Within the insurance industry today, core system transformation is a top priority and is expected to remain so for the next two to five years. But these multi-year initiatives are time consuming and risky, requiring significant investment, key organizational resources, and senior management commitment.
Some carriers have tried to modernize to mixed results: For every successful investment leading to better service, improved compliance, and greater efficiency, others are doomed by oversold systems, unrealistic expectations, and poor implementation processes. But these core systems are so critical to an insurance company’s bottom line that no carrier can afford to see a transformation initiative go awry.
To help carriers meet their needs for cost containment, flexible new product design/rollout, speed to market, growth, improved customer engagement, streamlined business processes, increased service quality, and regulatory changes, we have outlined seven best-practices insurers must assess and adhere to when implementing a core system transformation program.
1. Choose a “fit for purpose” transformation option.
Insurance companies typically implement core systems transformation to consolidate, rewrite, or wrap/extend an existing system or replace a system with best-of-breed COTS (commercial off-the-shelf) vendor solutions. The decision is generally based on priorities, risk appetite, investment budget, people/skill availability, vendor solution fit to its needs, time to market, IT estate, and organizational preparedness towards change. But insurers must build tradeoff metrics and carefully pick the best transformation option that aligns to strategic priorities, future plans, and risk appetite while not allowing organizational constraints to derail the project.
2. Business sponsorship, buy-in is critical.
Core system transformations are not IT-only initiatives. Whereas IT is a key enabler for change, buy-in from the entire organization is critical to success. Business and IT must build the target operating model together with inputs from vendors from the outset. The business team needs to play a pivotal role in “to-be” process definition and define requirements that align to the roadmap and strategic vision of the organization.
3. Change management is key to success.
With ongoing changes to business/market conditions, customer preferences, and regulatory norms, there are often requests to amend/change the original scope and sequence of the transformation program. A robust change management team is needed to govern, prioritize, and execute the changes. It must include representation from the business sponsor, IT owner, program management office, subject-matter expert, architect, and vendor(s). As a best-practice, the change team should be retained till end-of-program, and it must meet periodically to monitor the program.
4. Choose the right implementation partner(s).
Insurers must validate a vendor’s relevant experience in implementing large system transformation programs with skills and resource pool availability. It is advisable to split the program between at least two vendors to mitigate vendor dependency risk. A thorough vendor and product assessment is necessary. Insurers must ask their vendor(s) to simulate key business scenarios in its solution and demonstrate must-have functionality/requirements within each sub/processes. The formal RFP or merit-based selection is a prerequisite, but insurers should always revisit their vendor choices when the solution requires heavy customization and changes or does not support key business requirements. Insurers need to assess the impact of emerging technologies on vendor solutions, as well as flexibility and ease in its adaptation. Vendor credibility, financials, and an independent reference check of past implementations are necessary in choosing a vendor.
5. Assess execution risk continuously.
Execution is the most important aspect of delivering core systems transformation, and insurers must continuously assess execution risk and develop mitigation plans. Apart from schedule, cost, and risk tracking, the execution engine must focus on periodic releases to business to gain acceptance. Many insurers follow agile as a best-practice to enable early validations, but a strong governance structure, solid communication plan, and clearly defined roles and responsibilities across stakeholders are necessary for seamless execution. Weekly and monthly program dashboards must be published to cite key milestones, dependencies, risks, and open issues with all stakeholders in a transparent manner. Independent testing and validations are also critical to minimize execution risk.
6. Be clear on your data migration plans.
Many times, insurers are too engrossed in defining new system requirements, processes, and architectural changes, and they overlook or delay critical data migrations and conversions. Before starting any transformation, insurers must determine a cut-off date for data conversion, build an approach for handling active policies, claims, and transactions, assess data quality, and build detailed data migration plans. In addition, insurers must work closely with vendors to evaluate the best data migration options for their needs.
7. Separate integration aspects from the core systems.
Core system transformations demand flexible integration with peripherals and external systems. Service Oriented Architecture (SOA) support is critical to providing an easy and flexible interface with these systems, and it is wise to have a separate team overseeing these time-consuming and risky integrations.
Core systems transformations are critical to insurers’ performance, but much needs to be taken into account in order to be successful. Continuous planning, execution excellence, strong governance, and robust change management along with buy-in across multiple business units are required. Insurers must assess ongoing risks and develop mitigation plans to handle uncertainty while deploying their best talent or acquire key skills to run, govern, and own systems transformation.
With no standard recipe to execute these, execution is the most critical element of such programs, and these best-practices will help insurers build realistic plans, provide direction, and offer tips to minimize risk and mitigate uncertainty pragmatically, ensuring successful core system transformations.
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Girish Joshi is a Program Director and Head of Insurance Center of Excellence at Mindtree. He is responsible for insurance strategy, solutioning and domain development at Mindtree. View Full Bio