Implementing Insurance Legacy System Transformation

Implementing Insurance Legacy System Transformation

November 29, 2021 |
By Input 1

When the term "legacy system" is used, a clunky, outdated mainframe is usually envisioned. Although effective and capable in their time, many legacy systems face the uphill challenge to evolve, manage data, integrate with our systems or generally keep pace with the demands of end-users and new technology. To live up to the demands of the new digital transformation economy, organizations must cease to rely on outdated software and modernize their core technologies. Enterprises will benefit only when they stop seeing modernization as a one-time project and embrace it as a cycle.

The limitations of legacy systems could be blamed on dated hardware, restrictive programming language, inability to integrate with other technology or inherent vulnerability to security and cyber threats. Regardless of the reason, industry experts agree that for insurers to remain competitive now and in the future, legacy system limitations cannot be overlooked any further, and a path to modernization must be in place. The primary benefit of legacy transformation is the value derived from quick delivery of new or improved functionality that supports business objectives, more efficient business processes and enhanced customer experiences.

Legacy transformation projects are frequently challenged by a unique set of risks that threaten project success.

Enterprises will benefit only when they stop seeing modernization as a one-time project and embrace it as a cycle.

Why Insurers Maintain Legacy Systems

Despite countless advantages for an insurer to implement a digital transformation to their existing legacy system, there are valid reasons why many insurers are moving slower in enacting those changes. In most cases, legacy systems are comprised of a complex network of intertwining software programs and hardware components. These systems handle critical day-to-day operations and cannot be easily shut down or updated piecemeal. As such, legacy system updates need to be handled with care and involve deliberate thought and comprehensive planning.

Cost and Time Challenges

When evaluating the viability and need to enact a digital transformation, an insurance company needs to assess the cost and time required for implementation against the potential gains. It is true that modernizing legacy systems will lead to improved functionality, productivity, and security. However, the actual implementation process can take significant time and resources. A key hurdle is the lead time from developing a new system all the way through deploying it while still maintaining the legacy system.

Successful implementation also depends on the internal talent pool and expertise as well as availability of external resources.

Building Consensus

While the challenge of focusing one's resources on these critical improvements is an important one, the company culture can halt the process of legacy modernization before it can even begin. Employees may view this transformation as unnecessary, costly and time-consuming, and in some cases, threatening, when legacy systems are adequate to keep day-to-day operations flowing. Communicating with all parties involved to help them understand the hidden costs of operating with legacy systems is critical. Engendering the acceptance of change and a new way of doing things will require training, coaching, and, most of all, patience. This is an additional soft cost that must be factored into the decision.

Advantages of Modernizing Legacy Systems

Increased premium growth and revenue generation

Modernized systems are required to achieve written premium growth, revenue growth and cost reduction. These critical processes will include claims, underwriting, policy administration, billing and payments, data management, and customer service. The modernization of core systems brings forth advancements that will simplify the workflow and achieve faster execution. Creating a more satisfying front-end user experience through automation and digitization will support your key stakeholders (e.g., agents, brokers, and employees). Increased productivity, faster delivery time to market, and enhanced user interface will result in premium growth and increased revenue.

Increased technological relevance

Despite initial industry reservations, most insurance companies now agree that technological disruptions are the path forward to success. Perhaps the central obstruction created by legacy systems is the lack of flexibility due to dated system architecture. Another note of import is the limited pool of software engineers with the knowledge and experience to navigate these restricting systems. Shifting away from legacy systems translates into open vistas for process and operations improvement and enhancement. Whether it is moving from manual payment processes to fully automated digital billing, or a Java-based customer interface to a web-based application, modernizing core systems is about creating an opportunity for scalability and platform integrations.

Service Enhancement

There is much discussion in the insurance industry regarding the improvement and transformation of the customer experience. At the heart of this lies a simple idea: create and offer visibility coupled with self-service features that make managing accounts fast, convenient, and secure for the end-user. From policy application and electronic signatures to premium payment processing and claims disbursement, all these steps should be offered to the customer as a complete digital experience. Renewing legacy systems creates a better user experience, not only for customers but for employees as well – employees are provided with faster, easier, multi-channel options for serving and communicating with customers.

Modernizing core systems is about creating an opportunity for scalability and platform integrations.

Methods of Digital Transformation

Total Transformation

Total transformation equates to the complete replacement of legacy systems with a new core system built from the ground up. The new system is built using a modern coding platform or licensing a vendor package as a foundation. Completely overhauling existing systems and processes is a complicated venture and requires a period of in-depth research and analysis of business strategy, value, and operational models. The planning, development, and deployment of the new system while still maintaining the old system will require greater staff and resources allowance. It also requires strong stakeholder management and buy-in due to the uncertainties and size of the project.

Total digital transformation is the starting point to overhaul not just the IT system but also business processes and company culture if a company is ready to pursue progressive business goals. It is also a good option when the existing technology stack required for the old legacy system is getting too costly to maintain or is not supported by the original vendor anymore.

The key advantage of pursuing a total transformation is the high return on investment and a more significant competitive edge. With building an end-to-end system, the focus is on improving business effectiveness, efficiency, and tailoring specific product and service offerings based on customer expectations. No longer constrained by limiting components, the IT architecture and databases will have more flexibility to innovate and evolve. The challenge of complete replacement is that the day-to-day business processes and operations may be affected while the new system is being implemented. Keeping a project of this size on course and within budget is also a significant undertaking. But if implemented correctly, a total legacy system transformation can change the course of an organization’s path with a new, robust, and scalable core system.

Modular Replacement

Modular replacement is a good fit for legacy systems that function well for critical back-end processing functionality, but the technology can no longer compete in a dynamic, cloud-based, digital, self-service environment. This type of replacement (also called modular refactoring) consists of separating existing operational sub-systems into modular components and rebuilding one or more of these sub-systems while the other core components carry on with critical day-to-day operations. For instance, this process can include digitizing the billing and payments sub-system, while policy and claims stay intact.

Modular replacement is a low-risk way of transforming legacy systems when compared to the total transformation option. As the changes take effect with much less disruption, there is less impact on business processes and operations, leading to a lower cost of implementation. The separation of the software system into modular components makes the transformation process less complicated and provides the ability to review and analyze rebuilding at every step. The result will be an innovative platform that is easy to implement and can shift with the new, fast-paced insurance environment.

Modular replacement does mean that different parts of the system will come from different places. Consequently, researching each solution for their integration methods and their workflow is critical to ensure that the newer modules work fluidly with the existing ones and the whole is better than it was before.

A total legacy system transformation can change the course of an organization's path with a new, robust, and scalable core system.

Keys to Success

Insurance companies embark on legacy system transformations to decrease operation costs, drive product innovation, create efficiencies, improve customer experience, and generate new revenue sources. Utilizing modern technology is a vital part of achieving these goals, and there are many avenues for an insurer to explore. But it doesn’t happen in a single moment. Instead, it’s a journey, an incremental process that will vary for each organization. Legacy modernization is an iterative approach that enables you to transform your IT ecosystem based on current and future business needs and build a flexible foundation for future innovation.

Before any development and implementation can begin, the IT team needs to formulate a clear road map regarding the problems they want to solve and work with operations to define an acceptable level of disruption for their organization.

Legacy transformation is not a silver bullet but selecting the right approach and utilizing the right resources and expertise will bring forth improved product and service offerings, fulfillment of customer expectations and sustainable long-term growth. Software modernization is a complex and labor-intensive process, but the results are well worth the risk.