The insurance industry worldwide is undergoing a significant change accelerated by the financial meltdown and changing demographics of its customer base. In this blog, we will discuss the challenges, approaches and possible solutions to dealing with the transformation that the industry has unwittingly entered into.

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Insurance Legacy Systems – Ready for a change ?

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! 

 

Comments

Good summary of the choices that are in front of insurers if they want to move out of the legacy systems.

I would like to add the “ASP model” to the list – Insurers can select an ASP solution provider who will host hardware, software and the application data. They can also provide the customer service and insurer can fully decommission their existing system.
A tangent to this will be SAAS model which eliminates the need for hardware and installations while retaining certain control on the application.

The migration from the legacy to new system can happen in one phase (though ‘big bang’ approach has its share of increased risk) or the applications can be ‘peeled off’ slowly from legacy and older policies can be left to ‘die in the vine’.

I read two interesting facts in another article recently. Apparently the definition of ‘legacy’ has broadened significantly and doesn’t mean the technologies like ‘Mainframe’ alone. Many Client-server systems we developed may be less than a decade ago are also considered legacy now.
The second interesting fact is that, the no of users working in Mainframe may very well be at its highest point currently, higher than the heydays of Mainframe in 70’s & 80’s when percentage of total apps on Mainframe was much higher but extent of IT usage was low. So the total usage of Mainframe may very well be at its highest point as we write these blogs.

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