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  5. LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 3

LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 3

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2016/09/06
Eiichiro Yanagawa

WHAT DOES IT MEAN TO MODERNIZE A CORE SYSTEM?

There are Two Major Modernization Propositions for Insurers:

Let’s think about what modernization means to an insurer. Respondent answers to this Celent survey indicated that they expected modernization to yield more agile business operations and to reduce IT costs.

This prompts the question: How do they expect to make this happen? Celent advocates these two propositions.

  1. Straight-through processing (STP) for insurance office processes
  2. Realizing operational efficiency that extends beyond the system, including office and communication process operations

These propositions involve:

  • Communication between insurer stakeholders (customers, intermediaries and agents, employees and management, and other involved parties) and
  • Using common infrastructure and monitoring tools to control the capacity to automate insurance-related office processes (core processes, exceptions processing, suitability criteria, business rule management, and business process management).

FIG3-1: Two Major Modernization Propositions

FIG2-3

And we have already found out Five Approaches to Modernization:

Celent’s survey results clearly indicated Japan’s insurer system replacement strategies to be the following:

  • System replacement with a new system
  • Rewriting with new code
  • Replacement with a new platform.

For insurers undertaking modernization, Celent puts forth five approaches as examples.

Insurers can use these to gauge their risk tolerance and select an approach that best fits their needs.

FIG3-2: Five Approaches to Avoid ‘Bad Legacies’

FIG2-4

New Technology and the Need for an External Perspective

Core system modernization projects require a long-term perspective. This perspective must have one eye on the future, be driven by technology, and consider factors that will drive business model transformation.

  • An example of the successful transformation of a business model in progress is nonlife insurer use of telematics to calculate individualized rates for policyholders. Already, this technology is offering a glimpse of things to come and a disruptive business model that is emerging in auto insurance rate calculation and underwriting.
  • One example of this is post-underwriting assessments in life insurance that use the socalled “Internet of Things” (IoT). The IoT era is an era of sensors. External biomonitors, such as fitness bands and wearable computers, track everything from body temperature, pulse, and blood details to oxygen consumption and exercise volume to generate information about the user’s health level and risk for disease.

In other words, core system modernization extends beyond the replacement of internal IT assets.

  • An internal perspective that considers the future is of course important, but in addition to this, an external, more macro view of modernization is also indispensable.
  • The challenge that insurers face is to improve the caliber of their internal system while building a platform that will enable them to do more and do it better by adding competencies in the future. Ultimately, this entails preparing architecture that will enable them to take advantage of external opportunities.

FIG3-3: The importance of external perspective

FIG2-5

KRQ #2: What does legacy system modernization mean to insurers, and why do they do it?

We’ve found the following:

  1. Insurer legacy system modernization means migrating an insurer’s core system, including business operation functions, integration, support, new product development, scalability, and sourcing models, to a more modern configuration to streamline operations and create new business opportunities.
  2. Business drivers of system modernization are typically a desire to implement a growth strategy, restructure and rebuild business units, and realize new processes (high-efficiency STP) to respond to changes (more digitization) in demand.
  3. Modernization should be conducted carefully to avoid reproducing the legacy issues it is designed to eliminate. An external perspective is essential. This perspective should be focused on ensuring that the result is fueled by technology and can drive business model transformation.

Related releases:

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

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