Taking the First Step to a More Competitive Future
Gather two or more IT recruitment specialists and it won’t be long before one will make a joke about finding Cobol skills for an insurance client. For many insurance companies, however, the challenges of maintaining aging infrastructure are no joke. More than just the prohibitive costs, an aging core infrastructure could mean missing out on the full potential of digital transformation, and could ultimately risk their market relevance.
The old adage of “If it ain't broke don’t fix it” is often the mantra of IT leaders, especially those in the insurance sector, which is unfortunately not known for its future-forward approach to technology.
While this approach may be supported by the audit committee and CEOs obsessing over budgets, this short-termism is not only based on faulty logic, but could be significantly adding to an organization’s risk over time.
Research by PWC has shown that around 70% of an insurer’s IT budget is spent on maintaining their legacy system. And, the older the system gets, the more expensive it becomes to maintain it.
The Benefits of a Modernized Infrastructure
Just before the Covid pandemic hit, research and consultancy company, McKinsey, took an in-depth look at how insurance companies could benefit from modernizing their core infrastructure.
The company saw three main areas where insurance companies could benefit from modernization.
- The first was an increased gross written premium and reduced churn. Using flexible, digitized product systems, insurance companies can revamp their product innovation process. What's more, using digitally enabled integration capabilities, companies can deliver an enhanced front-end user experience as well as increased support for agency and broker sales processes. Digitalization can also reduce churn through a better customer experience.
- The second area of benefit was increased operations productivity. The McKinsey Insurance 360° benchmark shows that companies with modernized IT are significantly (40%) more productive than those with legacy IT systems. The McKinsey Insurance 360° benchmark shows that players with modernized IT are significantly (40%) more productive than those with legacy IT systems.
Cost savings is the third area of benefit. Here the same benchmark research shows that IT costs per policy can be a whopping 41% lower for insurance companies making use of modernized IT systems.
Spare a Thought for the Smaller Players
Since the Covid lockdowns, digitalization in the insurance sector has accelerated. Consumers have been forced to use digital services during the pandemic and it’s fair to say few will return to their previous habits.
While the large companies were forced to advance their digital transformation plans - sometimes by many years - smaller companies are feeling the competitive pressure on all sides. Not only are the insurtech companies eating their lunch, but the looming threat of the mega-platforms like Google and Amazon entering the industry is placing an additional urgency on them to invest in their systems.
For smaller insurers still operating legacy systems, staying competitive in an increasingly digital marketplace is placing added pressure on their bottom line and, in many instances, threatening their survival.
So how should insurers go about modernizing their core systems?
Taking the First Steps
The daunting task of modernizing an organization’s tech stack requires some careful planning. Legacy applications and systems hold critical data that will enable new services for customers. However, safely accessing that data can be risky.
KPMG points out that legacy platforms, such as policy administration systems, impact multiple areas of the insurance value chain and can also affect multiple operating layers such as customer segment, channels, process, people and organization. The company advises CIOs to take a top-down approach and to look at optimizing the overall operating model rather than treating this as a system upgrade or replacement endeavour.
For companies looking to get all the benefits of insurtechs’ innovation and service offerings, KPMG suggests investing in the use of APIs as an alternative to full system replacement. APIs can significantly help the task of modernizing legacy systems by exposing data in a standard way. APIs protect the integrity of the legacy system while allowing secure access. More than helping deliver new products, KPMG says open APIs can help reduce disruptions during the transformation process.
Whether big or small, insurance companies are all facing the challenge of competing in a world where insurtechs and born-digital players are able to deliver new products and services quickly, enjoying all the cost savings of automation and digital delivery. There is no doubt, modernizing is an operational imperative, but it needn’t be the risky operation many think it is.
Synatic allows financial and insurance companies to modernize legacy systems through its range of data automation features and API management tools.
Integration Solution Synatic helps insurance companies de-risk their modernization efforts by providing them with the tools they need to automate data throughout their enterprise. This includes integrating data from core policy management platforms, legacy solutions, business applications, SwaS systems, and more. With Synatic’s Data integration and automation platform, insurance companies can localize decision making and rapidly revolutionize their business and IT processes while maintaining centralized visibility.
Synatic understands that data automation is paramount to the survival of insurance companies. Staying relevant requires IT leaders to act quickly and deliberately. With Synatic, insurers will be able to confidently begin their modernization journey, allowing them to nimbly leverage costly and outdated on-premise disparate systems with more flexible, user-friendly, and multi-tenanted cloud applications to meet the needs of their company.
Taking the first step to a digitally competitive future should start with choosing the right partner. Synatic and its ecosystem of partners are here to share the journey with you.