Legacy systems a big barrier to insurance industry digital marriage

The life insurance industry has been “going digital” for many years. But despite the occasional breakthrough, the digital transition is evolving at a snail’s pace.

Legacy systems remain a very large hurdle for many old-guard life insurance companies.

“So many carriers still host their policy management on legacy systems,” said Jake Littman, senior analyst, life & annuity research for Corporate Insight. “Many are outdated and are built to support a more rudimentary user experience with only the most basic capabilities.”

Sureify, ​which created a platform called Lifetime to handle life insurance and annuity sales, recently hosted a webinar titled, “Why are the simplest Digital Transactions so hard in Life & Annuity?”

Littman was joined on the panel by Brian Weber, assistant vice president of marketing communications for Kuvare. It’s not just that legacy systems are older, Weber said.

“There’s a lot more, let’s just say, data architecture, that goes into a change that might seem simple, [but] actually has a lot more implications over the broader scope of systems,” he explained.

LIMRA research shows steadily rising interest from younger adults, particularly Gen Z and Millennials, for researching and purchasing life insurance online compared to traditional methods. In 2023, for the first time, consumers reported preferring online purchasing over in-person meetings.

Products can be complicated

At the same time information technicians worked to develop digital delivery of products, product development folks were creating more complex products. Like registered index-linked annuities, which first appeared in 2010 but did not take off for several years.

“Life insurance and annuities are complicated products a lot of the time, and many key decisions should be made under the advice of an advisor or an agent,” Littman noted. “Looking into the future, we hope that some of that advice can become digital.”

Marrying digital delivery to more complex products seems like a two steps forward, one step back process at times. Some processes seem averse to digitization. Variable annuities, for example, require important subaccount decisions.

“If you have any kind of variable annuity or variable universal life account, subaccount allocation is really, really important,” Littman said. “Getting through a digital process like this, it’s not hard to get to the end. But there are really consequential decisions that are baked into this process that probably require some kind of guidance.”

Even converting basic beneficiary management information to digital is proving to be challenging for many insurers. Many insurers do not venture beyond basic information and instructions.

Policyholders wanting to know what happens when a beneficiary dies, or when there are multiple beneficiaries, are often out of luck.

“Oftentimes, customers are left to their own devices to try to figure this stuff out or seek guidance on their own,” Littman said.

Likewise, the industry has a significant problem notifying beneficiaries that they are listed on policies, he added. Since launching its policyholder locator tool in November 2016, the National Association of Insurance Commissioners has helped connect consumers with over $10 billion in unclaimed benefits from life insurance policies and annuities.

Digital could help, but Ladder Life Insurance Co. is the rare company that offers an email notification to anyone listed as a beneficiary on a life policy, Littman said.

Chatbot support

Most life insurers are using chatbots to provide at least some level of communication and policy support. These AI-powered tools assist with tasks such as policy inquiries, billing, claims processing, and customer onboarding.

Globally, the insurance chatbot market is experiencing significant growth, projected to expand from approximately $736.8 million in 2024 to over $5.2 billion by 2033, according to Dimension Market Research.

The results vary greatly, the panel said.

Chatbots cannot do much for policy management in the life insurance and annuity space, Littman explained, and are more deeply ingrained for the business of health insurance, bank and credit card customers.

“When it comes to life insurers, the chatbots are incredibly basic,” Littman said. “They often can’t even answer the most basic questions about what products the carrier offers or what the firm’s financial strength ratings are.”

Life insurers are certain to continue experimenting and expanding their integration of AI and other digital tools. But they should do so cautiously, Littman said, remembering who they are serving.

“There’s a lot that can be made digital, but we really have to think about more comprehensively, about what the policyholder really needs to have the outcomes that they’re looking for,” he said, “and not just try to make it so everything gets thrown on the policyholder digital experience, because that’s not good for anybody.”

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