Like many other travelers this holiday season, I woke up on Christmas Eve to the notification that my Southwest flight had been canceled. The process of rebooking was straightforward; I was able to easily change my flight to a later date from my phone. For the moment, I was mildly annoyed but otherwise unbothered. Three days later, my flight was canceled again, and then my trip altogether.
The ease of switching flights suddenly meant nothing, because it turns out there was no flight for me to take at all. And I had to miss out on valuable time with family during one of the only times of year when we can all get together.
It was eventually revealed that the problems underlying this massive systemic collapse were, unsurprisingly, technical. It all came down to an outdated core system supporting complex logistics and a user experience that it was not equipped to handle. Sound familiar?
The need to update core systems is nothing new in insurance. Insurers are keenly aware of this need; according to recent Aite-Novarica research, property/casualty insurers spend roughly half their technology budgets on core—but the preponderance of this is on core maintenance, not core modernization. Nearly 60% of midsize insurers and nearly 70% of large insurers are focused on “run” budgets i.e., not growth or transformation.
Concurrently, property/casualty insurers are also allocating around 20% of their budget to digital. Investments to enhance the digital experience for users are great, even necessary, but they’re limited by the system supporting them. The holiday cancellation crisis at Southwest illustrates this point perfectly: It doesn’t matter how easy a booking experience is if the service you’re expecting won’t be there at the end of the day.
The same is true of the insurance industry: A streamlined experience doesn’t mean much if the underlying system can’t back up the product itself. Automating front-end processes like digital first notice of loss (FNOL) or claims status inquiry are all well and good. But policyholders won’t care about how quickly they could enter FNOL if it still takes weeks or months to settle their claim.
Front-end simplicity requires back-end complexity. Without solid core infrastructure, a nice front end is just a shortcut to a bad customer experience. Core upgrades are complex, and it’s easy to kick the can down the road by wrapping a nice digital experience around an outdated system. However, this approach is at best temporary, and at worst a Band-Aid on a broken arm that prolongs and compounds a lot of pain for later. Digital investments are not a replacement for core upgrades, nor will digital investments pay off if the underlying system does not have the capabilities users need.
People book flights with the intention and trust that they’ll get from one place to another. Insurance similarly exists to fulfill a social promise. Policyholders purchase products to hedge against the risk of actually needing them; if bad things do happen, insurance is supposed to be the safety net that catches the policyholders. Making good on this promise is entirely dependent on underlying systems.
For more information on implementing core systems, see our recent report PAS Lessons Learned: Implementation Best Practices for P/C Insurers.