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Transformation Corner: Core System Transformation

For years, insurers and MGAs have been adapting their approaches to core systems to support the business needs that existed at the time. This was always done with a view to the future.  The goal is to gain the maximum advantage of automation – to the degree the automation had evolved.

So, when the COVID-19 pandemic shut down P&C offices across the globe, it marked a prime time to start asking some tough questions about digital transformation, including: How would the pandemic affect core systems? Would they be able to support the new digital transformation that is being required?  Will these shifts evoke a new wave of core transformation – for insurers, MGAs and for solution providers? What are the must-haves for future-thinking core systems?

In the Strategy Meets Action annual survey of P&C core system purchasing trends in 2020, we found the number of core system purchases during the pandemic (126) was equal to the number of purchases in 2019. The momentum of core transformation was not slowed down by Covid-19, clearly signaling that the digital era is here. Instead, the pandemic accelerated the thirst for new products and services that can keep pace with today’s fast-changing needs.

The digital transformation evolution

The core systems of yesterday addressed the relationship between insurers, MGAs, and their insureds, and they did so successfully. But today’s definition of “user experience” is much more comprehensive. It includes interactions with policyholders, agents and internal stakeholders. Modern core systems must enable all of these interactions.

Insurers and MGAs will count on future-focused core systems to leverage artificial intelligence (AI) and robotic process automation capabilities across more areas. They’ll look for systems that support real-time interactions, usage-based insurance and data from a plethora of Internet of Things devices and sensors. They’ll seek systems with robust data analytics capabilities. And they’ll gravitate toward agile systems with modern infrastructures incorporating APIs and microservices.

And, above all, insurers and MGAs will seek cloud-based solutions. In 2015, 36 percent of all core systems buying decisions were cloud-based. In 2020, that number soared to more than 90 percent.

No quick fixes

There are good reasons why insurers and MGAs try to elongate the life span of a core systems for more than a decade. Mainly it’s because upgrading this technology is challenging. Core systems are mission critical. They sit at the heart of many interactions and processes. They’re the foundation for every transaction—new business endorsements, renewals, underwriting and more.

The challenge going forward will be to transform core systems in more efficient ways. Technology will help accelerate the implementation curve, because new, modern architecture makes it easier to shift big components of core systems. But make no mistake, adopting or adapting core systems will still take considerable time.

The most important part is what you do before you implement core systems. Make sure you plan extensively beforehand. Think about every user that will interact with your systems and how those systems can improve what they do every day. Also keep an eye on the future. Carefully consider what you’ll expect your core systems to accomplish five or 10 years from now and build them to accomplish those goals.

Considerations for core transformation

The digital world has arrived: Evaluate your digital strategy to ensure the core system being evaluated can support the data and interactions you are envisioning. When mapping out new digital experiences for many external and internal interactions, it is essential to understand the needs from a business and technical capability standpoint.

Begin with the end in mind: Capitalizing on solutions that can support cloud deployment is the first step in the modernization journey. But remember, it is just the first step. Not all cloud-based solutions are the same when it comes to maintenance. There are still significant changes needed – both technically and organizationally – to fulfill the desired end state of seamless upgrades. Gain clarity on the maintenance world you envision and your role as you venture into the new environments. This will be an area of continued investment moving forward as the solutions become more cloud native and able to deliver on the goal of having systems that are continuously updated and current.

Transformational technologies are at the door: AI technologies are true game changers as we consider the impact to core processes – whether that is provisioning new data or automating processes previously performed by human capital. It is imperative that insurers consider the roles of technology and the openness of a core system to interact and even embed advancing capabilities that impact decisioning and interactions.

Open systems really need to be open: In today’s world, the universal words we hear when talking about integrations are “APIs” – it seems everything is easier when executed through an API. That certainly may be true but be mindful when planning integrations. At this time, not all interactions are able to be provided by or serviced via an API. Be sure the future of the system you are considering is one that will continue to invest supporting dynamic partnering channels and is committed to ease of integrations with other applications and data providers.

Core system changes will continue to be challenging projects - there’s no way around it. But the right solution implemented in a way that enhances your business is well worth the investment. Forging this type of future-focused path will keep you well positioned for the digital future we are heading toward.



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