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Are insurers stuck on legacy core systems forever? 

By Anthony Grosso, head of Global Marketing at core and digital platform provider EIS

As enterprise software evolves from cloud-hosted to cloud-native architectures, systems deployed even a few years ago will need to be replaced to support innovation, speed-to-market and increasingly sophisticated expectations around customer experience.

When we talk about “legacy systems,” everyone knows we’re talking about software based on heritage coding languages, like COBOL, Visual Basic, RPG/400, and technologies like Oracle Forms. Those technologies are no longer supported; and yet many insurers are still using them to operate essential business processes.

Now there’s a new type of legacy system emerging. I call it “modern legacy,” and it’s even more dangerous to an insurer’s wellbeing, not just because the technology is unsupported, but because it forces insurers to focus inward and invest on patchwork workarounds rather than innovation.

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We all agree that insurance is being disrupted by insurtechs, other new data sources and technologies that will take us to 2030 and beyond. However, many insurance core systems, even those built recently, have serious limitations baked into their architecture. Archaic insurance core systems not built on cloud-native architectures lack the essential openness necessary for insurers to easily, and inexpensively connect with insuretechs, new data sources and systems, and offer the digital customer experiences the consumer now demands.

Why cloud-native architecture matters 

Industry analysts describe the architecture of many of those insurance core systems as “monolithic,” which — thanks to “2001: A Space Odyssey” — instantly conjures a pretty accurate picture – mysterious and impenetrable. The very idea of joining a digital insurance ecosystem or extending self-service opportunities to the insured, for example, just didn’t exist when they were built. Therefore, they don’t support the microservices and open application programming interfaces (APIs) that are now essential to satisfying expectations for contemporary customer experiences.

Further, the beating heart of modern legacy systems is the policy administration system. All downstream applications, from billing and claims to reporting and analysis, are built around policy records, not customer records. For many insurers, this has required workarounds, such as data lakes, master data management (MDM) projects, and CRM applications, to understand customer histories better, act on them when necessary, and offer self-service opportunities to insureds, agents, and brokers. This is all critical to delivering a customer-centric future of insurance.

To buy some time and increase ‘curb appeal’, many vendors stuff their modern legacy systems into the cloud and slap on a “SaaS” label. However, as insurers are now finding out, you can’t just put those old systems in the cloud and expect them to deliver on the real benefits of SaaS such as scalability, reduced time-to-value, lower costs and automatic updates. Cloud-native architecture matters and core systems need to be built specifically as cloud-native to help insurers succeed in a future based on ecosystems, self-service, and customer-centricity. If they don’t modernise, modern legacy systems soon will seem as old school as an AS/400.

New technology and strategies need apply

Insurers, analysts and vendors have a good idea about what the future of insurance core systems will look like. The new generation of insurance core systems, a category I refer to as coretech, is built on cloud-native/SaaS architectures (microservices, CI/CD {continuous integration and continuous delivery}, containerisation, etc.). It’s customer-centric, fully-digital, and built with open APIs to connect core systems, data, insuretechs — anything, really — so that you can become the insurer you want to be. Not just the insurer your system tells you to be.

The truth is that technology isn’t going to solve all the culture and process problems. As an industry, we have seen core systems replacement projects fail, and the number one reason is that they are too big and take too long. While not uncommon, that’s an eternity. Rather than the rip ‘n’ replace transformation model, I am seeing two alternative transformation strategies take hold.

Greenfield innovation produces quick wins for insurers

The first is the “greenfield approach.” Ultimately, the insurer wants to accomplish an overall digital transformation. It begins by focusing on the new, whether it’s a new insurance product, market or distribution channel.

In short, a new minimal platform focused on the new initiative is up and running in three to six months, depending on the project. Then the insurer begins to see what success looks like. They build on it and the culture starts to change. The insurer becomes the expert in the new system and applies that expertise to the next big project or block of business.

The roll-up produces operational efficiencies, consolidated data and lowers risk

The other strategy, I’ll call it the roll-up strategy, will interest insurers with many lines of business and even multiple core systems.

For example, we’re working with one of the largest carriers in Canada. They have more than 15 million customers and eight modern legacy insurance core systems. One of their major goals is to create a centralised 360-degree view of each customer across all of their product lines, which are on multiple systems.

First, they installed an enterprise billing capability, and customer management module, which they are using as the endpoint of their MDM activity. After that, they put all of their customer records into the platform.

For the first time, they can see all of the policies each customer owns, understand their whole relationship with that customer, and begin cross and up-selling. They will have solved a major problem without having to do the nasty bits of a data conversion, and immediately be getting great value.

Next step is to add policy and claims applications for that first line of business. Then they start on the next legacy line of business. Over time, they can replace each of those legacy systems with much less pressure.

Insurers now have no excuses. It’s not a three-year project, or even a one-year project. They can begin seeing a return on their investment within months.

 

Anthony Grosso is head of Global Marketing at core and digital platform provider EIS. He is a frequent writer and presenter on innovation in insurance, and is author of the eBook ‘When Coretech Meets Insurtech, the Customer Wins’

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