The Dutch pension system reform is forcing pension administrators to make interventions in their administration. Peter Roos, an expert at the leading insurtech company Lumera, stresses against patching things up. “Don’t simply shove a new system into an old existing structure. The Dutch pension reform is an excellent opportunity to evaluate the whole administration system.”
Pension providers, insurers and pension funds in the Netherlands, have faced many changes over the past 20 years. Changes in regulations and new products, often resulting from these regulations, irrevocably led to administrative adjustments.
Roos: “The most common choice is a new system, linked to the old system, especially if it concerns one new product. A migration to an entirely new system costs more, is complex and leads to risks. If the old system can last a few more years, many managers prefer to opt for that. But you can’t keep doing that in the long run.”
First of all, the current changes require more than cutting and pasting, says Roos. “The transition from DB to DC, which often involves greater individualization, requires significant data migration and more capacity. The question is whether this can be done with the existing system, especially if it already consists of a cluster of separate administration segments that communicate with each other with difficulty. Adding a new segment increases the complexity. We call this a ‘burning platform’.
A ‘burning platform’ ultimately leads to higher costs
A burning platform tends to become unstable. Roos: “The accumulation of systems leads to errors and complexity, which in turn increases costs. The system platform may be able to last a few more years, but the migration costs will keep rising if you keep moving forward. And at some point, you no longer have a choice but to move from the old world – to the new world.”
The pension reform is therefore a natural moment to tackle the entire system,” states Roos. “In doing so, don’t just look at the reform, but also at other important migration drivers. Elsewhere in Europe, pension providers are also modernizing, not because of the pension reform, but because they are facing other bottlenecks. Take those bottlenecks into account in your migration.”
An important reason for migrating, for example, is that the old core system – the legacy system – is no longer satisfactory. Roos: “Many of those systems date back to the 1980s and were programmed in COBOL, RPG and Delphi. Skills are being lost, there are fewer experts master them and there is a great need for updates.”
Finally, there is a growing need for automation and digitalization. Roos: “Manual processes can be easily automated using modern technology. The need to work more efficiently is only increasing with the transparency obligations towards participants. Customers also want information in real-time, digitized “customer journeys”. That, too, requires a modern policy administration system.”
Risk management in migration
Transferring data from existing systems to a new system can be particularly risky. Roos: “That is why you have to do this step by step, in a controlled environment and keep on testing. We have already supervised around 70 migrations, and one of the things we found out is that it is wise not to do the migration in a delimited project, but to involve all departments. Keep communicating. When the migration is complete, everyone has questions. Be prepared for that.”
Moreover, because decision-makers, detail-oriented experts and key people have to be involved, migrations in project form tend to be large, as business as usual must continue. “Therefore, work agile, and also involve younger employees who will eventually have to work with the new system. Finally, don’t get lost in IT details, but keep the ultimate goal of the migration in mind.”
Lumera is an insurtech company dedicated to the digital transformation of the European life and pensions industry. The Prudent Revolution is our mission – bridging technology and partnership to navigate the fastest, safest path through complex change for L&P providers. With a faultless track record from extensive migration projects, Lumera combines our cloud-native policy administration platform with deep domain expertise.
©2022 Lumera AB. All rights reserved. Lumera is a registered trademark of Lumera AB
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