Business Capability Mapping for Life Insurers

1. Business Capability Architecture for Life Insurance Excellence www.capstera.com 1

2. Transform Vision to Value: Capabilities as the Blueprint for Industry Leadership In today's rapidly evolving insurance landscape, carriers face ▪ unprecedented challenges from digital disruption, changing customer expectations, and regulatory pressures. Navigating this complexity begins with clearly understanding what the organization does—not how it does it. Business capability mapping provides this crucial foundation by documenting the essential abilities that define a life insurance carrier, independent of how those capabilities are currently implemented. A well-constructed capability map is the organizational north ▪ star, aligning strategic initiatives, technology investments, and operational improvements around a common language and framework. For life insurance carriers specifically, capability mapping offers the structural clarity needed to modernize legacy operations while preserving the core risk management and customer protection values that define the industry. www.capstera.com 2 2

3. The Foundational Role of Business Capability Mapping 1 Business capability mapping is the cornerstone of effective enterprise architecture, providing a stable reference model that remains consistent even as processes, technologies, and organizational structures evolve around it. • Strategic Alignment: Business capability maps create a direct line of sight between strategic objectives and the operational capabilities needed to achieve them. • Common Language: The capability framework establishes a shared vocabulary that bridges communication gaps between business and technology stakeholders. • Investment Prioritization: A comprehensive capability assessment reveals maturity gaps that inform technology investment and process improvement priorities. • Transformation Navigation: Capability maps serve as the constant reference point amidst organizational change, ensuring that transformation initiatives maintain strategic coherence. • Operational Clarity: The capability perspective cuts through functional silos, highlighting interdependencies and collaboration requirements across the enterprise. www.capstera.com 3

4. Defining the Capability Map Structure 2 A well-designed capability map requires thoughtful structuring to balance comprehensiveness with usability. The hierarchical organization of capabilities creates a navigable model that stakeholders can easily understand and apply. • Capability Hierarchy: Most effective capability maps organize into three levels—Level 1 (major domains), Level 2 (capability groups), and Level 3 (discrete capabilities)—with each level increasing in specificity. • Appropriate Granularity: The optimal decomposition reaches the level where capabilities can be meaningfully assessed and owned, typically 150-250 Level 3 capabilities for a mid-sized life insurer. • Capability Definition: Each capability represents a "what" not a "how"—defined as a business ability independent of the processes, technologies, or organizational structures currently implementing it. • Mutual Exclusivity: Well-constructed maps ensure that capabilities do not overlap, with each capability representing a distinct business function. • Collective Exhaustiveness: A complete capability map accounts for everything the organization does, leaving no significant business functions unmapped. www.capstera.com 4

5. Life Insurance Core Capability Domains 3 Life insurance capability maps typically organize around several primary domains that collectively represent the full spectrum of carrier operations. These domains provide the highest-level organizing framework for more detailed capabilities. • Product Management: This domain encompasses the capabilities required to design, price, and maintain insurance products throughout their lifecycle. • Customer Engagement: These capabilities focus on acquisition, relationship management, and servicing across the customer journey. • Underwriting & Risk: This domain covers risk assessment, policy issuance, and ongoing risk management capabilities. • Claims Management: These capabilities enable efficient, accurate, and customer-centric processing of death benefits and living benefits. • Investment Management: This domain includes capabilities for managing general account and separate account assets to meet liability requirements and generate returns. • Regulatory Compliance: These capabilities ensure adherence to the complex regulatory requirements governing life insurance operations. www.capstera.com 5

6. Identifying Distinctive Life Insurance Capabilities 4 Within the broader capability framework, certain capabilities distinctively characterize life insurance operations and require special attention in mapping exercises. These insurance-specific capabilities often represent core competitive differentiators. • Mortality Assessment: This capability enables accurate evaluation of mortality risk through medical, behavioral, and demographic factors to establish appropriate pricing and coverage terms. • Actuarial Modeling: This cornerstone capability allows carriers to project financial outcomes across decades-long policy lifecycles under various economic and demographic scenarios. • Policy Administration: This capability maintains the contractual relationship between insurer and policyholder, managing all aspects of in-force policies throughout their multi- decade lifecycles. • Benefit Administration: This capability ensures accurate and compliant distribution of various benefit types including death benefits, living benefits, and policy loans. • Agent/Broker Management: This capability supports the recruitment, licensing, training, and performance management of the distribution channel that remains critical for complex life products. www.capstera.com 6

7. Did You Know Transformation Success Rates: According to a 2024 Gartner ▪ study, asset management firms with mature Enterprise Architecture practices achieve a 64% success rate in digital transformation initiatives, compared to just 27% for those without formal EA functions. www.capstera.com 7

8. Mapping Approach and Methodology 5 Successful capability mapping follows a structured approach that balances industry standards with organization-specific requirements. The methodology ensures both comprehensiveness and relevance. • Top-Down and Bottom-Up: Effective mapping combines executive-level strategic perspectives (top-down) with practitioner insights about operational realities (bottom-up). • Industry Reference Models: The mapping process should leverage insurance industry reference models as starting points, adapting them to the specific organization rather than starting from scratch. • Iterative Development: Capability maps evolve through successive refinement cycles, gradually building consensus and incorporating feedback from diverse stakeholders. • Cross-Functional Validation: The draft capability model requires validation across functional areas to ensure accuracy, completeness, and organizational alignment. • Governance Framework: Establishing clear ownership and change management processes for the capability map ensures its ongoing relevance and integrity. www.capstera.com 8

9. Accelerating Value with Pre-Built Capability Maps 6 While creating a capability map from scratch is possible, starting with a pre-built, insurance-specific capability model dramatically accelerates time-to-value while reducing cost and effort. • Rapid Implementation: Pre-built maps reduce the typical mapping timeline from 6-9 months to 6-9 weeks, allowing organizations to quickly advance to value-generating assessment and planning activities. • Industry Validation: Commercially available capability models incorporate perspectives from multiple carriers and industry experts, providing built-in validation that would be difficult to achieve independently. • Reduced Resource Requirements: Pre-built maps significantly decrease the internal resource commitment required, typically reducing effort by 60-70% compared to creating a custom map from scratch. • Best Practice Integration: Leading commercial capability models incorporate established industry best practices and regulatory requirements, ensuring comprehensive coverage of the insurance domain. • Customization Framework: Quality pre-built maps provide a structured approach for tailoring the model to organization-specific needs while maintaining the integrity of the underlying framework. www.capstera.com 9

10. Capability Assessment Fundamentals 7 Once mapped, capabilities must be assessed to identify priorities and guide transformation efforts. The assessment methodology directly influences the quality of resulting insights. • Multi-Dimensional Evaluation: Effective assessments examine capabilities across multiple dimensions including strategic importance, current performance, future requirements, and competitive positioning. • Maturity Scaling: Each capability receives a maturity rating on a defined scale (typically 1-5), with clear criteria defining each level to ensure consistent evaluation. • Evidence-Based Assessment: Rigorous assessment processes require specific evidence to support maturity ratings, avoiding subjective judgments that undermine credibility. • Gap Analysis: The difference between current and target maturity levels reveals priority areas for investment and improvement initiatives. • Validation Workshops: Cross-functional workshops validate preliminary assessments and build organizational consensus around capability priorities. www.capstera.com 10

11. Visualizing the Capability Map 8 Effective visualization transforms the capability map from an abstract concept to a powerful communication tool. The visual representation must balance detail with clarity to engage diverse stakeholders. • Heat Mapping: Color-coded visualizations highlight capability gaps and priorities, making complex assessment data immediately comprehensible to executive audiences. • Hierarchical Navigation: Interactive visualization tools allow users to navigate from high-level domains to detailed capabilities, controlling information density based on their needs. • Strategic Alignment View: Visual overlays demonstrate how capabilities connect to strategic objectives, highlighting the capabilities most critical to achieving organizational goals. • Initiative Mapping: Visualization techniques show how current and planned initiatives address capability gaps, revealing potential redundancies or unaddressed needs. • Stakeholder-Specific Views: Tailored visualizations for different audiences emphasize the capability dimensions most relevant to each stakeholder group. www.capstera.com 11

12. Did You Know Implementation Reality: While 87% of life insurance ▪ executives consider capability mapping essential for digital transformation, only 23% report having comprehensive, up- to-date capability maps that actively guide decision-making. www.capstera.com 12

13. Connecting Capabilities to Enterprise Architecture 9 Business capabilities provide the bridge between strategic intent and the technical architecture needed to enable it. Establishing these connections creates a powerful framework for technology planning. • Application Portfolio Alignment: Mapping applications to the capabilities they support reveals areas of duplication, gaps in coverage, and opportunities for rationalization. • Data Architecture Integration: Identifying the information requirements of each capability creates a business-driven foundation for data architecture and governance initiatives. • Technology Roadmap Development: Capability assessments directly inform technology roadmaps by highlighting where technical improvements will deliver the greatest business value. • Solution Architecture Guidance: Capability definitions and requirements provide essential context for solution architects designing new systems or enhancements. • Technical Debt Prioritization: The strategic importance of capabilities helps prioritize technical debt remediation efforts based on business impact rather than technical factors alone. 13 www.capstera.com 13

14. Leveraging Capabilities for Process Optimization 10 While capabilities define what the organization does, processes define how those capabilities are executed. The capability map provides essential context for process improvement initiatives. • Process-Capability Alignment: Mapping processes to the capabilities they implement reveals opportunities to consolidate, standardize, or eliminate redundant processes. • End-to-End Process Visibility: The capability perspective highlights process fragmentation across functional boundaries, enabling true end-to-end optimization. • Automation Prioritization: Capability assessments help identify which processes would deliver the greatest value through automation or digitization. • Performance Metrics Alignment: Capability-aligned process metrics ensure that operational improvements contribute directly to strategic objectives. • Technology-Enabled Process Redesign: Capability requirements provide the business context needed to redesign processes in conjunction with new technology implementations. www.capstera.com 14

15. Organizational Alignment Through Capabilities 11 Capability maps provide a powerful lens for optimizing organizational structure and governance. The capability perspective reveals opportunities to improve alignment between structure and strategy. • Capability Ownership: Assigning clear ownership for each capability ensures accountability for performance and improvement initiatives. • Organizational Design Insights: Capability mapping often reveals structural inefficiencies where critical capabilities are fragmented across multiple organizational units. • Role Definition: Capability requirements inform skill profiles and role definitions, ensuring that the organization has the talent needed to execute critical capabilities. • Governance Optimization: Capability-based governance structures often prove more stable and effective than those based on volatile organizational structures. • Change Impact Analysis: The capability map helps identify which parts of the organization will be most affected by strategic or operational changes. www.capstera.com 15

16. Driving Digital Transformation with Capability Maps 12 Digital transformation in insurance requires a clear understanding of how digital technologies will enhance specific business capabilities. The capability map provides this essential foundation. • Digital Maturity Assessment: Evaluating the digital maturity of each capability reveals priority areas for digital investment and transformation. • Capability Digitization Sequencing: The capability map helps sequence digital initiatives to build on each other and deliver value incrementally. • Customer Journey Connection: Mapping customer journeys to underlying capabilities highlights where digital enhancements will most improve customer experience. • Legacy Modernization Strategy: Capability assessments inform legacy system replacement strategies by identifying where current technology most constrains business performance. • Digital Platform Planning: The capability perspective helps define requirements for digital platforms that will support multiple business functions. www.capstera.com 16

17. Did You Know Time Investment: Insurance companies typically require ▪ 800-1,200 person-hours to develop a comprehensive capability map from scratch, compared to 200-300 hours when adapting a pre-built industry model. www.capstera.com 17

18. Capability-Based Portfolio Management 13 Capability maps transform project portfolio management from a technology-centric to a business-value-centric discipline. This shift improves resource allocation and return on investment. • Initiative Rationalization: Mapping initiatives to capabilities reveals redundancies, conflicts, and gaps in the current project portfolio. • Value-Based Prioritization: Capability maps enable investment prioritization based on strategic importance and performance gaps rather than politics or technical factors. • Resource Optimization: Understanding which capabilities receive disproportionate investment helps balance resources across the capability landscape. • Benefit Realization Tracking: Capability-based metrics provide a framework for tracking whether initiatives deliver their intended business benefits. • Portfolio Balancing: The capability perspective helps balance investments across strategic, operational, and regulatory requirements. www.capstera.com 18

19. Evolving the Capability Map 14 While capabilities remain more stable than processes or technologies, the capability map must evolve to reflect changing strategic priorities and market conditions. Effective governance ensures the map remains relevant. • Periodic Review Cycles: Establishing regular review cycles (typically annual) ensures the capability map remains aligned with strategic priorities. • Change Control Process: A formal change management process maintains the integrity of the capability map while allowing necessary evolution. • Emerging Capability Identification: Environmental scanning identifies new capabilities required by changing customer expectations, regulatory requirements, or competitive dynamics. • Capability Retirement: Periodically evaluating capabilities for continued relevance allows the organization to formally retire capabilities that no longer provide value. • Continuous Improvement: Ongoing refinement of capability definitions and relationships improves the map's utility for diverse stakeholders. www.capstera.com 19

20. Implementing Capability-Based Planning 15 Capability-based planning transforms how organizations define, evaluate, and manage change initiatives. This approach directly connects investments to strategic outcomes through the capability lens. • Capability-Based Business Cases: Requiring business cases to explicitly identify the capabilities they enhance ensures strategic alignment and facilitates comparison across proposals. • Capability Improvement Roadmaps: Developing comprehensive improvement plans for priority capabilities provides a framework for coordinating multiple initiatives. • Integrated Planning Process: Embedding capability assessment in annual planning cycles ensures that budgeting and resource allocation decisions reflect capability priorities. • Executive Reporting: Capability-based executive reporting highlights progress against strategic capability targets and identifies emerging gaps. • Outcome Measurement: Tracking capability performance improvements provides a direct measure of whether transformation initiatives deliver their intended value. www.capstera.com 20

21. Takeaway Business capability mapping provides the foundational architecture that life insurance carriers need to navigate complex transformation initiatives. By creating a stable reference model of what the organization does—independent of how those functions are currently performed—capability maps enable strategic alignment, investment prioritization, and cross- functional collaboration. While developing a comprehensive capability map requires significant effort, starting with pre-built industry models dramatically accelerates time-to-value. Organizations that embed capability-based planning into their strategic and operational processes are better positioned to successfully execute transformation initiatives and adapt to evolving market conditions. 21 www.capstera.com 21

22. Next Steps 1. Assess Your Current State: Evaluate existing capability modeling efforts within your organization, identifying where formal capability maps exist and where gaps remain. 2. Define Your Mapping Approach: Determine whether to build a capability map from scratch or adapt a pre-built industry model based on your organization's specific needs, timeline, and available resources. 3. Establish Governance: Define ownership, maintenance processes, and integration points for the capability map before beginning development to ensure long-term sustainability. 4. Start With Strategic Priorities: Focus initial mapping and assessment efforts on the capability domains most critical to current strategic initiatives to demonstrate value quickly. 5. Build Organizational Capability: Develop internal expertise in capability modeling through training and knowledge transfer, reducing dependence on external resources for ongoing map maintenance and evolution. 22 www.capstera.com 22

23. Capstera is a treasure trove for Business and Enterprise Architects. ▪ Capability Maps for Various Functions and Sectors. ▪ Value Streams ▪ Business Data Models ▪ Insights ▪ Tools, Templates, and Tutorials Stay in touch with Capstera. www.Capstera.com https://www.linkedin.com/company/capstera https://www.X.com/Capstera https://www.facebook.com/capstera Note: Capstera’s products and their contents may differ from the general information offered in these guides.) 23 www.capstera.com 23

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