These tools ensure that the information in
the system is returned back to insurance companies for further
reconversion in case of contract terminations. It saves on
conversion costs and eliminates the dependency of insurance
company on NIIT Technologies for reconversion purposes.
they find it difficult to move out of TPA contracts.
4
An end-to-end cost based contract service rather than current per
Reduced Operational Costs
contract charges must be provided. This ensures the elimination of
When closed block of business is being administered by
unnecessary costs incurred for contracts that have had no activity in
NTL-INSURE, insurance Companies can easily implement changes
a given period.
in their existing systems with less impact and cost.
Benefits
Summary
Minimal Conversion Cost
Closed book of business is a major issue in insurance industry
Conversion cost is minimal for the insurance company when they
where contracts are serviced for very long terms. These contracts
map to the business layout provided by NIIT Technologies. Very little
need support till the last contract in the book is active. Owing to the
effort is needed from insurance company.
complexity and multiplicity of vendor product systems, acquisitions,
Smoother Transition
Conversion to and from NTL-INSURE is relatively smoother as it
involves little or no external resources.
Faster Response Time
As these contracts are administered on other platforms, the
response times are much faster than on legacy platforms. In
addition NIIT Technologies Smartserve’s best practices ensure
continuous improvements.
and several touch points, administering becomes expensive.
The current model of getting high-end work done through
contractors, outsourced dual-shore support or employing a TPA for
support are not proving to be cost effective solutions. The
NTL-INSURE solution caters to this problem effectively. It ensures
that the insurance company gets the required support at a very little
cost. At the same time, the company will have the flexibility of
reconverting the contracts at minimal cost.
Reduced Maintenance Cost
As insurance companies pay according to services rendered, rather
than per contract basis, there is a lot of cost reduction.
Improved Customer Services
Being CMMi Level-5 entities, NIIT Technologies and NIIT
Technologies Smartserve provide superior customer services.
24X7 Services
Having offshore infrastructure support and by providing dual-shore
or near shore operations, there can be extended hours of customer
support resulting in increased customer satisfaction.
5
About the Author
Sairam Mandalika is Delivery Head Insurance practice at NIIT Technologies. He has done
fellowship in Insurance, LOMA-Level-1, ITSM, PMP, and is a certified Actuary. Sairam has over
28 years of experience in the Insurance domain – Life, Annuity, P&C, Multiple Insurance vendor
policy administration products. He was instrumental in designing and implementing solutions for
all the Life Insurance operations.
About NIIT Technologies
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