Life Insurance Payouts, Silos, and Data Management
Insurance Experts' Forum, June 1, 2011
The Wall Street Journal has published a series of articles in recent days about how some life insurers have failed to pay out death benefits in a timely fashion of late. A recent article, ”Life Insurers Skimp on Payouts: States,” contains the seemingly damning assertion that life insurance business units have failed to pay out death benefits for insureds where annuity business units have ceased making annuity payments for the same person. This does sound bad.
The fact is, however, that life insurance and annuity business units operate as separate profit centers within life insurers; they operate on different policy administration systems, which run in separate silos. Many insurers have a difficult time keeping track of their total risk exposure and relationship profile with a given client. That’s the IT side of it.
From a business perspective, the discrete business units obviously have different motivations around latency with regard to tracking deaths. Annuities profit centers (just like life settlements firms) want to know as soon as possible if an annuitant has passed away so they can stop paying out. For the life insurance business unit, there’s just less urgency. The annuities people, therefore, will invest more in getting the absolute best process in place to make this determination; the life insurance people won’t.
At a root level, the problem is that the public views large corporations as fully coordinated entities when they’re in fact a collection of semi-autonomous profit centers competing for resources. Think about Walmart or Target — exercise equipment is located three aisles down from deeply discounted cases of soda and supersized bags of chips. The people that run those departments are trying to make money for their specific businesses, and nobody focuses on the contradiction until … somebody focuses them on it.
Within the life insurance organization as a whole, therefore, the stakeholder that has the biggest stake in making sure this kind of disjuncture doesn’t happen is — as the controversy around retained asset accounts last summer presaged — public relations. But PR isn’t typically sitting at the table when IT budgeting and prioritization is happening.
In the end, there are approaches to this problem — Knowing Your Customer in the most elemental way. Rationalizing the number of policy administration systems in use at a given firm is the ultimate way to approach it, but for the large insurers — where this level of confusion is most likely to happen –consolidation will never be thoroughgoing enough to control for this kind of thing. Emerging data management best practices, master data management among them, may be the next best thing. Although implementing them is itself no stroll in the park, it may well be worth it.
Clark Troy is the Research Director of the insurance practice at Aite Group, LLC. His own research focuses primarily on life insurance, attending in particular to ways insurers are seeking to refocus themselves on serving the middle market, on reinsurance, and on insurance in the developing world.
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