11:36 AM
Kelly Sheridan
Kelly Sheridan
Connect Directly

The Rocky Road of Modernization

Today's top challenges in core system replacement, from choosing a system through implementation.

Legacy systems are becoming more expensive to operate, and certain skills required to update them, such as COBOL programming, are becoming outdated. Insurers are faced with the challenge of upgrading core systems not only to improve operational efficiency, but also to provide better service to their policyholders.

 “The industry is facing a significant number of system transformations over the past several years,” notes Dan Colarusso, CEO at The Copelind Group. Most of the core systems currently in place are not customer-centric, he explains, and primarily handle business processing by internal employees. Some insurers are implementing frontend additions on existing systems in order to serve clients better, rather than investing in system-wide modernization -- but these efforts are not enough.

Systems produced today, which are less expensive to maintain, are better able to handle the modern regulatory environment and provide the information and service that customers have come to expect. They also help agency employees better manage their businesses through improved onboarding processes, commission management, and access to information that will boost business growth. 

“The real key to success here is having a thought-proven methodology as to how you’re going to approach the conversion. Once you establish that, it becomes the fundamental vision to determining requirements.”

[New York Life Boosts Social Savvy]

Many businesses forget the critical process of formally planning the selection and implementation of new systems. This begins with creating a global vision of what the organization is trying to achieve, such as reduced costs, improved speed to market, or a stronger relationship with the system provider. If prices are similar, he says, insurers will typically choose to work with the easiest, most efficient vendor.

Core system priorities vary according to insurer type. P&C insurers face a more commoditized and highly competitive environment, while life and health carriers must adhere to strict regulatory mandates. “They need to have a system that satisfies both the client requirements and the regulatory requirements.”

Plenty of insurers also neglect to ensure they have enough staff to support the business throughout modernization. “They need to make sure business and IT have the appropriate level of resources and necessary skills to execute the process." The majority of the business will continue to execute on the legacy system until the conversion is complete, which usually takes 24 to 30 months. Colarusso advises insurers to modernize by implementing the most basic version of their chosen system, bringing it to a full production state, then enhancing it to suit their tastes.

The challenges don’t end once the system is implemented, as insurers then must transfer their data from the old system to the new one. “Data conversion is probably the most difficult and onerous piece of any system transformation.” Carriers hold data in a number of different systems, platforms, and databases, which he recommends storing in a data warehouse and normalizing.

Kelly Sheridan is Associate Editor at Dark Reading. She started her career in business tech journalism at Insurance & Technology and most recently reported for InformationWeek, where she covered Microsoft and business IT. Sheridan earned her BA at Villanova University. View Full Bio

Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
User Rank: Author
10/27/2014 | 2:05:31 PM
Re: People, processes and technology
Thanks, Chris, appreciate your thoughts. As the insurance industry gets rocked by technological change, it's so important to remember that despite the many challenges, this is also a major period of opportunity and growth for carriers. You make a good point in saying there are plenty of tech tools to help insurers stay ahead - it's simply a matter of researching their options to determine which best meets their needs. 
User Rank: Author
10/27/2014 | 1:48:33 PM
Re: Modernization - without the risks
Thanks for your comment, Derek. System-wide replacements are indeed risky, as you note, but more insurers are taking on the challenge. Failure rates are high, but insurers can achieve successful implementation with the right strategy. This involves evaluating risk, cost, implementation timeframe, and the resources needed to maintain an existing system while a new one is implemented. 

Of course, implementation strategies and requirements vary from insurer to insurer. Execs should take a look at their specific business requirements to determine a plan that works best for them. 
Chris Baker
Chris Baker,
User Rank: Apprentice
10/27/2014 | 7:10:05 AM
People, processes and technology
A very insightful article! As an industry it cannot be denied that we are going through a period of accelerated change, with a significant amount of transformation projects afoot. But in change there lies opportunity. To simultaneously ease the process and capitalise on the possibilities this affords us we must reframe technology as an enabler, rather than the disabler it has sometimes traditionally been seen to be.  There have been far too many examples where technology has held back the insurance industry, becoming a barrier to globalisation or limiting a company's opportunities to transform- but it doesn't have to be the case.

All the aforementioned points (a proper methodology, formal planning and a united vision of what you are trying to achieve) will pave the way for a smoother implementation. But don't be afraid to turn to technology to solve technology problems. While it is true that data migration is a huge task, in the true spirit of the "there's an app for that" generation, tools have been built specifically to take the pain out of this process. Speak to your vendors and explore your options.

While people and process will always be important remember than technology can enable you too.   
User Rank: Apprentice
10/22/2014 | 6:37:54 AM
Modernization - without the risks
The article discusses some really important considerations around systems renewal or modernization in the sector. Customer focus and operational efficiency are doubtlessly cornerstone elements of an effective, modern IT strategy for any insurer.

The viability of system-wide replacement is not without considerable risks, however. Swapping out one system for another has to cope with significant change covering functional equivalence, data integrity, user acceptance, training, hardware and software commissioning, and a variety of other elements. Studies undertaken by industry commentators and analysts talk about "failure" rates of between 40% and 70% (depending on the nature of the project) where implementations are excessively late, over budget or are never delivered. The IT press is littered with examples.

Furthermore, a question arises around the article's assertion that older systems are "expensive to operate" and rely on "outdated" skills. Core systems such as COBOL are, from a maintenance perspective, easier to understand and manage than more equivalent languages. In terms of available skills, interestingly most developers of 2014, with their knowledge of IDEs such as Eclipse or Visual Studio, can easily pick up COBOL, the latest versions of which also works within these environments.

Another assertion made here that systems produced today are "less expensive to maintain" is, again, not necessarily the case. Take Java, for example. While it performs well for mobility requirements, it can lead to higher "technical debt" (the eventual consequences of poor system design, software architecture, or software development within a codebase) than COBOL. According to CAST Software's CRASH report,  the estimated technical debt of Java is $5.42 per line of code, compared to $1.26 per line of code for COBOL. 

Modernization projects should look at risk, cost, competitive advantage and time to implement as key considerations. Reusing existing, working, trusted systems, then defining appropriate strategies to modify them can involve lower-scale change which provides value improvements quickly but without undue risk. Insurers in Europe and North America have successfully repurposed older systems and interfaces by reusing core COBOL applications, saving time and effort which can then be devoted to other customer-facing initiatives.

 An expectant market wants insurers that are cost-efficient and risk-averse. Embarking on a modernization strategy based on reuse is a low-risk route to better customer service and operational efficiency.

Derek Britton (Micro Focus) 
Register for Insurance & Technology Newsletters
White Papers
Current Issue
Insurance & Technology Digital Issue
Innovation? Check. Core modernization? Check. Security? Check. Today's insurance IT challenges don't stump this year's Elite 8.