While the insurance industry has historically been an early adopter of innovation, experts say a reliance on time-tested systems and methods now may be holding the industry back.

“Insurance was a prime mover in software. It was actually an early adopter, which means it’s got the early adopter’s dilemma,” said James Benham, co-founder and CEO of JBK. “You have some stuff that was really revolutionary at the time that’s no longer revolutionary.”

While these legacy platforms have enabled decades of growth, they’re becoming a liability in a modern world. Now, insurers stand at a critical crossroads: upgrade legacy technology in a new era of innovation, or fall behind.

“Companies that are kind of in the forefront — the ones that are adopting technology today — are the ones that really understand that technology is a major component, and it’s not an option,” said Bernadette Leh, president at Sunlight Simplify. “You actually have to do it to remain competitive.”

The Risk of Change

But with any large-scale transformation, the path forward is filled with complexity and risk. Benham said insurers’ hesitation to move forward with new technology isn’t always because the industry doesn’t understand the technology, but because it’s afraid to fix what isn’t immediately broken.

“I’ve seen industries that are super reluctant, and they dig their heels in because they hate all technology. And that’s really not insurance,” he said. “There are a lot of very progressive technology executives and insurance executives in insurance that are eager to reap the gains of process improvement, technology improvement, and adoption. But I would say it’s hard to want to change when things are pretty good.”

With recurring revenue, policy renewals and new projects coming down the pipeline, things are fundamentally going well in insurance, he said.

“You have these multi-year contracts, and so things are pretty good, and you know what your margins are going to be,” he said. “Upsetting that apple cart is actually pretty disturbing. Insurance companies manage risk for a living, and so they tend to risk mitigate pretty heavily. And introducing a variable when you don’t want variables is kind of scary.”

Leh agreed that while these legacy technologies may be serving their purpose in the short term, over time, insurers will begin to see gaps widening.

“When you look at a company today and the technology that they have today, it works. Tomorrow, it works,” she said. “But if a company doesn’t really modernize today, they will pay the price tomorrow and in the future because what they’re going to find in the market is it will be difficult to keep up with the market expectations and the consumer demands.”

Another stumbling block for insurers is simply the investment they’ve already made in their technologies.

“I think a lot of it just comes down to the level of complexity and investment that carriers have made in these legacy systems,” said Ryan Baillargeon, insurance industry lead at Glia. “A lot of these have been around for decades. They’ve patched and improved and customized. And so now here we are twenty, thirty years later…”

Benham said this can distract insurers from focusing on the work they need to be doing to serve customers.

“There’s still a lot of legacy tech,” he said. “The software is not supported or the hardware is failing or not supported. And, really, [insurers] shouldn’t be worried about any of those things. They should be worried about their combined ratio. They should be worried about loss control and prevention. They should be worried about all of the insurance stuff and not worried about whether their hard drives are failing and that they order more of them because they’re running out of storage space.”

Technical and Cultural Transformation

Leh said there are a few considerations when upgrading technology. Most importantly, insurers should ask themselves whether their technology aligns with their current strategy.

“When you start looking at your technology and you’re like, ‘It cannot keep up fast enough with our initiatives,’ then it may be an idea to start thinking about replacing,” she said. “You want to ask yourself just one question: Is our system holding us back rather than enabling our future? And if that’s the question that has a yes answer, it probably is time to start looking for a change.”

Baillargeon said this requires a full business transformation, rather than only a technology transformation. This means a culture and mindset shift as well.

“I think it’s not just sort of a technology question, but it’s also a business transformation question,” he said. “It’s a mindset shift and a transformation shift.”

Leh agreed.

“What we see is that companies are actually undergoing both the business transformation and a technology transformation at the same time, and if we fail to recognize the duality of these, we can create some misalignment within the organization,” she said.

She added that having a culture of change embedded throughout the entire company is an important element of this transformation.

“There’s an old saying that culture eats strategy for breakfast, so even the best plans will fail if we don’t have a culture that’s standing behind it,” she said. “So you want to make sure you have a culture of change within your organization that you are having this mindset that welcomes transformations.”

Part of building this type of culture is overcoming a fear of failure, Benham said.

“There are enough stories now of failed technology projects, failed implementations and adoptions of core systems that cost, well, millions. There are enough of those stories floating around that people are like, woah. There’s actually a risk here. This may not work out,” he said. “And so there’s a lot of hesitancy. That’s probably the chief area of hesitancy that really grinds technology implementation decisions to a halt is fear of failure, risk of failure, and having a long enough track record of seeing field projects that you know there’s actually a chance it could happen.”

He said he believes insurance will always exist because it enables business transactions to occur, but the way people purchase insurance is evolving, and insurance executives will need to mindfully move past a fear of failure to evolve alongside their customers.

“It’s tough to be an insurance exec. It’s tough to make those decisions,” he said. “No one wants to be the person that made the decision that lost two million dollars for the organization.”

Starting Small

John Spottiswood, chief operating officer at Jerry, said that if this all feels overwhelming, it’s important to start small in an area that will have a big impact for customers.

“If you can figure out ways to impact the things that the customers are feeling the most pain, or maybe your employees, without having to do deep surgery, I think that’s a great place to start,” he said. “And it builds the use case or the argument for maybe replacing those legacy systems over a longer time frame.”

When it comes to making the decision to build new technology in house or outsource it to an insurance technology provider, he said those decisions should be made based on the importance of the technology as well as the reputation of potential partners.

“I think if there’s a piece of technology that’s really central to what you do — it’s sort of strategic — then you probably want to build that now so that you can tailor it to exactly the way the way you want,” he said. “But building something from scratch obviously takes time, and if you don’t have a lot of the expertise in house, it can also be very expensive. So it’s really important to ask: Is this a strategic differentiator, and is it worth the investment?”

Partnering with an InsurTech for things like digital quotes, claims automation, or anything that affects the customer experience often offers faster speed-to-market and expertise that can be leveraged in other areas as well, he added.
“I think for most insurers, there’s going to end up being a hybrid approach that’s the best route,” he said. “The essential things, you build in house. Everything else, you work with a reputable partner.”

All things considered, panelists agreed that modernizing legacy technology in insurance isn’t easy. It requires investment, cultural alignment, and strong execution. However, Baillargeon said the companies that will thrive aren’t those who cling to familiar systems but those that take calculated risks, since doing nothing may be the biggest risk of all.

“Simply put, if you put off modernization for too long, you’re going to risk falling too far behind your competitors. But that’s not new. That’s always kind of been the case,” he said. “I think what’s unique about right now is with all of the innovation that’s going on around AI, if you don’t have the modernization in place, you’re not in a position like companies who have put those systems in place to be able to reap the benefits of AI and the innovation that’s happening in the space. I think the risk for carriers is ultimately the longer that you wait, the harder it is going to be to catch up.”