Imagine that you are looking to purchase a vehicle: You go to the dealership where a salesman guides you to “old reliable,” a less-than-perfect used car. He kicks the tires and assures you it runs well, noting he’s never had an issue with it in thirty years. That may be so, but just from the looks of it, you probably still wouldn’t be comfortable putting your child in it.
The insurance world is chock-full of legacy systems – labyrinths of decades-old core-systems ticking along just fine, but with limited functionality. Over time, they have proven to be generally solid and dependable, but the market is changing and competitors are springing up without a legacy system to their name. Now is the time to recognize the presence of tech savvy competitors as a major threat, otherwise, the risk of becoming inept becomes very real.
Insurance Industry as a Tech Laggard
Technological advancement is a boon for any business. The banking sector has blazed trails in demonstrating how a focus on technological innovation – through evolving advances such as online banking – can be a real game-changer. So why is the insurance sector trailing behind?
This year, the Economist Intelligence Unit conducted a global survey of 321 senior executives at insurance companies for a State Street report. They found that 59 percent of respondents admitted to spending considerable amounts of time addressing legacy IT issues. But the bottom line is that for many organizations, replacing legacy systems is viewed as impractical or improbable. You want up-to-date systems for your enterprise, but you also know that a rip-and-replace job could be expensive, disruptive and risky. So you’re faced with a serious dilemma: do you put the brakes on and risk being left behind, or accelerate at potential risk?
Let’s take a look at the factors traditionally considered in the legacy debate:
1) Making do with what you have
The first challenge is simply that systems which aren’t broken don’t get budgets allocated towards fixing them. And if your legacy system is doing the job, why invest in a new one? There often isn’t a business case to perfect or improve every part of a business operation. But what of the cost involved in maintaining these behemoths, let alone the resources needed to find and train staff to use them?
2) Addressing the risk factor
The fear of disruption causes many to cling on to old ways. Legacy systems often date back to the 60s and 70s, and over that time, have amassed a wealth of data which your business will rely on. Moreover, they are woven into the fabric of the application architecture. Taking out old systems and replacing them with new ones brings a raft of risks to business continuity.
Yet on the flip side, the creaky systems in themselves are fragile liabilities. On a relationship management level, it can be hard to get buy-in from the board. Often senior executives who are far removed from IT are reluctant to buy in to technological changes. Reasons range from a naively optimistic “it will do” mentality (the thought that current systems are good enough and cracks can just be plastered over) to, in some cases, a behind-the-times attitude towards technology. Many still believe the function is a backroom operation that has little to no impact on business productivity and success. A drive for behavioral change is critical to bringing legacy systems to the top of the agenda at board meetings.
3) Fear of being left behind
Perhaps the most fundamental reason to update your system(s) – and one that is largely spoken of in the legacy debate – is a modern shift in the global insurance landscape. Whereas historically London, for example, has enjoyed a leading position, it is now losing international market share to more flexible and agile performers. You may not know it, but you are likely to be losing out already due to your legacy technology. The State Street report found that 78 percent of respondents believed that changing customer demands will be a major driver of technology investment. High-level customers increasingly want innovative products and solutions, and they want them from credible and agile companies.
An Alternative Option
The good news is that this isn’t necessary a “damned if you do, damned if you don’t” scenario. There is another option: Rather than replacing legacy systems in one fell swoop, you can implement the process step by step, in a componentized way. This means you are able to work on updating the system by business area or territory, for example, without the concerns associated with swapping the whole system in one go. Specialist insurance management software that offers end-to-end solutions built as truly componentized functional parts can provide early wins and benefits by allowing you to phase out legacy rather than just to rip it out.
Forward-thinking businesses understand that clinging on to older, bloated systems cannot be justified when reputation and revenue is at risk. Restrictive functionality will only constrict success. It’s time to prove that the world of insurance is shifting, saying goodbye to legacy systems and forging ahead with an openness toward change.
Richard Clark is business development director for Xuber, an insurance software company. The business serves over 180 customers, accounting for more than 300 successful implementations across 46 countries. Learn more at www.xuber.com.
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