Insurers that fail to modernise IT systems take on risk

Insurance companies that aren’t thinking about modernising their business systems need to consider the heavy costs of standing still. If you don’t take advantage of new technology, not only will operations costs rise but you may find yourself unprepared to take on new industry challenges and changes. Your business will be at risk.  

For many established insurance companies, modernising means extending the life of existing systems by wrapping them in modern technologies and deploying them in cloud environments to lower costs and gain security advantages. The core existing systems are still doing their job — are very function-rich and robust — but the environments they operate in are hurting them.

Modern ecosystems enabled by cloud make it easier – and less costly – to adapt for the future. They can give companies the ability to easily scale and introduce new products quickly, as well as overcome technology restraints and boost competitiveness.

DXC Leading Edge has published a paper, “Ensuring enduring insurers,” that examines what insurance companies need to do to stay relevant and healthy. Our researchers identified 10 provocations for insurers to focus on, one of which is modernising technology to not only build capability, but also achieve cost parity.

As the paper points out, the cost of modernizing is not as high as it once was. With cloud computing, workloads can be optimized for the best performance and priced to scale. At the same time, as the unit costs of technology decrease, the barrier to entry for insurtechs and fintechs is becoming much lower.

This has changed the nature of the technology ecosystems available to insurance companies, who now have multiple levers to pull to reduce costs even further. What we are seeing is a technology shift from monolithic systems running on mainframes to modern workloads that can be optimised to run on various cloud providers’ infrastructure. Companies now have the capability to build flexible insurance ecosystems that can integrate innovative technology from different providers to fulfill multiple customer needs.  

Reaping benefits from modernisation

As detailed in the paper, companies stuck in a mainframe environment are burdened by stranded costs and it becomes more and more expensive for those left behind to run their businesses. Modernisation is crucial to gain the ability to create new lines of business, attract the best talent and stay relevant.

Building and operating an insurance business on a modern ecosystem offers many attractive benefits. First and foremost, it is as-a-service on demand. So, to paraphrase a certain television commercial, you only pay for what you consume. You won’t have to bear the overhead and cost burden of having a mainframe or a significant on-premises physical infrastructure that you have to pay for whether you use it or not. This makes costs manageable, accommodates seasonality and lays the foundation for business growth.

Next, if you want to deploy a new core system, such as a modernised claims system, in a traditional computing environment, it is an expensive and involved undertaking. Plus, you also risk lock-in if you don’t like that system. But an on-demand, cloud-based ecosystem provides the flexibility to quickly change your claims system in six or 12 months if you need to. In a modernised ecosystem, while your underlying data remains the same, you have the flexibility and adaptability to plug-and-play new capabilities into your ecosystem with far less disruption and at far less cost.  

Build a modern workplace

Also, there’s a dwindling number of workers with the skillsets necessary for operating legacy systems. By moving to a more modern low-code/no-code environment and cloud-based capabilities, there's a much larger talent pool available than those with COBOL, assembler and mainframe skillsets. If a company is adopting new capabilities and technologies, that’s of great interest to many young developers.

Another benefit of a modernised ecosystem that goes beyond financial costs centers around the BYOD (bring your own device) tendencies of today’s workforce. Today’s workers want cool technology, they want to use the smartphone of their choice, and they want the ability to see change and experience it themselves.

Companies should address the needs of their own internal staff by providing them with top-notch tools and ensuring they are using exactly what they want. Doing so plays into the goal of staying relevant and stabilising your own growth. Having a modern ecosystem will go a long way to allowing for that.

Another trend that needs to be noted is that the industry is in the midst of a subtle shift from insuring to assuring. That is, companies are focused on assuring that you’re a safe driver or assuring that what can be done for a customer helps prolong their life and make them safer. Accommodating this shift will require a modern computing environment and the ability to tap into modern ecosystems.

Increasing flexibility while reducing risks

Modernization is all about taking advantage of new technology and the operational advancements associated with that technology, then leveraging them on behalf of your consumer and your own business base. In the insurance industry, it’s all about reducing your liabilities and protecting your risks. This becomes a core insurance philosophy: Adopt the new technology because it limits liability and reduces risk.

A financial analyst can tell you at what point a system no longer has value. But if modernization was purely a financial cost decision, we'd see less movement and interest in the ecosystem approach. The focus needs to be on business relevance. Not only are there cost savings to be had, but as the DXC Leading Edge paper asserts, it’s important to consider increased flexibility and maintaining the value of what's already there.

Insurance companies need that improved flexibility in the face of all the changes going on in the industry. By moving to better, more efficient ecosystems, a company can make more changes and have the ability to address any channel. In the end, the insurance customer will benefit from this modern ecosystem approach by having access to improved services and more digital channels to choose from.