Is the dinosaur dead yet, or are we due another meteor?

June 8, 2016 SSP Limited

Catherine Stagg-Macey, executive advisor at Celent, discusses what has changed over the last ten years since Celent started tracking the topic of legacy modernisation. Catherine has spent over 20 years in the technology and insurance sectors advising on leadership challenges for the CIO.

The problems caused by legacy software

The impact of IT dinosaurs continues to be felt. Not only are business users frustrated with limits to the flexibility and agility required by competitive organisations, but IT managers are faced with the high costs associated with continuing attempts to keep up with changing business requirements. In Celent’s 2015 survey, which questioned a range of insurers about their current plans with core systems, it was highlighted that almost 80% of insurers feel the challenges from legacy of bringing new products to market, and the inflexibility of the applications. These issues can be attributed to organisations ‘making do’ with existing technology for many years and patching things together where possible. Though successful in the short term, repercussions continue to be felt across the IT department and by those in the front office, experiencing a negative effect on customer service.

This, coupled with the retirement of staff who know these older systems will contribute to further increasing pressure on insurers.

If it works, should we care?

Insurers will inevitably operate with a number of systems and technologies that are outdated, or held together with a swathe of tape and a dash of hope. However, if they continue to work then why should they be updated? Especially with the potential costs and risk associated with modernisation, this question isn’t necessarily an easy one. The answer though, is — we need to evolve, and we need to move forward. Should the business require a fast change in a new direction, or indeed an emergency stop, the technology in place should be able to provide that.

Where we are now?

The key drivers for replacement haven’t changed much over the last few years, though a considerable amount has moved forward in regards to fewer types of legacy systems still in play.

To put it into perspective, four years ago, one in four insurers reported to being well into the program of change. Two years ago, the figure was at 50%. Today, two thirds of insurers have made such progress.

On the business front, the driving force for modernisation is still the flexibility and agility that updating systems brings. Five years ago it was particularly centred on the flexibility of a product, whereas now we’re seeing an increased need for agility in innovative changes with processes.

Core systems are also more configurable than ever before, potentially reducing the chance of creating future legacy issues. The track record of core system implementation has improved, along with more proven and reliable services from implementation partners. The outsourcing market has matured considerably, to the extent that, for many large insurers in Europe and America, outsourcing is an important strategic tool for the CIO.

All of these factors contribute to an environment conducive to tackling legacy replacement projects.

Where do we want to be, and how do we get there?

Modernisation projects are large and complex beasts, and offer up several hurdles throughout the journey. These can be executive buy-in for the need for change, a compelling business case, or a set of vendors deemed up for the challenge. The greatest challenges faced fall into the categories of: IT complexity and implications, having the right staff in the right place, making the business case, managing the impact on the organisation and fundamentally deciding on the best approach.

Two years ago, the goal among IT departments was to replace legacy systems where there was a strong business case (35% of respondents), or replace on a case-by- case basis (29%). Today, there is a greater preference for addressing all legacy systems in some manner: patching, replacing or wrapping. This suggests that over time, most insurers will have to address their legacy, given the drag effect it poses on the overall organisation. As other companies make the investment in their core systems and operations, competition in the market rises and it becomes increasingly difficult for those who are unable to be as agile as their competitors.

The variety of strategies employed underlines the point of the definition of legacy. Several approaches can be used to move an insurer environment into the modern world and in doing so, help move the business forward. However, the very fact that several approaches can be used is one reason why IT departments list complexity as the most challenging aspect of the transformation program.

Replacement strategies

Replace – this is the dominant approach
The approach decommissions the incumbent application entirely, and replaces it. This requires complete migration of the data to the new system.

Business logic in legacy applications is exposed through web services and through a service-oriented architecture reused by other applications.

The approach outsources the incumbent application to a third party provider who is better placed to manage the application. The third party will be chosen for their skill set, labour costs and possibly their ability to enhance the application.

Some insurers have collected a myriad of core systems that offer similar business functions. Consolidating these systems into one can be a viable option.

Port to a new platform or rewrite
For applications that are doing as required, but run on hardware that is not scalable, or where the support contract is about to expire, porting the application to a new platform is a practical option. For applications that fulfil business need, but where the IT department has limited access to skills, rewriting is another route.

A final note

Legacy modernisation remains problematic technically, in terms of having the right people and developing a well-reasoned and plausible business case. To be successful in the program of change requires investment in new skills alongside new technologies. This next era will require partnership with organisations who have proven credentials in legacy modernisation. The dinosaur will not go down easily or quietly — but evolution is still an option for those who have yet to take the plunge.

This article is an extract from SSP eye issue 7

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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