Legacy systems get a lot of negative press; in particular, policy administration systems are hailed as outdated, inflexible, expensive to maintain, and difficult to modernize. True, many of these mission-critical systems, in place for up to 30 years or more at insurance companies across all lines of business, are still in operation, both as a platform for legacy data and for the components that still facilitate and maintain existing business. The call for “future ready” systems is today’s soup du jour.
It’s no surprise that insurance IT executives running older core systems find themselves on the defensive, claiming that many aspects of their policy admin systems are performing to the insurer’s satisfaction (the “if it ain’t broke” theory).
Whether or not the insurer decides to replace begs these questions: Is it because the insurer is unaware of what modernization can do for them? Or is it that they know what it can do, but feel a core replacement would be too costly, risky, etc.? Is it because they have already made a significant investment in efforts to automate to the business user’s satisfaction, and have seen positive results from automating certain processes? Is it that a host of business users, including the distribution network, which many argue have dictated much of an insurer’s modernization efforts to date, may not want to learn an entirely new system? Or is it that there are too many technology and service options from which to choose?
Property and casualty insurers have broadly three responses to those questions, notes Donald Light, director of Celent’s North American Property and Casualty practice.
“They can rip and replace, which means they end up with five to eight vendors on a short list, or they can wrap and extend, which means they keep the old system, but build that system out with more agility and flexibility to users. Sometimes this means implementing a BPM system interface, new portals, a new rules engine, content management system, etc.”
Light says the most common driver to modernize involves employing continuous improvement. “Very few IT departments say that next year they won’t do anything new or different. The have to prove they are always looking at improving.”
Jeff Goldberg, vice president of research and consulting at Novarica, recently blogged about another wrinkle in the drivers for change. “Insurance core systems are not going to last 30 years anymore,” he says. “The pace of change, as always, is increasing, and a system an insurer puts in place today will have a lifespan of about 10 years.”
At the same time, however, the time required to implement new core systems has been increasing, Goldberg adds.
“Modern core systems have made huge improvements: They are configurable, have open architectures, accessible data, and help drive best practices at an organization,” Goldberg adds. “Unfortunately, insurers are spending up to four years putting them into production.”
These long implementation lead times are partially the result of insurers moving slowly to minimize risk, claims Goldberg, and partly because insurers take too much advantage of the flexibility in configurable modern solutions. Using that logic, will the decision whether to replace a policy admin system largely depend on when it was installed in the first place? The last thing an insurer wants to do is spend almost half the lifespan of a new core system actually implementing it.
For carriers that choose the “keep/build/extend” option, improvements unique to their business objectives, years in the making, reflect investments in what might be classified as cafeteria-style, or a mix-and-match technology selection that, from a functional/operational perspective, facilitate ease of doing business and the collective interests of existing business users. This approach—keeping what’s best and replacing what’s not—is largely understated by that short list of five to eight vendors mentioned earlier.
For insurers, one thing is a sure bet: the benefits of technology accelerators, open frameworks, modularization, and an insurance-specific digital approach to extending the life of core systems were probably not available when the company put its system into production. But they are now, and it seems to me that based on their unique requirements, insurers that view policy administration as a strategic asset should see that as welcome news.
