A guide to setting out on an insurance legacy system transformation

The trend toward standardized core technologies

In the past decade, insurers increasingly opted for standard off-the-shelf core systems that promise relief from maintaining and developing custom-built legacy systems. However, these systems could pose another trap – reducing insurers' self-sufficiency and independence. Relying on the vendor for every little change is the recipe for reduced agility and flexibility. Migration from Legacy Systems ended up with as just another legacy solution.

Modern insurance platforms have emerged to address these issues. These solutions are based on best practices that reduce the risks of implementation. At the same time, they are also configurable by the client so they can cover emerging needs while also delivering the flexibility, agility, and scalability required to move into new markets and reduce operational costs.

Expanding into new markets, in particular, is something that’s easier to do with a standard system as insurers can leverage core capabilities to speed up the development and testing of new modules.
Another benefit of modern platforms is that they include many more features than traditional core systems. By integrating features such as BI, workflow management and BPM, online portals, and others, it is much easier to digitalize operations and focus on creating new products.

Standard software also comes with regular updates and consistently updated regulatory compliance, reducing the ever-growing compliance risk. Organizations need to comply with stringent Know Your Customer (KYC) standards, personal data privacy requirements, and anti-money laundering (AML) regulations. It is almost impossible to achieve these goals effectively and proactively without a modern, regularly updated standard software solution.

Standard systems are becoming very popular. McKinsey’s study found that nine of the top 12 US P&C insurers use standard software. Data shows that 75% of leading insurers in North America, CEE, the Nordics, and the UK choose standard software for claims and policy administration.

Look beyond the core – consider business objectives and outcomes

Replacing the core insurance system is a daunting prospect. It is complex, impacts most of the company, and takes a long time. Another significant factor is that most CIOs and other people working in insurance IT departments usually do not have extensive experience with core system replacements.

Remember, it only usually happens once every decade or more.

So, this high-risk and complex project is something that’s needed if insurers want to fend off competitors and grow. How should they go about it?

Looking beyond the core in practical terms means two things.

First, make a good business case by aligning technology investment and business goals. Due to the complexity and cost associated, building the case on technology only will not do it. Look at the business and identify the desired outcomes. Pain points should guide objectives and help determine the planned impact of a potential new solution. Of course, all this should happen in the context of the strategic direction and future growth of the company.

Replacing a legacy system should not be replacing existing core insurance functionality and not just a technology decision. It is a business transformation project. Your strategy and vision shape your business goals as the final destination for this project. This means the next step is getting senior leadership buy-in and here are some of the points you should focus on when looking for a new solution.

• Cost of ownership: a McKinsey study found that IT costs per policy can be 41% higher on legacy platforms. Look closely at how a new insurance platform could help you cut the total costs of your IT infrastructure.
• Increased productivity: one of our clients used AdInsure to digitalize the claims and policy management processes and boosted average Claims settlement productivity by 112%. Look for digital technology that can help you automate processes to improve productivity.
• Technology consolidation: identify opportunities to simplify the existing IT landscape and reduce operating costs. Instead of relying on a multitude of poorly integrated piecemeal solutions, look at platforms that bundle multiple functionalities, such as core, BI, and portals.
• Regulatory risk minimization: Compliance requirements are increasing and keeping up is becoming increasingly difficult. Look for ways to include regulatory compliance into your core business logic and technology infrastructure. 
• Improved agility and innovation: new risk coverage, ecosystems, and integration with Insurtech and distribution channels top the lists when it comes to new business models. Look for open, modern technology, that will help you integrate partners to transform your processes and models.
• Improved service for customers and business partners: ease of doing business will improve partner and customer satisfaction. Leverage tech that makes it easy to expose the insurance value chain to clients and partners, including customer self-service and partner integration.
• Accelerated time-to-market: becoming fast at everything should not be only a wish; new lines of products, new partnerships, cross legislation operations. Look for solutions that embed this into their design and provide a roadmap for business and IT operations teams to make this happen.  

Look beyond the core - go for rich features for your business and IT teams