Four Ways to Modernize Core Legacy Systems
Donald Light | April 02, 2014
The benefits of modernizing core legacy systems are clear and compelling:
- Gaining a competitive advantage—or achieving competitive parity
- Reducing operational and IT costs
- Making better underwriting and claims decisions
- Seizing analytic advantages when information and processes become completely digital
However, modernizing core legacy systems is easier to think about than to do. Modernization projects are costly: both in terms of cash out-the-door and staff resources (full-time or part-time assignments to design and implementation teams, back-filling those vacated positions).
Technical complexity is usually high due to substantial amounts of intellectual property (IP) embedded in the rules, product definitions, and processes; as well as long established integration protocols (often point-to-point) with other internal operating and back-office systems.
The resulting execution risk means that some projects are never undertaken, others are delayed, and still others are done piecemeal. Consequently very few insurers have completed front-to-back modernization programs—and significant portions of most insurers’ application and middleware portfolios are still legacy.
So how can an insurer balance the costs and risks of legacy modernization against its benefits? Insurers can choose from among four legacy modernization strategies:
- Replace with a COTS (commercial off the shelf) package
- Replace with an internally rewritten system, from-the-ground-up
- Wrap and extend (using portals, rules, BPM, content management, etc.)
- Continuous improvement (regular incremental improvements)
The first strategy, replacing with a COTS package, has become an increasingly popular option with all but the largest insurers—as vendors have made steady improvements in features, functions, and usability. More recently some very large insurers (over $5 billion in premium) have announced they will use COTS to replace several core systems.
The second strategy, replacing legacy with a new internally written system, has been the choice primarily of very large insurers, and of some specialty insurers and reinsurers. When asked why, CIOs are likely to say that their needs (rules, definitions, processes) are too complex and valuable (IP again) to be configured into a COTS.
The third strategy, wrapping and extending, externalizes a lot of the IP from monolithic legacy code bases, and often provides a more flexible and appealing user interface. Insurers tend to use wrap and extend solutions for somewhat limited lines of business or territories, because these solutions themselves require a significant investment to deploy broadly.
The fourth strategy, incremental improvement, is in fact the default choice. No IT group (well, almost no IT group) will go a year or two without addressing some of the operational and/or technical problems posed by legacy systems. These improvements typically combine elements of the second and third strategies (limited internal rewrites and wrap and extend).
A recent Celent survey of CIOs found that incremental improvement was the most popular modernization strategy (being used by 35 percent to 45 percent of CIOs, depending on the core system); followed by COTS strategies being used by 20 percent to 30 percent of insurers.
Rewriting and wrap and extend jostled for third place. Rewriting was more popular for claims and billing systems (12 percent and 7 percent) while wrap and extend was chosen for 12 percent of underwriting system renewals and 10 percent of policy admin projects.
Donald Light is the director of Celent’s Americas Property/Casualty Insurance Practice. His research and consulting focuses on: technology and business strategy, policy administration, underwriting, claims, analytics, market assessments, and due diligence. Prior to joining Celent, Light was an insurance subject matter expert with Sapient and for his own firm Donald Light Consulting, where he advised senior managers at major insurers and other financial institutions. He
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Desjardins General Insurance Group Deploys EIS Suite for Commercial Lines
- Acuity Modernizes Customer Communications Management with OpenText Exstream and ValueMomentum
- COUNTRY Financial Joins Roost’s Home Telematics Program
- Roost partners with The Weather Company
- Majesco Launches Majesco Digital1st Insurance, an Innovative Next Generation Platform Solution as the Foundation of a New Business Unit
- New Release of EIS Group’s ClaimCore System Delivers Dental Claims Management
- Westfield Streamlines Commercial Lines Underwriting Through New Verisk and Duck Creek Technologies Integration
- MADISON MUTUAL INSURANCE CHOOSES ROOST HOME TELEMATICS SOLUTIONS
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA is pleased to present the 2014 Webinar Series. We have many topics for you to choose from and attendance is open to all ITA members. The webinar topics are current and exciting — ranging from predictive analytics to telematics and will focus on the direction insurance carriers need to follow for the future. All webinars are presented by insurance IT professionals along with some of the leading analysts and consultants in the field. There is no cost to attend an ITA webinar. For more information and to register for the webinar, click the “title” of the webinar below.
BLOGS AND COLUMNS
It has become a common refrain over the past few years to view the practice of enterprise architecture (EA) as something that time has passed by, much... READ MORE
One important trend in society over the past decade is our increasing ability to create and consume a seemingly unlimited amount of digital content... READ MORE
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE
Fraud detection has always been and will continue to be a critical component of claims management. Learning the lessons from current claims Straight... READ MORE
- Vendor Views