Insurer core systems do not always evolve in the most planned, orderly way.
In a certain sense, their development can be quite random. But in terms of application area, they could have arrived in their current position by taking the path of least risk.
- Through mergers and acquisitions, insurance companies have maintained multiple core systems seeking business merits other than IT.
- When wading into a new business area, insurers have tended to use new or different core systems or systems infrastructures.
- Repeated business integrations, forays into new markets, and waves of sales channel changes have taken a toll on the core systems of insurers.
Today, these superficial solutions are reaching their limit, and solutions that tackle root causes rather than symptoms are necessary.
It is clear that the heart of the cause is the contract management system, which includes the core processes and records of insurance contracts, and underpins all of the general insurance services provided to policyholders.
FIG2-1: Insurer Core Systems and Legacy Modernization
Celent has consulted on many insurer legacy modernization projects.
At the outset of these projects, Celent asks the CEO and CIO a number of questions similar to those below.
- How long does it take to get a new product to market?
- What’s your average cost per policy?
- How many systems does your call center staff have to access to answer a customer query?
- Do product changes require customization of code?
- How easy is it to integrate current apps into new ones?
- Are you spending more on keeping the lights on versus new projects?
These are among the questions that executives need to ask themselves when they look to tackle IT challenges (e.g., data model rigidity, lack of application flexibility, IT duplication, and associated labor efforts).
If you already know the answers to these questions, then the typical challenges insurers face spelled out in this report likely do not exist for you.
The issues broached here are not the kind of challenges that can be resolved by improving peripheral systems or patchwork core systems solutions.
For financial institutions that have designed, developed, operated, and maintained core systems themselves, formulating a replacement strategy is akin to putting together a plan to travel to an unknown world.
- Such a situation requires correct understanding, which mandates a bird’s-eye view or systems map of the entire firm (as-is state) coupled with recommendations for the system to be (to-be state).
- Moreover, companies must select the solution that best matches their needs from existing solutions in the market. The key is the business requirements document (BRD).
- This means defining the operational functions and system requirements that will satisfy the next system’s needs.
- Often, understanding the current situation accurately is not easy, the ideal system goes unrealized, and companies end up with something approximating a reproduction of the legacy system.
Thus, it is crucial to distinguish between the legacy and modern systems.
FIG2-2: What is modernization and a modern system?
Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update
Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals
To be continued – Click to read more