Closed Block Insurance Outsourcing – Pas Trusted News

Authored by Tony Johnson, Maria Itteilag, and Ashlyn Johnson

As consumer preferences evolve and technologies advance, the pace of insurance product innovations has accelerated, and with it, the discontinuation of outdated product offerings. This is especially true of life insurance, annuity, and long-term care products—as many insurers carry closed blocks of long-term care insurance, guaranteed benefits on variable annuities, newly exited business, and more. When products are discontinued, the valuation and administrative functions for inforce contracts on a closed block of business must continue to be maintained. While these closed blocks can remain profitable for insurers, the valuation and financial reporting associated with closed blocks are often overlooked as a component of achieving the organization‘s strategic goals.

Closed block insurance challenges

The valuation of closed blocks presents several challenges and risks to insurers. For instance, closed block reserving calculations tend to reside on outdated systems with associated manual processes that may create data and reporting limitations. Maintaining closed blocks of business on outdated systems could require additional controls and governance that otherwise may not be necessary.

Closed blocks also present key person risks, as existing employees hold extensive knowledge of products, regulations, and processes required to maintain the calculation environment, diagnose issues, and explain the results of valuation activities. Further, suppose these key personnel leave the organization. In this case, limited availability exists inside the organization to replace them, especially in cases where reserve calculations take place in mainframe environments or platforms are no longer supported by vendors. Insurers should consider employee engagement as recurring valuation of closed blocks of business may be considered low value—causing employees to feel a lack of purpose and satisfaction in their work.

How insurance outsourcing can help

To overcome the challenges of maintaining closed blocks and realizing their inherent value, insurers have turned to outsourcing the valuation of this business to a third-party provider. Many blocks of business are suitable for outsourcing, including stable products with defined processes on legacy systems or products valued under locked-in assumptions. These are ideal candidates for outsourcing as they often represent noncore and immaterial blocks of business to a company’s overall balance sheet. By outsourcing closed block valuation, an insurer can cede data and reporting risks to the provider, reduce or eliminate the need to maintain aging systems, and free up personnel to focus on strategic initiatives—increasing employee satisfaction and retention. Further, outsourcing closed block valuation can generate efficiencies for cost savings.

As companies continue to seek transformative opportunities, outsourcing of closed block valuation is one possible solution. For closed blocks, working with an outsourcing provider enables risk mitigation and cost takeout while preserving quality. Partnering with an outsourcing provider can bring value to the enterprise for closed blocks of business and future initiatives by giving insurers access to their skills, resource capacity, and capabilities.

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