Even though legacy administration systems are often built on technology that rolled out over 40 years ago, many insurance carriers today rely on those outdated systems to manage every aspect of their business. That’s because updating the digital infrastructure of a company is a massive undertaking. It can affect everything from business processes to core systems that manage underwriting, billing, claims and commissions. Now, faced with an increasingly competitive marketplace, insurance carriers need the servicing advantages enhanced technology offers – and that means companies must take on the risk and invest the resources required to replace or modernize their legacy policy administration systems.
Deregulation upped the competitive ante
Deregulation introduced through events like the 1998 formation of Citigroup and the passage of the Gramm- Leach-Bliley Act in 1999, opened the floodgates for non-traditional insurance institutions within the financial market segment. Banks were quick to take advantage of that deregulation,entering the insurance space,creating new speed-to-market and distribution pressures. Of course, the global financial crisis of 2008 exposed significant risks that were created due to that deregulation, but the impact remained.
Insurance companies are feeling the impact of technology as machine learning and artificial intelligence allowed organizations to create simple, personalized service and engagement opportunities based on big data analytics
Renewed interest in fintech accelerated change
Following the financial collapse of 2008, trust in financial institutions was at an all-time low. That distrust, coupled with the passage of new regulatory changes, fueled fresh interest in financial services alternatives and new technologies. Emerging fintech innovations not only made banking easier, but it also has prompted insurance carriers to phase out complicated legacy systems. According to Deloitte, by 2024, 33 percent of the premium insurance volume will come from brand new propositions. That means that the industry is rapidly shifting from product-led to service-led offerings that deliver a holistic experience to customers.
Startup carriers with nimble, low-cost service models on the rise
Inevitably, insurance companies are feeling the impact of technology as machine learning and artificial intelligence allowed organizations to create simple, personalized service and engagement opportunities based on big data analytics. To compete in this rapidly changing, service-oriented market space, insurance carriers recognized the urgent need to evolve – and that meant tackling the legacy policy administration systems they have relied upon for years.
Where that leaves established insurance carriers
Today, insurance carriers positioning for future growth are focusing on customer retention and low-cost, low-touch service models. They’re making significant investments in their long-term technology strategies and looking at a host of different solutions including replacing legacy policy administration systems, layering new technologies on top of legacy systems, enabling cloud-based systems, implementing machine learning and artificial intelligence, and deploying Internet of Things(IoT) intelligent applications. Some are leveraging upstart Insure Tech companies that blend deep insurance knowledge with modern technologies to deliver customized client solutions.
Regardless of which strategy an organization pursues, the journey to get there is complex, labor-intensive and risky. According to research cited by Reworked, “Almost half of global organizations are being hindered in their digital experience and transformation journeys because of unreliable, legacy technologies with 44 percent citing lack of IT skills or expertise as another barrier to success.”The establishment of a governing framework that links business objectives to IT enablement at the enterprise level, business unit level and project level will be critical to any organization attempting to upgrade their legacy policy administration system capabilities.
