Digital transformation to the rescue of insurers’ complex legacy systems
With a pile of information only one click away, consumers have become more informed and therefore more demanding. In order to keep up with these demands, the insurance industry needs to implement emerging technological trends and redefine their ways of operation. According to Forrester, 56% of the decision-makers in insurance companies recognize the importance of digital transformation. This rate is higher than in other industries because the insurance business has not reached digital maturity yet.
But why hasn’t it? 68% of insurers see complex legacy systems as one of the obstacles to moving forward. Whether it is to prepare contracts or to manage insurance policies, complaints or invoices, insurers rely on systems that are sometimes outdated. Daily tasks are all the more complicated because of the diversity of products (home insurance, auto insurance, business insurance, etc.) and the customized nature of insurance.
Complex legacy systems in the insurance industry
Belgian insurance companies grew organically in the past few years by the aggregation of smaller organizations. That’s why insurers nowadays rely on these complex legacy systems that keep large amounts of big data siloed across the organization. 55% of the insurance companies believe this is the primary barrier that prevents them from gaining actionable customer insights. Achieving these insights will bring better customer satisfaction and it will improve customer loyalty and retention. Also, 43% of the insurance companies believe a solution for the complexity of these legacy systems will improve fraud detection and over a third say it will reduce overall risk.
Alongside this, the maintenance of these complex IT systems requires a serious set of skills. Hence 65% of the insurers agree that skills shortage prevents them from keeping up with the pace of change. Over 50% indicate skills shortage in big data, analytics, AI, enterprise and technical architecture. In short, global insurers are all wrestling with embracing emerging technologies, adopting new ways of working and therefore being truly customer-centric.
The majority assesses their own capability as moderately or less effective in:
- Leveraging customer data to deliver personalized customer experiences
- Generating actionable insights from customer data
- Creating engaging customer experiences
- Having a single view of customer interactions across all service channels
Digital transformation as a solution
Changing these systems could be costly and counterproductive for insurance companies. So what are the digital options available? Basically there are 2 options:
1. One software package to replace all
These programs are often long and complex. Besides they require data migration, which is time-consuming and laborious. Although this might be the easiest solution long term, at the moment there is still not one silver bullet solution on the market that is custom made for insurers. It’s often a package with monolithic applications containing all functionalities, including satellite functionalities (parties, collection & disbursement, etc.).
2. Dismantle gradually with a modular approach
Another solution is dismantling your core systems and replacing functionalities that have to be replaced. In order to make the transformation less complex other functionalities will keep unchanged, if possible. No need to immediately change the storage and backend connection to other systems. You’ll make a System of Records (SoR) and build up the components you need step by step. To keep up with digital transformation you’ll drain the functionalities gradually, roadmap driven by business value, instead of turning your whole system upside down just at once. When no fit on the market can be found for standard components for standard functions, build them yourself instead of looking for a silver bullet solution that isn’t 100% what you need.Let us help you choose a suitable digital option
What will option one do for your insurance company?
More than 70% of the Belgian insurers that chose option one, the core system replacement, conclude these systems have become open-ended or failed costly programs. The Core system replacement locks new initiatives for years, including putting severe time constraints on the key resources. Most insurers need to overcome significant constraints in their current IT landscape, but
replacing their legacy core insurance system usually requires engaging in a multi-year highly demanding engagement with no end.
So what does Thewave do?
A modular approach or, how we like to call it, an “outside-in architecture” (because digital pressure to brokers & customers dictates this outside-in approach) helps companies develop customer-facing capabilities at high speed while decoupling legacy systems for which release cycles for new functionalities remain at a slower pace. The benefits of this approach are numerous, but here are the most important ones:
- It puts the focus on the Customer Journey with added value for the broker or customer.
- It evolves in small increments by putting gradually in place new modular capabilities.
- It mitigates major execution risks by avoiding the replacement of the core insurance systems.
While Front End, customer-oriented IT systems constantly require improvement to augment
customer experience and innovate in processes and products to act as a System of Engagement. Back end, legacy systems have different requirements, such as safe storage, stability, quality, and resilience to act as a System of Records.
With our Digital Enablement Scan, you can turn your target legacy core insurance system into a System of Records with on top a separate Digital Orchestration and Decision Layer with the required flexibility and accessibility for all your digital channels.
Are you interested in how a modular architecture for your company would look like?Get in touch