The insurance industry stands at a crossroads. Carriers recognize the urgent need to modernize legacy systems and business processes to meet rising customer expectations, capitalize on emerging technologies, accelerate speed to market, and remain competitive. Datos Insights’ report The Modernization Imperative, sponsored by FintechOS, examines the key drivers reshaping the insurance industry, the challenges legacy systems impose, and looks at how a progressive modernization strategy focused on delivering business value throughout the transition can provide an option for value to some carriers.
Drivers of Change
A variety of factors across the insurance industry are driving carriers to consider modernization projects for various aspects of their technology ecosystem. In surveying members of the Datos Insights Insurer CIO Council, the most important technology areas to address for the business units can be grouped into the following three categories:
- Rising customer and agent experience expectations: Insurers need to engage customers and equip agents and internal employees with the right tools and seamless experiences to meet expectations.
- Market pressures driving speed to market: Insurers need to be able to launch new products and adapt existing ones to changing customer needs and market conditions faster than their peers to stay competitive and profitable.
- Emergence of new capabilities and ecosystem connectivity: Insurers need to be able to integrate third-party solutions, data, and services with their core systems more easily to quickly gain their benefits.
Challenges for Carriers
Industry factors are driving carriers to update their technology, but insurers also face internal challenges that act as barriers to improving their competitiveness in the field. The most prominent challenges are as follows:
- Legacy systems and accumulated technical debt: Legacy systems lack the modern architecture and configurability of insurers’ future business needs, which in turn limits insurers’ ability to offer innovative and flexible products that suit the needs and preferences of their customers.
- Replatforming risk: Multiyear, massively complex initiatives entail tremendous risk. Carriers generally have a mix of products on their platforms, including closed blocks and highly customized outdated products.
- Resource constraints: Legacy platforms necessitate retaining specialized technical skills to maintain and operate aging technologies. These resources are costly and scarce in today’s market.
- Relentless pace of innovation: Carriers with inert legacy IT struggle to harness innovations before the next wave emerges. Insurers can easily find themselves way behind the curve as legacy technology impedes time-to-value.
- Challenges diversifying into new lines of business: Launching new products or entirely new lines of business on legacy systems is often cost-prohibitive. The required integrations, coding, and data services make it highly complex and time-consuming and require knowledgeable resources.
The Path Forward
Modernization is imperative. However, large-scale core system replacement may be unfeasible for some carriers due to resource constraints, complexity, and risk. This paper provides a framework for moving forward by delivering incremental value, making the most of the resource constraints that often challenge insurer IT functions. To read the full report, including the discussion of a strategic approach to long-term competitive advantage, visit our website.
