The legacy dilemma – can insurers upgrade to digital without losing their legacy investments?
April 2016 | EXPERT BRIEFING | SECTOR ANALYSIS
The insurance industry has experienced a high growth rate over the last few years, and brought forth a vast range of new services and platforms to cater to the consumer. However, constantly changing trends and consumer habits are putting increasing pressure on firms to adapt and find new ways to provide the right services for the right needs.
With ageing legacy systems and a substantial backlog of customer data, firms struggle to achieve the level of service that digital natives expect. New start-ups are emerging from all corners, with no legacy systems to hold them back and agile digital models that embody the ‘anywhere, anytime’ philosophy that consumers expect.
Even though firms are aware of the need for digital modernisation, the cost associated with modernising legacy systems creates a dilemma for many enterprises – whether to invest in legacy system upgrades or instead opt for an end-to-end digital modernisation effort.
The former would create substantial short-term benefits, but puts firms in danger of being overtaken by more innovative firms. The latter, though more beneficial in the long run, is an expensive and risky proposition for insurers to attempt on their own.
The legacy system dilemma is not unique to insurance, but the nature of the industry makes it particularly severe. Most insurance firms have some reliance on legacy systems that can date back as far as the 1970s or 1960s. Also, because the fundamentals of the insurance business change very little over time, most firms have mountains of customer data — usually old policies — which may be outdated, duplicated, or even stored in obsolete file formats that are unreadable or incompatible with newer technology.
There was a time when firms could upgrade by simply replacing their old legacy systems with new ones – a process that would usually cost millions and take years to implement. However, those days are over. The legacy system model is incompatible with the new fast-paced, on-demand world in which we live today.
This is the dreaded digital disconnect faced by many enterprises built on legacy systems or ‘Big Iron’. They must recognise the magnitude of this threat, or risk losing their customer base.
Today’s consumers are loyal only to speed and convenience, and in insurance it is no different. Insurers must streamline processes like underwriting, onboarding, issuing policies, and claims management to meet these customer expectations. Gone are the days where a customer would wait for an insurer to sift through a backlog of data to find and issue their requested policy. They now expect service that is seamless, agile and provides integrated end-to-end services from a single point of interaction — similar to mobile or e-commerce.
Having the right infrastructure in place is now essential for succeeding in a market that has become more hostile and competitive, but how can an insurer with a finite IT budget find the resources to move its core systems onto a digital platform whilst maintaining mission critical processes?
One way to address these issues is to engage a partner to help navigate this two-speed world. There are a number of companies that specialise in digital modernisation initiatives such as this, with competencies that range all the way from legacy hardware and software to the latest digital technologies.
One way to avoid the budget crunch is to deploy high degrees of automation that significantly reduce ‘Run the Business’ costs and channel those resources into ‘Change the Business’ initiatives. This sort of self-funding model not only improves business efficiency and agility, but also defies the conventional wisdom that one must choose between cost, quality and speed.
A technology partner can also extend automation throughout the enterprise, building an automation ecosystem that encompasses processes, DevOps and computing infrastructure and creates a culture of continuous improvement. It is exactly this type of initiative that enables insurance firms to simplify their offerings, provide a unique customer experience, and become more agile to compete with new disruptors in the marketplace.
Building a robust digital infrastructure also opens up a host of new opportunities, such as leveraging social media to more fully engage with customers, or extracting valuable data in real time to better understand customer behaviour and sentiment to make informed business decisions.
Automation also allows insurers to streamline processes, build a richer, full-featured front-end ‘storefront’, and upgrade back end processes so that the whole experience of shopping and buying insurance becomes frictionless.
In today’s fast-paced business environment, companies are measured on their ability to adapt to the digital marketplace, as well as changing consumer habits. However, legacy systems still represent a wealth of valuable customer and business data, so they cannot be ignored or abandoned.
The smartest enterprises will overcome the digital disconnect by redeploying their resources to capture and consolidate this legacy knowledge while investing in next generation technology infrastructure that can adapt to the ever-changing habits of the consumer and deliver compelling new products to the marketplace.
Nitin Rakesh is the chief executive officer and president of Syntel.
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