Other parts of this series:
Legacy information technology (IT) is a trap that I see frequently through my work with insurers. It frustrates operational efficiency and affects the fight for relevance with customers, brokers and other insurance ecosystem partners. Although legacy IT issues are not unique to insurance, specific industry issues do make them particularly difficult to overcome.
Indications that an insurer is caught in the trap
For insurers wondering if they’re caught in the legacy technology trap, key indicators include:
- The organization’s IT estate contains multiple systems-of-record that often duplicate the products and services they offer the business.
- Applications are poorly understood either because platforms are old or complex, or only a handful of application experts are familiar with them.
- Applications use obsolete technologies or are out of step with business data needs and use cases.
- Integration mechanisms are ad-hoc, lack consistency or are poorly understood.
It’s often assumed that legacy means, exclusively, obsolete IT. But that’s not always the case. Legacy platforms might be decades old or they might be more recently deployed. Whatever the back-story, insurers will know they’re dealing with a legacy problem when:
- The organization can’t evolve to meet customer expectations. Digital has transformed customers’ service expectations and insurers have responded by digitizing distribution channels. Legacy estates can struggle to support this.
- Duplication and inefficiency predominate. Legacy technology frequently causes process duplication, with key business capabilities being serviced in different ways on different platforms. This makes it difficult to optimize operational costs without identifying differences in embedded business processes.
- Regulatory and operational risks are an ongoing management headache. The systems estate is inflexible in the face of new regulatory needs and may be ill-equipped to keep data secure.
How do insurers become trapped?
Insurers find themselves in the legacy technology trap for a number of reasons, but particularly as a result of mergers and acquisitions (M&A). Recent research suggests that, following an M&A, insurance businesses generally rate the challenges around IT systems and internal process integration as second only to retaining customers and ensuring their ongoing satisfaction.
Consolidation of disparate IT systems can be so onerous that attempts are abandoned, leaving siloed legacy platforms with unwieldy business processes on top. In specialty insurance, this is typically most pronounced in key systems-of-record. With numerous legacy policy administration, claims and ceded reinsurance processing systems, it’s not uncommon to see global multinationals operating enterprise estates with these platform types numbering into the tens.
Another reason insurers can find themselves caught in the legacy technology trap is because of shadow IT pockets. With low investment returns since the early 2000s and an extended soft pricing-cycle, insurers’ CIO organizations have adopted a “make do” mentality, increasing the toleration of legacy technology even as it diminishes their ability to remain relevant. This mentality doesn’t always extend to business-users, however, resulting in shadow IT pockets—business divisions that have hired technical team members to develop their own custom solutions in the face of what they perceive as unresponsive CIO organizations.
Vendor and service provider influence can also result in insurers being trapped by legacy technology. The predilection for packaged solutions in the insurance sector has meant that without careful selection and management of vendor solutions, today’s cutting-edge implementation becomes tomorrow’s unsupported application version, leaving a legacy “pain point” to be.
Trapped? Now what?
Platform change is expensive. For some insurers, the underlying economics of legacy technology migration appear unfavorable, perhaps due to skills shortages or under-investment. Even the best intentions to execute business-led change can become bogged down by legacy technology behavior. Change cannot be implemented without involving deep systems experts, and worse, any changes that do result can be poor replicas of original intentions and can potentially sacrifice business value along the way.
But for insurers who recognize the trap, it is possible to overcome all the challenges, to successfully migrate systems to a more agile platform able to respond to changing regulatory requirements and evolving customer expectations.
In my next post, I’ll examine how to build an effective business case for migration.
In the meantime, register to download Overcoming the Legacy Technology Trap.