The horse and buggy was once the pinnacle of innovative travel technology. And there remains an argument, rarely voiced I admit, that a good horse and a sturdy buggy will still get you from point A to point B. However, the journey will take longer, prove more uncomfortable and lack the creature comforts of even the most basic of modern cars. So, it is common sense to assume that commuters who need to get from point A to point B would be better served by investing in today's shiny horseless carriages than the horse and buggies of old.
So why do insurance leaders continue to invest time, frustration and money into horse and buggy-like legacy systems? The answer I hear, repeated endlessly, is something along the lines of: "We've spent seven figures on this system over the years, so I can't just eat those costs and start over." What I visualize in these types of responses is someone strapping a window air conditioner to their horse and buggy to preserve the original investment while trying to add value and comfort. Similar to this bizarre image, the marriage of outdated technology with the modern needs of the insurance industry doesn't work.
Rather than dumping more money into antiquated, ineffective tech, it seems the rational argument would be for business leaders to purchase modern technology that can go farther, faster and do so more efficiently at a reasonable cost to help them.
Human nature is impeding good business
This reluctance to part with antiquated but costly technology is a psychological reaction known as the sunk cost effect or fallacy. The
"It is a core lesson in many business economic or decision-making cases that any unrecoverable costs sunk in the past are irrelevant when deciding what to do next," according to the HBR article. "Decision-makers need to remember when sunk costs affect strategic decisions, there can be real and dire consequences."
Barriers to digital innovation
To be fair, other psychological barriers to the modernization of insurance shape our industry's slow climb toward digital transformation.
Insurance leaders are in fear of buying into and leading technology initiatives that could fail and put their jobs on the line. Many liken removing a legacy system and replacing it with something new to the costly, complex, time-consuming, never-ending tech overhaul they conducted decades ago for many of the same reasons they hear today.
But times – and technology – have changed. Most companies work to avoid locking themselves into gated technology ecosystems that lack flexibility. This is perhaps the biggest lesson of the tech innovations of the past. With no code technology as part of the equation – a resource unavailable in decades past – simplifying and speeding up the modernization process and allowing for changes to be made simply – often without the support of IT experts – is now the norm. This is how mistakes of the past are avoided.
Old, complex systems can't do the jobs to be done. The systems tethered to the original legacy system over the years – the Frankenstein of motherboards – are problems to be managed, not solutions. Insurers with old tech are limited, they can't scale, innovate or adapt to how today's consumers – or agents and brokers – want to buy and transact with their carriers, MGAs or MGUs.
Legacy-ladened insurers must embrace change or find change forced on them by loss of market share. The fourth industrial revolution, driven by innovative technology, is underway. To stay relevant and competitive, insurers have to modernize to better manage risk, to compete and in most cases, simply to stay in business.
Looking ahead
Recently, INSTANDA conducted a global
As with the faded dominance of the horse and buggy, so too should be the days of insurers feeling tied to legacy systems that can't deliver the customer experience today's insurance policyholders seek. These systems are impeding the industry's digital transformation – a transformation insurance consumers are demanding to match how they function in the world.
Today, many fully customizable, easy-to-use digital platforms are on the market, allowing carriers and MGAs to grow and generate new revenue streams with efficiency and agility. The future of insurance will be driven by technology and innovation – it is the only way we can ensure our industry, and the consumers served by insurance, will continue to get from point A to point B safely, accurately and with speed.
