Original article appeared in Insurance Thought Leadership March 2021
When there’s a leak under your sink, do you let it keep dripping or call a plumber? Sounds like a simple question with an obvious answer. But what if you don’t know you have a leak? You’ve gotten used to a high water bill and less water pressure without even realizing how much you could be saving if you found the leak and fixed it.
This scenario isn’t unlike an issue many of today’s insurance carriers are experiencing called “premium leakage.” Inefficiencies, inaccuracies and risky processes due to the use of legacy systems cause carriers to unknowingly “leak” premium they should be collecting. Fortunately, eliminating premium leakage is simply a matter of looking under the kitchen sink to find the source and taking the necessary steps to stop it.
Where Legacy Systems Fall Short
The systems we now consider to be “legacy” (i.e. Excel, COBOL or VB6) have been relied on by insurance carriers for decades. For many carriers, these systems are seen as tried and true. Having accepted legacy systems as a way of life, carriers can have trouble noticing their shortcomings.
But as we look beneath the surface, we can see that legacy systems are causing some of the major pain points insurance carriers face:
– Siloed workflows
– Inaccurate data
– Manual errors
– Slow turnaround times
– Redundant processes
These pain points are due to legacy systems’ inability to share data seamlessly across the organization, integrate both internally and with ecosystem solutions and automate rules and regulations.
The Real Cost of Legacy Systems
Legacy systems aren’t just painful, they’re costly. A recent FINEOS study shows that an estimated 5% to 10% of insurance premiums vanish every year due to the inefficiencies caused by legacy systems. Premium leakage comes from multiple areas within an insurance carrier’s operations. However, a few spots are notorious for leaking valuable premium:
Case Setup Inaccuracies
A top culprit for premium leakage occurs when setting up and installing a new employer group on multiple systems that are not integrated. This process requires massive amounts of work-arounds and inevitably results in data inaccuracies across systems. Roughly 5% of annual premium can be lost just in this one area.
Enrollment and Eligibility Management
This notorious source of premium leakage can make or break a carrier’s year. Whether the carrier or the employer is responsible for managing eligibility and enrollment, relying on legacy systems or repurposed solutions (i.e. using a P&C system for anything in the life, accident and health market and vice versa) means the carrier is ill-equipped to properly manage enrollment and claims eligibility. This results in millions of dollars lost that otherwise could fund additional staff, capital investments or strategic initiatives.
What Carriers Can Do to Fight Premium Leakage
The solution to eliminating premium leakage is the same as the solution to better mobility and flexibility: strengthening your core. Because legacy systems and custom solutions are inherently prone to premium leakage, carriers must rethink their core system solutions to combat it.
So, what do these stronger core systems look like? They’re modern and integrated and allow data to flow freely between the carrier and the employer. They’re also purpose-built for the market they serve, enabling the insurance carrier to be a reliable source of truth for current plan and policy information, as well as member data for the employer.
With stronger core systems in place, the premium calculations for both the employer and the carrier are based on the same source of truth. Further, when an employee is enrolling for coverage the benefits and provisions are accurate and truly reflect what is eligible. This turns into accurate premium being billed to the insured and, most importantly, the right benefits being paid when they are needed. The result is zero premium leakage, and money back toward the insurance carrier’s bottom line.
The Customer Experience Goes Beyond the Monetary Benefits
While monetary recoupment is an exciting reason to tackle premium leakage, there are also customer satisfaction benefits of upgrading from legacy systems. Modern core systems make processes more efficient and yield faster turnaround times on claims for the employee. As most claims are filed in times of serious illness/injury or bereavement, a quickly processed claim can significantly improve a customer’s experience during a difficult time.
Additionally, the insurance carrier must meet the insured or enrollee where they are. To accomplish that objective, the digital experience offered must come with the same accessibility and ease experienced in most apps available to the insured. Carriers can’t offer a superior customer experience digitally when their technology backbone is made up of older legacy systems that are unable to support APIs or integration. They need modern systems that come equipped with APIs and the data structure to support the insured at all points of the policy lifecycle.
Transformation Pays Off
Premium leakage can be eliminated when carriers decide it’s time to look under the kitchen sink, see the source of the leak for themselves and call in the plumber. In this case, the plumber comes in the form of a modern, SaaS-based core system. By addressing the costly inefficiencies caused by legacy systems, insurance carriers can keep the full measure of their projected premiums in their pocket while also providing a superior customer experience.
Dan Watt is vice president of product management at FINEOS, the leading provider of core systems for life, accident and health insurers globally. Watt specializes in helping employee benefits carriers find ways to leverage modern technology.
See Dan’s recent blog: Does your core have the strength to address $10M in premium leakage a year?