Outdated software in insurance creates problems that inhibit your growth
Your legacy insurance software has served you well over the years. But at what cost? You may feel that you’re saving money and headaches by sticking with “good enough,” but when is the last time you’ve taken a hard look at the total cost of ownership? Have you explored the ROI of modernization? Technology has evolved rapidly, and that comfortable old shoe (your legacy software) is leading to missteps that can cost you dearly.
As an insurance services executive, you are tasked with keeping your business profitable and keeping an eye out for opportunities. Outdated software in insurance limits opportunities and poses potential risks. Susceptibility come in the form of straining finances, operational challenges, dissatisfied customers and employees, and loss of competitive disadvantage.
In this article, we’ll discuss the risks and challenges of outdated software and the opportunities that come with upgrading. You’ll understand both the direct and indirect costs of legacy software, and we’ll arm you with the information you need to make an informed choice about whether to stay with the status quo or enjoy the benefits of digital transformation. It’s time to evolve thinking from a budget line item to an investment in the future.
The direct financial costs of legacy insurance software
You’re in the insurance business, not the airline business, but a great example of the damage legacy software systems can do is the Southwest Airlines meltdown of December 2022. The carrier had to delay 1,820 flights amounting to 43% of their schedule. The primary cause? “Intermittent technology issues” from a 1990s-era software system. While the airline invested in other areas, its executive team turned a blind eye to complaints from employees and customers and ignored the realities on the ground.
The direct cost? $800 million from flight cancellations and customer reimbursements. So how does this translate when it comes to outdated insurance services software?
Increased maintenance and support costs
A Deloitte survey discovered that IT departments allocate more than 55% of their budget to maintain operations and only 19% on innovation. That’s because:
- Legacy software is prone to breakdowns that require repair.
- Hardware is obsolete, and no longer manufactured, and parts are pricey if they can be found.
- Servers must be maintained, and hardware upgraded and replaced.
Integration challenges
It’s likely that your legacy insurance software is built using outdated programming languages and sits on obsolete hardware, which makes it quite challenging, and sometimes impossible, to integrate with modern software. In addition:
- Legacy systems often store data in formats incompatible with modern solutions, making the seamless exchange of data impossible.
- Over time, the system becomes more complex as it incorporates intricate interdependencies and undocumented processes. Unraveling presents a substantial challenge to integration efforts.
- As vendors discontinue support for software and hardware finding expertise in maintaining and integrating systems becomes an issue.
Scalability
Outdated software hampers business performance by acting as a barrier to scalability. A McKinsey study finds that companies that undertake system modernization realize:
- About two-and-a-half times better revenue growth
- Around two times better EBIT growth
- About twice the ROI
Security
Cybersecurity concerns are top-of-mind today, but they weren’t always. Some legacy systems have known security vulnerabilities that present technical difficulties or are prohibitively expensive to fix. There’s also the problem of a lack of vendor support for outdated technology.
The cost of a data breach keeps rising as cybercriminals become more sophisticated. The average cost of a data breach for businesses with fewer than 500 employees is $3.31 million, with an average cost of $164 per record. These include costs for remediation and system repair, regulatory and compliance fines, legal fees, and increases in your insurance premium.
The indirect financial implications of outdated software in insurance
Some costs are easier to pin down than others, but indirect costs have a huge effect on your business. Think about these:
- Inefficient operations mean wasted time and resources due to slower, more cumbersome processes and downtime.
- Frustrated employees struggling with outdated tools mean a poor work experience and high turnover, and you’ll hardly attract the best and the brightest when you have to replace them.
- Dissatisfied clients. Your clients want fast, efficient service prompt resolution of claims to minimize costs and alleviate customer frustrations. Deliver the requisite level of service to meet their expectations, or risk losing their business to competitors.
- Decreased competitiveness. You might lose current clients and more. Those RFPs will be going to your competitors who have agile, efficient, and advanced systems.
Let’s compare the ROI of legacy vs. modern systems
When you started your insurance adjusting firm, it wasn’t your intention to grow to a certain point and stall. Growth is always the objective, and updating your technology is the way forward.
Do you know the ROI of your legacy system? You may know what you paid for it eons ago, but remember that your IT team is spending most of its time maintaining and operating your outdated system. That expense has, and will continue to grow, over time.
When it comes to modernization, you can’t ignore the short-term expenses, of course, but leading a business requires understanding the long-term financial gains that will get your organization where you want to take it. Your legacy system may be holding you back from achieving your goals. When done right, successful modernization projects beat ROI goals by 50%.
Moving forward with a modern system
Do you need a modern system? Likely, but start with evaluating the state of your current system. What does it do that you like? Where are the pain points? What are your overall business goals?
Consider your company’s roadmap. Where do you want to go and how do you want to get there? Set a realistic budget that fits with your financial goals.
It’s an exciting prospect, retiring your legacy software for a new, frictionless, efficient, and competitive system. However, planning is important, so don’t get ahead of yourself. Work with your vendor to plan phased transitions that balance operational continuity with software upgrades.
Weigh all the implications
Before you take the first step, it’s critical to understand the full financial implications of your legacy system and then evaluate and plan for the new system that will give you a secure financial future:
- Efficiency
- Happy employees
- Satisfied customers
- A competitive edge
- A stellar ROI
Remember, that great ROI is only possible with a successful modernization project, which is why you should partner with Susco. We make your business more efficient, boost your workflow, close operational gaps, and help you communicate effectively internally and externally.
For more than a decade, our dedicated team of web and application developers has built custom solutions that perfectly align with business goals. Discover what we can do for you. Get in touch today so we can schedule your free one-hour assessment