How to modernise insurance legacy systems without the pain – enhance and evolve not rip and replace

October 2, 2014 SSP Limited

The back end technology infrastructure in most large and mid-sized insurers is a maze. It is often a complex spaghetti of multiple core systems, many ageing, many creaking at the seams and generally acting as a limit to business growth. The average insurer has 10-14 core systems installed and this complexity means any idea of a rip and replace strategy is just too large and risky a project.

Gartner research suggests that at least 40% of global financial institutions are currently undertaking major core banking transformation projects. Of these projects, 85% fail. Such statistics are not exactly a recipe for career longevity.

New insurance entrants can start with a clean sheet of paper, implementing the latest multi-channel technology platforms that are flexible and adaptable to change. They are able to launch products faster, to add distribution channels on the fly and provide their customers with the multi-channel experience delivered seamlessly.

Conversely, organisations with legacy systems need to balance their lack of competitiveness versus the pain and cost of implementing a new core system. The benefits need to be proven to be very compelling. What these organisations do have though, is an armoury of data and knowledge built up over decades, if they had the systems to exploit it.

A recent article by McKinsey & Company highlights the role that technology has in changing the basis of competition in an industry. It also asks whether business plans reflect the full potential of technology to improve performance and whether installed technologies improve the operational and strategic agility of the business. These questions should be asked by the Senior Management teams of large Insurance companies to gain an understanding of where their technology platform compares to the competition.

Additional research from Ernst & Young highlights the need to invest in core technology to enable growth, improve operations and risk management. According to the research, legacy systems are unlikely to produce the comprehensive data needed to effectively evaluate company risks and products. We need to recognise that established insurance businesses do have the advantage of a wealth of historic information compared to newer entrants but need the opportunity to leverage this data effectively, particularly to retain long lived quality and profitable customers.

What is clear from all the research is that updating the core technology platforms that underlie the main processes within insurance is an imperative, for survival and to compete effectively. It is also clear that competitive differentiation within the sector will be driven by the clever use of customer data and analytics and the ability to collect, extract and use customer data from existing and new systems will deliver the intelligence needed to be adaptive to customer needs now and in the future. The whole big data debate is rife but it is clear that those organisations using customer data to drive competitiveness and deliver improved customer engagement will ultimately be the winners.

So what is the answer for those businesses stuck with legacy systems – there is no simple one and there are many great examples of abandoned technology upgrade projects. There is however some great examples emerging of technology evolve and enhance strategies.

There is a need to move to a world where .net and Java skills are plentiful and cheap whilst older development skills of Cobol and RPG are retiring. Taking the elephant and breaking it into manageable pieces and gradually replacing core systems whilst maintaining business as usual, and it is this approach that is helping some businesses move to new flexible technology platforms that support today’s business needs.

The 'Enhance and Evolve' approach helps businesses to mitigate risk and to continue to operate whilst upgrading, whilst realising the immediate benefits such as big data optimisation, from the first upgrade on. For example, real-time data availability- pulling in real-time data from the old to the new systems when needed. The SSP Enhance and Evolve approach breaks down the transition into manageable chunks, enabling insurance businesses to incrementally update without the massive impact of a rip and replace methodology.

The challenge to transform core platforms is real, however by adopting an “enhance and evolve” strategy it might possibly be pain free.

About the Author

SSP Limited

As the leading global supplier of technology systems and software for the insurance industry, our role is to help insurers and brokers operate more efficient businesses. So whether you’re a global insurer or an MGA, a high street broker or a start-up with a smart new idea, we can be trusted to support you on your journey, whatever the destination.

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