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Legacy or Epitaph? Insurers Face Challenges With Their Systems

Information technology changes at warp speed these days, causing ripple changes throughout the commercial world.  Before software giants such as Oracle, Adobe, and Microsoft are finished launching a new program version, they’re busy developing the next version, whether it’s broken or not.  The same is true of industry-specific software companies, including those focused on insurance.  The IT industry believes and acts upon Jack Welch’s imperative to: “Change before you have to.”

But IT is not alone in this, and there is nothing especially new about “innovative obsolescence.”  George Eastman revolutionized the consumer camera market in 1888 with the Number One Kodak Camera for $25 retail.  His business peers watched in amazement as he “obsoleted” this brilliant innovation two years later with the first folding camera. Again in 1896 with a pocket camera for just $12, and yet again in 1900 with the Brownie for just one dollar.  This practice helped Kodak lead the global camera/photography industry for over 100 years.

So the question is, why do so many commercial insurance firms continue to rely on older “legacy” software/hardware systems?  One popular answer is: “Why not – our legacy system works just fine, and we’re always updating it.”  Fair enough, but to fully understand the value and entrenched sway of insurance legacy IT systems, we need to consider the definition of legacy and how an IT system, in fact, becomes “legacy.”

It’s not just the box

Most of us think of legacy as older software or hardware systems that are still in use.  In fact, the scope of legacy systems is both wider and deeper.  There are four key resources that have the potential to be defined as legacy in relation to getting where you want to be – systems, people, processes and data.

  • Systems (“the box”): The issues that aging systems cause for commercial insurers are usually compounded when they bolt new technology (for example an analytics or messaging product) onto them.  On the surface this updates the system, but it also creates clumsy interfaces, magnifies operating issues, and often causes other tools within the legacy system to become less effective, or even useless.
  • People: With legacy systems, people are custodians of a massive amount of unique, historical knowledge about how the systems function, and how they are built and maintained. This proprietary knowledge has enormous value, and it could walk out the door at any time.
  • Processes: Legacy processes typically involve countless undocumented temporary fixes by resourceful people who have figured out that a jerry-rigged approach gets the job done. Take those people away, and the processes start falling apart.
  • Data: Among the biggest barriers to IT system change is managing the migration of data.  When data is held in different formats and disparate locations, it can be painful to shoehorn it into new systems.  And every day the data is left behind is another day where the volume of unstructured data increases.

The case for business change.

Just because something is old—or new, for that matter—doesn’t mean it supports your business objectives. Are your systems, people, processes, and data aligned to facilitate your organization’s strategic objectives?

If not, you need to realign one of two things: your legacy environment or your objectives.

Asked if there was a case for technology change in the insurance market, 100 percent of delegates at last year’s ITC conference in London said yes, but only 53 percent believed that the case had been made.  Clearly, the need to modernize is acknowledged, but the reasons for change are not universally recognized.

Creating a solid business case for change that the C-suite understands is not easy.  There may be skilled people in your organization who could develop a solid business case, but they are typically too busy creating value on a daily basis.  Choosing an IT partner that can help build the case for technology change based on business objectives may be the best road to take.

The evidence for change is everywhere

Once a case for IT system change is made, it should not be hard to sell.  Remember, 100 percent of 2013 ITC delegates agreed there was a need for technology change in the insurance industry.  Many commercial insurers are already trying to follow the example set by various personal insurers and other B2C enterprises offering customer-focused service based on new digital technology. 

There are some success stories, but many commercial insurance firms have stumbled trying to create a seamless, browser-based, mobile, 24/7 customer interface using awkward legacy systems.  Why?  Because their experience is that the legacy system works “just fine,” especially with a little updating.

What they probably don’t understand is that in times of rapid change, experience can be a poor guide.  Witness Kodak; gone due to slow, inept adoption of digital technology.

The lesson is clear: the cost of doing things the old way can be much higher than the price of strategic change.  If legacy systems hamper your innovation, the digital advances by others will give them a competitive advantage over you. 

As Benjamin Franklin once said, “When you’re finished changing, you’re finished.” 

(Craig Robinson is head of business development, North America, for Xuber.)


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