Insurance Core Systems Modernization
Understand critical challenges faced by Insurance firms when modernizing their existing insurance technology.
- Customers are unsatisfied with their engagement with insurers. Consumer needs have evolved and require sophisticated solutions that your current technology finds hard to support.
- Insurers are losing business to agile competitors. Speed to market is essential as traditional and non-traditional competitors rush to fill the gap and gain market share.
- Product development needs to be improved. New products are best created in an agile environment, not limited by the capabilities of legacy systems.
Our Advice
Critical Insight
- Challenges facing insurance companies are:
- Insurance customers have complex needs that current technology cannot fully meet. They need more advanced solutions to cater to the sophisticated demands of the clients.
- Competitors' agility is causing insurers to lose business. Thus, speed to market is crucial as both traditional and non-traditional competitors are quickly trying to take advantage and grow their market share.
- To improve product development, adopting an agile approach that doesn't limit the creation of new products to obsolete systems is critical.
- Hindrances impeding a clear path are:
- Legacy systems are difficult and costly to maintain due to outdated technology.
- You need skilled workers to operate your outdated systems, but there need to be more developers who know older programming languages. Outsourcing has become a necessity to keep your infrastructure sustainable.
- Allocating funds toward outdated systems hinders your potential and innovation capacity.
- The Info-Tech Approach:
- Technology can improve customer experience and boost business productivity.
- To meet customer demands and keep up with market changes, developing a robust strategy for implementing adaptable technology to replace outdated systems is crucial.
Impact and Result
- Technology needs to be the driver in meeting customer expectations. Technology must proactively understand client needs and bring enhancements to business leaders.
- Need the plan to phase out legacy systems. Investment in technology needs to be forward-looking and adapt to market changes and core business needs derived from customer experiences.
Insurance Core Systems Modernization
Overcome critical challenges in modernizing existing insurance technology.
Analyst Perspective
The insurance industry is constantly evolving, and success in such an environment requires companies to become and remain adaptable using agile methodologies.
Insurance innovation focuses on improving customer experience and product design, which is primarily done by improving convenience, making products and services accessible across electronic channels, and personalizing the customer experience. Insurance companies face increasing pressure to adopt new technologies to remain competitive and meet customers' changing needs.
Regulations place pressure on traditional insurers as compliance requirements constantly shift. The industry is highly regulated and continues to add more complex requirements. Insurance companies must navigate these complex and often conflicting regulatory frameworks across different jurisdictions. New regulatory requirements related to data privacy and security may emerge, which would require significant changes to existing policies and procedures. Startups classified as insurtech and nontraditional insurers in the market are not always subject to the same level of regulatory oversight.
The pace of digital transformation is likely to accelerate in the coming years. Legacy technologies have become the elephant in the room and insurance firms must keep pace with new technologies to remain competitive. Implementing automation, artificial intelligence (AI), and emerging technologies (e.g. internet of things [IoT], blockchain, etc.) may require significant changes to the existing model.
The current environment forces traditional insurers to make difficult choices. Info-Tech's Insurance Core Systems Modernization report provides an overview of the challenges and offers key insights and practical recommendations for your insurance company to modernize and compete using the latest developments.
Ahmed Mapara
MBA
Principal Research Director,
Financial Services Industry
Info-Tech Research Group
Executive Summary
Your ChallengeCustomers are dissatisfied with their insurers' present engagement. Consumer needs have evolved and require sophisticated solutions which are poorly supported by existing technology. Insurers are losing business to agile competitors. Speed to market is essential as traditional and nontraditional competitors rush to fill the gap and gain market share. Product development needs to be improved. New products are best created in an agile environment, beyond the limited capabilities of legacy systems. |
Common ObstaclesYour legacy systems are complex and costly to maintain. Outdated hardware, software, and development practices make it increasingly difficult to maintain legacy systems. The talent pool for legacy systems is rapidly shrinking. With fewer available developers for old programming languages, you're more reliant on third parties/outsourcing to support your infrastructure. Legacy systems occupy so much of your budget. Managing these expensive systems leaves no room for the financing of innovation. |
Info-Tech's ApproachTechnology needs to be the driver in meeting customer expectations. Technology must proactively understand client needs and bring enhancements to business leaders. You must plan to phase out legacy systems. Investment in technology needs to be forward-looking, to adapt to market changes and core business needs derived from customer experiences. |
Info-Tech Insight
Insurers must address the infrastructural issues caused by prolonged use of legacy systems. Besides creating technical debt, unnecessary complexities exist, making insurers hesitant to make changes, which recursively deepens the crisis. Insurers need a phase-out approach to transition outdated systems to platforms that will serve their customer-centric requirements of today and tomorrow's data-intensive needs.
Insurers need to modernize technology and operations
Existing technology is ill-suited for insurers' present needs
Legacy systems are outdated, complex, and difficult to modify. Technical debt increases with time as more systems are added to cumbersome infrastructure. Layers of complexity limit the ability to modernize existing platforms. Integration with legacy systems are challenging to maintain, requiring significant investments in technology infrastructure. Moving data from legacy systems to newer platforms may require a specialized skillset. Legacy knowledge is increasingly rare in the market, driving costs higher and reducing the budget available to modernize.
- 70% of an insurer's IT budget goes to maintaining their legacy systems (PwC research via Software Mind).
Siloed operations hinder data sharing and integration. This results in fragmented processes that cause inefficiencies and increased risks while limiting innovation and insights. Valuable financial and customer information can be lost during integration. Siloed operations lead to cybersecurity vulnerabilities, which can result in costly compliance violations and reputational risks.
- In 2021, 79% of underwriters reported lack of process integration as the biggest reason for technology negatively impacting their workload (Accenture).
Compliance and regulatory issues hinder digital transformations. Legal/regulatory barriers, risk of noncompliance with data privacy, and security concerns further complicate the digital transformation process. Significant compliance efforts may be needed to modernize or replace legacy systems.
"Twenty or thirty years ago, the way a consumer would engage with an insurance company was very manual, very archaic, very paper-based, and quite honestly, over the past few decades, it (hadn't) really changed much…"
– Roy Gori, Chief Executive of Manulife Financial Inc., in Financial Post
Insurers must keep up with rapid change
The market is experiencing change from multiple sources
Resistance to change comes from the long history and strong culture of insurance companies leading to employee resistance or reluctance in adopting new technologies. It is harder to gain buy-in and support for modernization efforts.
- 91% of executives believe digital technologies have the potential to fundamentally transform the way their company works (Workato, 2022).
Mergers and acquisitions (M&A) combine different sets of legacy systems and applications. This further complicates integrating a diverse set of processes and technologies, leading to delays and/or failures in digital transformation initiatives. Change management plus cultural and organizational challenges can distract leadership, consuming resources that could otherwise be invested in building innovative and agile platforms.
- Personalized marketing can cut customer acquisition costs by as much as 50% ("What is personalization?" McKinsey, 2023).
Lack of digital expertise increases risks. Limited experience and expertise pose a barrier when transforming existing technology. Training and targeted hiring will reduce challenges with evaluating and implementing newer technology platforms and services.
"The idea was to get rid of seven legacy IT systems and put everything into one fully integrated, state-of-the-art IT platform."
– Andreas Kleiner, who oversaw the completion of an eight-year transformation program to upgrade American Modern Insurance Group infrastructure
Source: "American Modern's timely digital transformation," Insurance Business Magazine, 2023
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