Over the past several years, most carriers have invested heavily in legacy modernization initiatives to transform core operations. What’s changing for many companies are the business objectives driving such efforts. Insurance company’s digital ambitions will likely fashion most core system transformation efforts going forward.
The core systems need to be ready for the digital technologies that power new business models. For example, new products designed to meet the demands of the sharing economy allow customers to start/pause/stop coverage at the click of a button on their mobile apps. Providing this functionality to customers would be possible only if core insurance functions—such as rate, quote, bind, issue, claims, billing, service, etc.—are equipped to handle such advanced requirements.
Thus, a carrier’s ability to utilize new technologies to enhance customer engagement, develop new product offerings, analyse data, or employ automation tools is tightly coupled with the readiness of its core systems.
What should insurers do about core system transformation in 2020?
While a large part of a company’s IT spending goes toward core systems, budgets are starting to shift away from core applications toward analytics, data security, and other advanced functionality. Since core systems serve as the backbone to these digital initiatives, insurers cannot afford to take their eye off wider-ranging modernization.
On the L&A side, insurers should continue re-platforming existing core applications from legacy systems to more modern environments to ensure they are adaptable for digital capabilities. For P&C, with more evolved core packages offered by longtime software vendors, carriers should look to initiate or continue their core system transformation efforts utilizing vendor packages as the base. Carriers should look for options where digital capabilities are embedded within the core system.
Companies should also evaluate cloud as a platform for their modernized core systems. Cloud can provide carriers with added agility and flexibility to meet future requirements. Insurers that may already be building on-premise solutions should look to augment their delivery capabilities using cloud.
The insurance industry is being particularly affected by disruption of the pandemic. The smart phones have created a new means of distributing insurance products and lodging claims. The vast amounts of data generated and collected each day create opportunities for better underwriting and new products. Since core systems serve as the backbone to these digital initiatives, insurers cannot afford to take their eye off wider-ranging modernization.
Disposal of legacy and non-core insurance businesses and portfolios. This has led to the rise of specialist consolidation vehicles that can achieve the expense and capital synergies required to manage such legacy business on an economic basis Sector consolidation, driven in large part by insurers’ realization that companies with greater scale and the ability to invest in digital capabilities and new value propositions, have an advantage. Large-scale transactions are possible, although the difficulties in executing deals during uncertain times are not to be underestimated: those challenges range from the need for clear messaging to customers, regulators and other stakeholders, to the complexity of making decisions when many variables are unknown. Thus, a carrier’s ability to utilize new technologies to enhance customer engagement, develop new product offerings, analyze data, or employ automation tools is tightly coupled with the readiness of its core systems.