Low interest rates, insufficient capital market returns, new capital requirements, unattainable performance guarantees on existing policies. All products that result in vested entitlements or fulfil a savings function, such as health and life insurance, are under massive pressure: insurers are barely able to earn the returns they need to meet future obligations.
So it’s no surprise that more and more insurers are discontinuing business lines, in classical life insurance for example, and are thinking about new, more flexible products that will get their new business buzzing again. But what to do about existing policy portfolios and guarantees that weigh on the statement of financial position?
According to a study from advisers Willis Towers Watson in spring 2016, insurers are increasingly thinking about winding up existing policies, putting them into run-off, and have stopped writing new business altogether. The advantage is that by selling the portfolio the insurance companies can get their guaranteed policies off their books and improve their balance sheets.
At first the disposal has no effect on the insured parties: the buyer of the portfolio assumes all the rights and obligations of the previous insurer and continues the policies correctly and in line with the contract – the supervisory authorities, like BaFin in Germany, make sure the insured are not disadvantaged in any way.
However, before policies are transferred, the regulators do check the financial situation of the buyer, its solvency, reputation and strategy. Run-off specialists buy legacy portfolios on the market, which is attractive for them because the costs per policy go down as the size of the portfolio increases. These run-off insurers then create a kind of platform to which the original insurer transfers the portfolio. This is basically an IT system that manages the policies until they expire – at low cost, with no manual intervention and largely automated.
By doing so the run-off specialists also highlight the weakness of conventional business models: the insurers’ core system, i.e. their policy management, is mostly inefficient and high-maintenance. It requires too many manual, time-consuming interventions and adjustments that often have to be carried out laboriously in-house and which are only vaguely related to the main insurance business.
Many insurers even have several out-of-date core systems for their policy management, whereas a modern IT platform could pool them and manage them efficiently. They would then no longer tie up staff capacities and financial resources unnecessarily. The German financial supervisors at BaFin have recognised this: from an economic perspective, the transfer of portfolios only makes sense if a company can save significant administrative expenses for policy portfolios by means of superior IT, says Frank Grund, head of insurance supervision at BaFin.
And this is where the experts from msg life come in: insurers are on the safe side with the msg.Insurance Suite, because the solution is designed to map the core insurance processes quickly and easily in the basic configuration, from product development to policy issuance and policy management – and it can be completely automated if required. New regulatory and compliance requirements are also imported in regular updates.
Thanks to its pre-installed interfaces, the msg.Insurance Suite also integrates itself quickly into the insurer’s IT architecture and peripheral systems, and it has a wide range of additional components, such as inbox systems, document creation and customer correspondence. The platform also supports multiple clients, currencies and languages, making it suitable for immediate international use. The solution adapts flexibly to the needs of a modern insurance business and to the specific requirements of the individual insurance company.
Altogether, the msg.Insurance Suite gives insurers the extra boost in terms of process efficiency and productivity that they need to manage their run-off business. Many international installations at well-known insurance companies and successful migrations of legacy systems and portfolios provide the ultimate proof of the solution’s performance.
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