Navigating the Legacy System Maze: Recognizing the Signs of Inefficiency

Every year, you face new regulatory requirements, making compliance increasingly complex and expensive to maintain. To meet the new requirements and avoid penalties or license loss you need to implement new processes and controls and upgrade infrastructure to meet new privacy, cybersecurity or reporting requirements. This is a particularly challenging prospect when you’re dealing with older systems that rely on siloed approach to data management, resulting in costly projects that divert money away from innovation.

A case for change: You need tools that will significantly reduce the complexity and resources required to maintain regulatory compliance in the long run. Many modern platforms include compliance tools that will free you to focus more on core business activities and innovation. 

Here are the core types of compliance that insurers need to focus on as they select their insurance core system.

Sign #3: Scaling Difficulties Across Emerging Distribution Channels

The changes in the insurance industry mean that you increasingly rely on non-traditional ecosystem partners to sell and distribute your products. In this landscape, implementing APIs and digitalizing distribution is becoming increasingly urgent. Case in point: research company Celent believes that insurers who fail to use APIs and participate in ecosystems will lose their competitive edge.

As you are unable to plug seamlessly into new distribution channels you find you are missing market opportunities, delivering fragmented customer experiences and facing partner integration challenges. Legacy systems are a common culprit for these issues as they do not provide modern rating engines, open APIs, broad interoperability, and digital cloud-based tools needed to expand your reach.

A case for change: You need to look for embedded insurance capabilities such as fast product configuration, out-of-the-box APIs, multi-channel rating engines, strong support for distribution, and analytics tools combined with AI-ML-based dynamic personalization. These are crucial features you need to succeed in an increasingly connected distribution world.

Sign #4: Slow Time to Market and Expensive Product Development

As new risk coverage opportunities emerge, you need to be able to create and distribute new products as soon as possible to capture as much of the market as possible. However, you might find yourself struggling to launch new products consistently, even across traditional channels. Underlying issues manifest themselves in slow time-to-market, high operational costs stemming from manual processes, product inconsistencies across channels and limited iteration possibilities.

Legacy systems often require manual product configuration at multiple places to support different channels, and they do not support a streamlined process across these products, including distribution, underwriting, policy management, the claims process, and more. There is hardly any agility in the approach, and the time needed for launch extends into months, resulting in enormous product launch costs.

A case for change: Here are some features you need to look for to accelerate product development: low-code/no-code tools for product design and configuration to prototype new products quickly as well as full process support, including claims, billing, and even reinsurance.

Sign #5: Limited Scalability and Flexibility

You may find yourself facing another critical issue within your insurance company: the lack of scalability and flexibility inherent in outdated core systems. These limitations can cause your systems to falter under peak loads, leading to system crashes or slowdowns that impair operational efficiency and degrade customer service. This might prevent you from offering new lines of insurance to accommodate growth, while you risk losing business to more agile competitors and face customer dissatisfaction due to service delays.

A case for change: Most modern IT systems are designed to efficiently handle increased workloads by managing more customers, policies, and claims without sacrificing performance and easily integrating new products and technologies. Also, consider your deployment options: Cloud-based platforms deliver even more flexible solutions, ensuring both cost efficiency and operational flexibility. Review your privacy and security requirements and weigh them against your operational needs.

Sign #6: Deteriorating end-user Experience

A subpar end-user experience can significantly undermine your ability to acquire and retain not only policyholders but also partners. Consumers expect seamless and personalized interactions across all touchpoints and get frustrated by long processing times, inaccurate policy information, and difficulty accessing services. You need to deliver a smooth and convenient user journey – from quoting and purchasing a policy to filing claims and obtaining support. If you fail to do so, customers become dissatisfied and potentially switch to competitors offering a better experience, directly impacting your growth, profitability, and market share.

A case for change: When you evaluate systems, look for features that enhance customer experience by providing accurate and personalized information, enabling easy access to services through digital channels, and facilitating a seamless user journey from quote to claim. Your goal here is to prevent customer dissatisfaction and encourage loyalty by creating an experience that engages and delights your clients.

Sign #7: Decreasing Productivity

If your insurance professionals are wasting their time manually entering data and waiting for the right information rather than serving your customers' needs, it is time to look at the underlying tech. There are usually multiple factors at work here: monolithic, rigid, and siloed systems that are difficult to integrate both among themselves as well as with modern digital tools. Combined with the lack of capabilities to accelerate critical business processes, this is a significant bottleneck to employee productivity.

A case for change: Modern core systems play a crucial role and are essential for enhancing productivity. A recent McKinsey study found that organizations that update their IT are more productive than their peers stuck on legacy technologies, achieving an over 40% higher number of policies per full-time equivalent. This increase in productivity is driven by the ease of streamlining the end-to-end process and modern automation capabilities.

Look at the image below to see what a modern insurance platform contains compared to a traditional core system:

Sign #8: Struggles with New Business Initiatives and Technologies

While your business teams may be satisfied with existing core functionalities, such as policy administration and claims, there is an increasing backlog related to strategic initiatives such as data-driven automation, using AI and Machine learning to improve risk assessment and predictive modeling. Even integrating new digital technologies, such as IoT and telematics, requires continuous costly updates, re-platforming, and customization of existing systems. However, even such major updates often fail to support your business in keeping pace with the competition and do not even consider some significant innovations.

A case for change: Instead of relying on a siloed approach with poor integration between modules, look for additional functionalities to facilitate and drive advanced business initiatives. Deploying a modern system will enable a seamless integration of emerging technologies and allow you to enrich your business with cloud and AI technologies and real-time data analytics.

Sign #9: Increasing Cybersecurity Risks and Business Disruptions

Cyberattacks can expose sensitive customer information like personal and financial data and result in fines, litigation and loss of goodwill. Additionally, your teams could be losing their time dealing with malware attacks instead of focusing on their real work. Large-scale ransomware attacks over the previous couple of years have shown that hackers can disrupt operations and bring business to a halt for several days or even weeks, as happened to CNA Financial Corporation in 2021.

A case for change: Your outdated systems often lack robust security controls and encryption capabilities, making them vulnerable to cyber-attacks and disruption. Look to improve your resilience to attacks as well as expand your incident response capabilities needed to detect, investigate, and respond to cyber threats in a timely and effective manner.

Your Insurance Business cannot afford to wait

As customer expectations and market dynamics continue to evolve rapidly, companies from the insurance sector can no longer afford to be held back by antiquated legacy systems. While these systems have served their purpose, insurers must take a critical look at them and objectively assess their limitations in terms of agility, scalability, and the ability to deliver superior customer and employee experiences.

The first step is to look at the operational inefficiencies, technical debt, and opportunity costs associated with maintaining legacy systems and examine the challenges faced by your company. Of course, this means looking well beyond just modern technology. A well-constructed business case should factor in the long-term strategic advantages of a future-proof core insurance platform.

We now live in an age where technology systems developed a decade or more ago simply no longer serve insurance companies' business interests. A well-planned legacy system transformation project can drive business success and help insurers improve their competitive position to lead the market.