Insurers have more options now than ever before when it comes to replacing legacy technology, according to business management consultancy
Digital transformation has not always been simple to action for insurers - making just one change to their existing full stack technology often means they have to gut and replace the whole system.
This process can be a nightmare - not only is it often time consuming, but it can be costly and have ramifications on end customers while the update is ongoing.
Scrapping a full stack system, which refers to the software powering a business’ front end and back office capabilities, is not a small or quick job.
However, Neil Bayles, principal and leader of the technology practice at business management consultancy Oxbow Partners - which provided the data for Insurance Times’ inaugural Insurtech 50 report - believes insurers are undergoing an attitude shift.
Bayles explained that although many insurers previously believed they needed to entirely replace full stack legacy technology to update their operations, these businesses now feel that small adaptations are possible without ripping out whole systems – and this is thanks to insurtechs.
He continued: “If you’re wrapping existing legacy [systems] in new technology, that’s still a better answer than not moving forward at all. That is the attitude shift we are seeing.”
Many insurtechs, therefore, are focusing on helping insurers by using small technology transformations to improve different elements of insurers’ existing processes - these changes then sit on top of a legacy system.
”Hollowing out the core is a strategy we see a lot,” Bayles noted. “The legacy [technology] remains, but we are hollowing out the functionality into newer, more contemporary solutions.”
In my opinion, this seems to be a better route for digital transformation because it is not as disruptive for an insurer’s business.
Out with the old, in with the new
As these types of transformation projects take place, Bayles explained that insurers simply ”have to tolerate the fact [that] they have a slightly more complicated [technology] environment” in the short term. But - in around 10 years’ time - Bayles expects there will be nothing left of the legacy systems currently in use.
In July 2020, 55% of participants attending an Insurance Times webinar in association with DataStax and Fincons Group - entitled Insurers and coronavirus: Will the crisis speed the digitalisation of legacy systems through the use of new integration tools - identified legacy technology systems as the main barrier insurance companies faced when looking to boost their digital touchpoints.
Around a quarter (26%) of webinar attendees cited cost as the largest barrier to increasing digital touchpoints, while 11% stated that data volume was the biggest stumbling block and 8% blamed the speed of responses.
Bayles said: “[Insurers can] get trapped in this legacy world where you can’t do anything without a huge investment.”
Brokers ahead of the game
Many brokers, meanwhile, have already undertaken this type of digital transformation work.
Findings from Insurance Times’ Digital adoption report, published in October 2022 in conjunction with Applied Systems, revealed that 41% of the 175 brokers surveyed have fully implemented a cloud-based infrastructure. This compares to just 22% of brokers that had achieved this in 2021.
I believe these technology changes can only be positive for the insurance industry because it enables faster processes, frees up employees to deal with more complex tasks and - most importantly - allows insurtechs to work more collaboratively with insurers, brokers and MGAs.
This collaboration is already happening and it can only get better.