There are varied views expressed by experts in Insurance on legacy systems in Insurance. A significant majority of insurers still have over 70% of their insurance systems as legacy. Because of this, over 70% of the IT budgets are kept aside for keeping the lights on!! This bothers the business leaders and makes them question the value IT is providing to business. IT is clearly not in the front seat driving the business unlike in some of the other industries IT drives business results. Legacy systems also are quoted as the one of the most common reasons for the delays in launching new products. Longer cycle times for application processing, issues in claim processing and poor customer experience are the other common issues that are attributed to the legacy systems.
Do insurers consider this as a necessary evil due to high replacement costs or do they have options? Following are a few options adopted by various insurers based on strategic importance of IT, availability of budgets and business drivers.
1. Modernize with capability enhancement - Insurers are exploring opportunities to improve business capabilities while modernizing their IT systems. It is a much easier business case when IT modernization gets done along with business capability enhancement. Application modernization and consolidation is done while keeping in mind the overall business vision and business capability enhancement.
2.Re-hosting - Completely shift applications from mainframes to newer platforms to reduce the risk as well as cost of operations and provide a starting point to extend Legacy applications. There are tools available for the lift and shift. This is less expensive than the overall application consolidation / rationalization.
3. Re-factoring /Web enablement – Componentize existing applications to enable re-usability and improve maintainability. Identify and expose ‘services’ moving legacy applications towards a standard Service Oriented Architecture
4. Packages - Chose the right product from the 100+ product vendors available in the market
Modernization initiatives that tended to focus on improving only IT effectiveness or pure IT head count haven’t received much support from business. A broader focus on integration of business & IT architecture and business capability acquisition would provide better business value and hence easier to achieve success with modernization efforts. Considering the difficult times, any innovative approaches to reduce the cost of operations would be welcomed by business leaders. If change has not been initiated already, it is never too late!