How Insurer Leadership Can Overcome Modernization Aversion

Senior insurance executives believe that modernizing technology will result in fiscal growth, but many are still reluctant to take the plunge. Web services and business intelligence offer an opportunity to begin the journey.

A recently conducted SAP survey revealed that insurance executives overwhelmingly believe that adopting modern technology will lead to fiscal growth in the long run.  Yet, it’s generally acknowledged that the insurance industry lags behind other business areas when it comes to technological advancements. What’s holding insurers back, and how can they get in line with their own belief in the possibilities of technology?

Insurance carriers continue to cling to what they know: legacy systems and processes that are decades old, silos of applications that create on-going support and maintenance issues, and rudimentary modernization still locked into old technology. Perhaps it’s the nature of the industry, but insurers often find change too difficult. Many insurers operate on proprietary and highly customized core systems that contain massive amounts of data, with connectivity to applications that evolved to meet business and regulatory requirements. It’s a situation that can’t go on forever – at some point it verges on the impossible to transition “spaghetti architecture” to a new, more efficient operating environment.

Insurance executives’ characteristic risk aversion may allow them to avoid certain pitfalls. Replacing core systems has been likened to changing a tire on a moving automobile. Or, as one executive put it, “How do I keep the business operating while I change to the business I need to become?” However, as insurers delay the inevitable, lost potential revenue continues to multiply.

During the last decade, two innovations have significantly clarified the path to modernization. The first was service oriented architecture (SOA), more commonly referred to today as web services. Web services provide a way to move data between systems and applications and create operational improvement. When web services were first introduced, integration into disparate systems was not as easy as it is today. But tools and services evolved that can move data into and out of a legacy system share or move that data with other systems to accomplish a required business process, and through that use and reuse of data, extend the life of legacy systems.

The second innovation was the emergence business intelligence systems. Business intelligence is a product of improved database design and management as well as a tool to use for aggregating information and making that information available throughout the organization. Insurance companies have extensive statistical reporting requirements as well as management reporting. Via business intelligence systems, interfaces to other systems – policy administration, accounting and claims – are possible. That data can then be used in a myriad of combinations to deliver improved management reporting and insight as well as simplified statistical reporting.

The belief of the recently surveyed insurance executives alluded to at the beginning of this article is justified: upgrading from legacy systems leads to fiscal growth in the long run. Modern technology improves internal processes that help streamline agent onboarding and management, leading to more customer contact and higher sales numbers. But change is not easy. It’s important for insurers to analyze current systems and truly understand what they can and cannot handle. Insurers need to understand that their lifeblood is data. And accessing that data and reusing and repurposing all of those bits and bytes into other data streams is the key to making a significant return on investment in their technology infrastructure.

The Future of Insurance Technology

Several years ago it was thought that legacy system replacement was the only option, and core system vendors were eager to sell new systems. But, along the way, insurance carriers started to ask questions as to whether they needed a new claims system, for example, or simply document management and business process management applications to give them the paperless processing they wanted. Conversion issues from the old to new systems stymied many IT professionals. As a result, many companies are still operating with a legacy system or systems as a key feature of their environment.

However, is not critical that insurers completely replace core processing systems. In fact, many today are reaping significant benefits by investing in business intelligence systems that integrate legacy system data with modernized technology and streamlined work flow.  For many insurance companies this is a suitable solution. For those that do plan to completely overhaul legacy systems in the long run, business intelligence systems can act as an excellent transition as the shift from a core legacy system to an entirely cloud-based solution can sometimes prove to be more complicated than expected.

It is now more important than ever for executives to take a look at the most effective ways to streamline their current systems. Senior insurance executives acknowledge that advancing to these systems can lead to tremendous benefits in the long run, but how insurers able to go about this depends entirely on what individual systems can handle. Regardless of which path is taken, investing in appropriate technology now will give your insurance business a significant competitive advantage in the long run.

John Sarich // As Vice President of Strategy at VUE Software, John Sarich serves a senior solutions architect, strategic consultant and business advisor with over 25 years of insurance industry experience. He uses his extensive knowledge of insurance operations, information technology (IT) systems, sales and marketing to develop and define operational strategies for the company’s sales and marketing initiatives.

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