When talking with representatives of insurance companies, I often encounter the issue of effectively managing multiple systems. This article takes a closer look at the phenomenon of system multiplicity and answers the question: What are the main causes of this, and how can they be managed?
Causes of system multiplicity
First, it is important to emphasize that there is no single system that can do everything — one tool cannot perfectly manage life products, property products or more specialized ones. Every insurer uses several systems, and this will not change. The challenge, however, is to limit their number.
Historically, each insurer started with one system, but the growth of operations and the product portfolio led to the emergence of new ones. Despite investing in digitization and system updates, companies have not been able to abandon older solutions. As a result, some insurance products still remain in old systems, leading to problematic management of the product portfolio today.
Additionally, frequent mergers and acquisitions influence the emergence of new systems. When acquiring new companies, additional systems are added to the parent company's management. One might ask: What about data migration? Often, the cost of data migration turned out to be so high that insurers preferred to manage, for example, 10 systems rather than allocate funds for data migration. Some insurers also lacked the competencies to carry out this process.
Technological challenges
Technological issues also contribute to the multiplicity of systems. Each system has a different API (interface for connecting to other systems), which necessitates the creation of adapters. Importantly, the challenge is not the diverse APIs but the reference data (e.g., addresses, client's business activity), which are recorded differently in each system. This data format makes it difficult to maintain consistency. Consequently, to have a 360-degree customer view, we need to query several systems. This process results in insurance agents waiting several minutes for information to be displayed, negatively affecting their work efficiency.
Another significant fact is that older systems have end-of-day or end-of-month processes that cause temporary unavailability, making data access impossible at critical moments.
Business consequences
Such actions have, of course, impacted the business. I see three key consequences:
Increased costs: Maintaining multiple systems generates high costs, including support costs, cybersecurity updates, and the need to hire additional specialists to manage the systems. Having different policy systems also forces the maintenance of many sales calculators, increasing operational costs.
Data inconsistency: Due to the presence of several systems, the same client can appear in multiple systems with different data. This complicates insurance agents' efforts to find current data and conduct effective cross-selling.
Lack of a 360-degree view of the client: The lack of a single source of client information leads to issues with customer service. Insurers ask clients about their existing insurance products, even though this information is already recorded in their systems. This makes the insurer appear as an organization that does not manage data well, leading to reputational and financial losses.
How to address this?
A simple solution comes to mind: reduce the number of systems. However, this may not always be cost-effective, and even if it is, we will never reach the point of having a single system due to the specificity of some insurance products.
The solution is to invest in an Operational Data Store (ODS). An ODS in insurance is a central database that stores operational data, allowing for quick and efficient access and analysis. An ODS differs from traditional databases and data warehouses mainly in that it is designed to support daily business operations, providing current access to data.
What does this mean for the insurance company? The ODS hides all the complexity of integration underneath. Integration becomes easier and cheaper, and data is aggregated, cleaned, and creates a so-called "golden record" of the client. Thanks to insurance, agents can enable effective up-selling and cross-selling processes.
Less is more
System multiplicity in the insurance industry is a significant challenge that affects operational costs, customer service quality, and business efficiency. On the one hand, we save money on future integrations, but we do not earn enough from a given client because we do not conduct effective sales activities such as up-selling and cross-selling.
Adapting modern solutions like the ODS can significantly improve the situation, enabling better data management. This, in turn, leads to improved customer service quality and business process optimization. Integrating and managing multiple systems is not only a technological challenge but also a strategic one that requires continuous attention and innovative solutions.
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