New research highlights the urgency for insurance companies to shift from complex, costly legacy systems burdened with outdated technology to modern systems to remain competitive in the current market, according to a new report released by Info-Tech Research Group.
The report, “Insurance Core Systems Modernization,” offering a comprehensive blueprint designed to assist insurers in overcoming the significant barriers they face while modernizing their technology systems, states that agility and adaptability are crucial to maintaining a competitive edge and a strong market presence in the evolving landscape of insurance today.
Customer dissatisfaction with outdated engagement strategies is driving a shift, the information technology and advisory firm said, to more innovative and advanced solutions many legacy systems cannot deliver.
“This gap is leading insurers to lose substantial ground to more agile competitors who are quicker to identify and exploit market opportunities, making speed to market an essential factor for success,” the company added.
“The insurance industry is highly regulated and continues to add more complex requirements, placing pressure on traditional insurers as compliance requirements constantly shift,” says Ahmed Mapara, principal research director at Info-Tech Research Group. “Insurance companies must navigate these complex and often conflicting regulatory frameworks across different jurisdictions. New regulatory requirements related to data privacy and security may emerge, which would require significant changes to existing policies and procedures. Startups classified as InsurTech and nontraditional insurers in the market are not always subject to the same level of regulatory oversight.”
Info-Tech’s research indicates that legacy systems used by numerous insurers are complex and expensive to maintain due to outdated hardware, software and development practices.
Further complicating matters is the pool of developers skilled in older programming languages is shrinking, leading to increased reliance on third-party support or outsourcing necessitating an urgent shift from antiquated legacy systems to platforms that can meet “today’s customer-centric demands and tomorrow’s data-intensive needs”.
“The pace of digital transformation is likely to accelerate in the coming years,” explains Mapara. “Legacy technologies have become the elephant in the room, and insurance firms must keep pace with new technologies to remain competitive. Implementing automation, artificial intelligence (AI), and emerging technologies such as the Internet of Things (IoT) and blockchain may require significant changes to the existing model.”
The new blueprint offered in the report emphasizes the need for forward-looking technology investments within the insurance sector. “Adapting to both market shifts and the core requirements that stem from evolving customer experiences is paramount,” the technology company added.”
When considering new technology, the firm recommends IT leaders in the insurance industry prioritize the following critical areas:
Business Processes: Insurers must drastically improve business processes and services to meet client needs. Effective processes will give firms a competitive advantage.
Speed to Market: To keep up with customer expectations, insurers constantly need new products. Digital transformation will create agile platforms to drive customer satisfaction.
Risk Mitigation: Legacy systems continue to eat at insurer budgets with high maintenance costs, raising questions about their long-term sustainability and the risk they pose to firms.
Increased Efficiency: Outdated platforms are unable to provide the agility and efficiency needed for modern insurance products and services.
Data-Centric: Data defines the future of insurance companies and their products and services. Data silos created through legacy systems jeopardize insurance companies’ growth and existence.
Modern systems within the insurance industry are not merely about improving profitability and customer experience, Info-Tech said.
“These systems pave the way for innovative growth through the application of modern technological solutions and can expedite underwriting decisions and claims handling, leading to a new era of profit-driven automation. Furthermore, they can play a pivotal role in curtailing fraud, ensuring accurate and consistent decision making backed by well-designed business processes.”