Build a New Insurance Core System or Modernize the Old One?

On-time system modernization brings significant benefits, including enhanced customer experience, optimized processes, and lower costs. 

(Image credit: rungdhm/Pixabay.)

After COVID-19, most companies shifted to work-from-home environments, facilitating digital technologies’ growth. Some employees continue working from home. Because of the hybrid working environments, insurers faced a challenge: to adapt core systems to the new conditions where customers demand fast online services and agents want to access information from anywhere.  If you face the same challenges and need guidance, this article is for you.

How Existing Core Systems Fall Short

Digitalization across insurance is developing rapidly. So, executives should consider upgrading core systems as the old ones require more resources, costs, and support, resulting in the following inadequacies:

  • Inefficient operations and decreased revenue
  • Inability to provide policyholders with real-time data
  • Poor UI and CX
  • Increased customer churn

Upgrading the core system to overcome the hurdles is daunting, but the values it can bring are worth considering.

Advantages of Core System Overhaul 

On-time system modernization brings significant benefits. Specifically, insurance providers can enhance CX, optimize processes, and save costs.

Advantage 1 – Improved CX 

Core system modernization can improve CX regarding service delivery and engagement.

  1. Policyholders can get services faster as improvements in the system speed up the claim processing.
  2. Insurers can gather analytics about customers and create personalized offerings.
  3. Multichannel capabilities are supported—core systems are well-integrated with chatbots, websites, or mobile applications.
  4. UI looks consistent—each channel complies with the company’s design and tone of voice.
  5. Due to enhanced security measures, customers are sure that their data is protected.

Advantage 2 – More efficient operations 

Optimized software helps insurers segment their processes, eliminate routine, and improve the digital workplace for employees.

  1. Manual tasks and paperwork are reduced.
  2. The improved system enables claims processing automation to assess and pay out claims.
  3. Risk assessment and underwriting processes are enhanced. As a result, insurers can make informed pricing decisions.
  4. Data management becomes more standardized with accurate, consistent, and reliable data.
  5. Long-term cost savings from better efficiency and a reduced manual workforce are significant.

Advantage 3 – Reduced costs for IT 

Statistics suggest upgraded platforms can achieve up to a 41percent reduction in corporate expenses when compared to legacy systems.

  1. System modernization often involves cloud transformation; the infrastructure might run on a cloud platform, eliminating the need for expensive hardware.
  2. Legacy software requires continuous support, whereas optimized systems are more stable and don’t require much investment.
  3. Modern systems are compatible with advanced technologies, which reduces the need for costly integrations.
  4. Issues are resolved faster as updated systems offer diagnostic tools and real-time monitoring.
  5. Many IT tasks are automated: system monitoring, data backup, and updates.

What’s better: custom development or modernization? 

To renew the software, you may follow two approaches: developing a custom system or renewing the existing one. Both ways are appropriate, but each has its peculiarities.

Approach 1 – Develop from scratch

Here, you can build a solution aligned with your requirements. However, it’s essential to consider your time and budget, as building a custom system requires the following:

  1. Start with a discovery phase to gather requirements and define the goals.
  2. Get requirements formalized and documented.
  3. Compose a team with expertise in insurance.
  4. Develop front-end and back-end and integrate with IT infrastructure.
  5. Consider developing a cybersecurity strategy.
  6. Participate in testing, especially user acceptance testing.

While enjoying personalized interfaces and enhanced features gained thanks to approach 1, the only disadvantage is the requirement to address necessary expenditures.

Approach 2 – Upgrade the system 

The critical issue with legacy core systems is the fact that they are running locally, which limits the use of some technologies. Moreover, maintenance and support are needed more often and cost more as compared to the cloud. That’s why the second approach is migrating an outdated system to the cloud and implementing new functionalities. This way may be more suitable if you want to get better security, performance, CX, and save costs.

How to follow the right approach?

You should set up the goals and consider the following:

  • Features you need to add to your current system so that to reach the goals
  • Objectives you want to gain (e.g., less workload on the call center, or the capability to pay for claims in a mobile app)
  • Budget you have for this project

Another thing to remember is that system update allows you to add only a limited number of functionalities, whereas development from scratch will enable you to develop anything you need.

Indeed, custom development is more expensive, effort, and time-consuming but brings many business values to the company.

No matter what way you choose, keep in mind that insurers following digital transformation gain better customer loyalty and higher revenue.

End-to-End Life Insurance Digital Transformation Best Achieved through Modular API Approach


Illia Pinchuk // Illia Pinchuk, CEO and Founder of global consulting firm DICEUS, is a results-driven insurance technology expert with a passion for innovation and technology. Illia specializes in creating and delivering custom solutions for the financial services industry: digital channels like mobile apps, chatbots, web portals, and omnichannel CX. 

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