Breaking Barriers: How Modern Policy Administration Drives Health Insurance Success
The insurance sector in India is on the brink of transformation, driven by the changing market dynamics and the government’s ambitious 'Insurance for All' initiative. Life insurers have a new opportunity to tap into the health insurance space by offering both life and health coverage under one umbrella.
Moreover, India is struggling with a health protection gap of 73%, as per a December 2023 National Insurance Academy report, leaving nearly 40 crore people without a health policy. The lack of penetration, rising expenses, and inadequate coverage have paved the way for improved models to enter and thrive in the market.
While the transition towards a composite insurance model and opportunities to close the health protection gap present tremendous potential for growth, they also introduce significant operational challenges—the biggest one being legacy policy administration systems (PAS). For decades, insurers have traditionally relied on rigid and expensive PAS that are heavily dependent on manual processes. However, as consumer expectations rise and regulations become more stringent, outdated PAS prove to be more of a liability than an asset.
The Cracks in the PAS Foundation
Most PAS in use today were never designed to handle multiple insurance products. Many insurers entering the health insurance space customize their legacy PAS, which were originally built for life or general insurance, resulting in an unsustainable or unscalable approach.
Every customization requires months of coding and complex third-party integrations, causing the system to buckle under the weight of increasing data volumes. This is because most of these systems follow a monolithic structure that is built as a tightly coupled system where every component depends on another. With even the slightest change in one function, the entire system would crumble and require extensive rework to rebuild itself.
For years, insurers have worked around this flaw by writing custom codes to align the PAS with their evolving business needs. What seemed like a reasonable short-term solution has created a massive long-term burden. It raises the maintenance cost and makes product upgrades prohibitively expensive. As a result, insurers find themselves stuck with outdated versions, unable to leverage new functionalities, security patches, or dynamic regulatory enhancements without incurring huge expenses.
A study by ResearchGate found that 75% of insurers still rely on systems that are 20-40 years old, consuming up to 70% of IT budgets in maintenance. These monolithic systems have now become obstacles to growth. Moreover, legacy systems involve hefty licensing cost, demand significant hardware investments, and often lack the scalability needed in today’s fast-paced digital environment.
Some argue that these systems can be modernized with integrations and workarounds, but insurers trying to fix a broken system instead of replacing it are only delaying the inevitable. A system built in a pre-digital era will never be able to function at the speed and complexity required for modern health insurance.
The Need for a Smarter, More Agile Health PAS
Unlike life insurance, where policies are generally structured for long-term coverage with minimal modifications, the constantly evolving ecosystem of health insurance involves continuous adjustments. Premiums fluctuate based on risk factors, while claims occur frequently and must be processed quickly to meet policyholder expectations. Uncertain regulatory guidelines necessitate immediate system updates to ensure compliance. A PAS must be dynamic and agile to have long-term viability.
For insurers looking to expand into health insurance, the only viable path forward is adopting a dedicated health PAS—a system built specifically to handle the complexities of health insurance. A purpose-built health PAS is designed from the ground up to meet the needs of health insurers. It provides scalability to support increasing policy volumes, flexibility to auto-adapt to regulatory changes, and automation to streamline end-to-end policy lifecycle management.
With AI-driven automation, claims can be approved in hours rather than weeks. Compliance becomes seamless as a dedicated PAS keeps pace with evolving regulations without constant manual interventions. Integration with hospitals, payment systems, and third-party applications becomes effortless, allowing insurers to provide a truly digital-first experience for policyholders.
A renowned composite insurer in the Philippines massively benefitted from a robust PAS. The insurance provider’s legacy system struggled to process a growing number of health claims efficiently, resulting in delays and poor customer experience. Realizing the urgency of the situation, the insurer transitioned to a modern, cloud-based PAS. Within months, the claim processing time was reduced by 95%, significantly improving customer satisfaction and operational efficiency.
How Can Modern Health PAS Benefit Insurers Expand Their Portfolio?
Let’s understand this with an example. Secure Health, an insurer, wanted to expand its business with the launch of a new health insurance product. It spent months on its traditional PAS in developing, coding, and testing, making the entire process arduous and costly.
When a modern health PAS came into the picture, the timeline of the new product launch took just a few weeks. Configurable workflows eliminated the need for complex coding, while AI-powered automation streamlined underwriting, risk assessment, claims processing, renewals, and policy servicing.
Moreover, the microservices-based architecture of modern systems empowered the insurer to manage specific components without disrupting the entire platform. Today’s insurance providers need this kind of agility to become a future-ready organization.
The new-age PAS increases the scope for insurance coverage by elevating the experience for end users. In today’s world, policyholders expect seamless digital interactions, instant policy updates, and quick claims processing. With a dedicated health PAS in place, customers don’t have to be irked by endless paperwork or unclear policy terms. Instead, they can access digital self-service portals, track claim status in real time, and get instant support through AI-powered chat assistants. Hence, with measurable benefits, consumers are more likely to opt for insurance policies.
Compliance, Risk, and the Need for Agility
Regulatory compliance is another key factor driving the need for PAS modernization. The Insurance Regulatory and Development Authority of India (IRDAI) has been actively shaping policies to ensure transparency and efficiency in insurance operations. A PAS that cannot adapt to these evolving regulations puts insurers at risk of non-compliance, heavy fines, and reputational damage.
Additionally, risk assessment and fraud detection have become increasingly complex. As insurers deal with malicious fraud schemes, AI-driven risk models, integrated into a modern PAS, can help detect anomalies, flag suspicious claims, and minimize fraud-related losses—something legacy PAS platforms struggle to achieve.
Preparation is Better Than Failure
For years, insurers have delayed PAS modernization, citing rising expenses, transition challenges, or short-term business priorities. But every delay is a missed opportunity. The financial and operational burden of maintaining an outdated PAS far outweighs the cost of adopting an advanced AI-led solution.
While some insurers may believe that incremental upgrades to their existing PAS will suffice, retrofitting a life or general insurance PAS to handle health insurance is an uphill battle. The insurers that recognize this early and adopt a dedicated Health PAS will be the ones who dominate the market. Those who fail to modernize will inevitably fall behind.
Insurers must ask themselves a simple question: Are we moving forward or stationary? In today’s market, standing still is the fastest way to fall behind. The time to change is now.
The Way Forward with Newgen
With over 30 years of expertise in transforming the BFSI sector, Newgen is the trusted partner for insurers looking to modernize and scale effortlessly. Newgen’s advanced Health PAS solution is purpose-built to handle the dynamic needs of health insurers, as well as general insurers looking to foray into the health segment. Built on a low-code platform, the AI-led solution automates the entire policy lifecycle— from underwriting and policy issuance to claims management and policy servicing—ensuring a frictionless digital experience for both insurers and policyholders.
Author: Ritesh Varma, Head of Consulting & Business Solutions Group, Newgen Software
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of IIA and IIA does not assume any responsibility or liability for the same