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Prepare for the Future by Upgrading Legacy Systems in InsurTech

Switching to a modernized system is imperative to thrive in the new era of insurance. Here’s how to successfully navigate the transition. 

Insurance service firms have relied on traditional legacy systems for the past half a century to stay competitive. These systems allowed claims managers and underwriters to handle claims and write risks more effectively than by hand. 

Over time, legacy systems have become outdated and cumbersome, often failing to capture relevant data and holding information in silos. Moreover, they’re riddled with scalability issues, lack of integration capabilities, and are expensive to maintain.

InsurTech companies increasingly must evolve capabilities to keep pace with technological advances and future-proof their businesses. 

Modernized systems enhance data processing, provide advanced analytics capabilities, reduce cost, improve customer experience, and increase market competitiveness. Yet there are many challenges to getting these systems up and running, including technical hurdles, employee training, and ensuring data security.

This guide explores how InsurTech decision-makers can successfully navigate modernization by balancing the need for technological advancement with the risks and complexities involved in upgrading legacy systems.  Let’s dive in.

Analyzing the impediments of legacy systems

The problem with legacy technology in an InsurTech company’s infrastructure is that it restricts innovation and efficiency, and by extension, the company’s ability to compete in a fast-paced digital landscape.

For example, due to limited scalability, legacy systems often can’t adapt to changes in regulatory requirements, customer demands, and market conditions. In many cases, they must supplement them with additional technology layers to meet demands, resulting in a delicate and complex balancing act.

Integrating legacy systems with newer technologies and other systems is also costly and complex. This hampers the implementation of innovative solutions that enhance operational efficiency. For example, it may only be possible to leverage artificial intelligence (AI) and machine learning (ML) capabilities with significant modifications to the system.

Additionally, supporting and maintaining legacy systems requires specialized resources and skills that may be rare or difficult to acquire. This can turn into a need for employee training on using the legacy system (which is counterproductive as the skills they pick up are on the trailing edge of the technology curve) or paying unusually high wages to employees with the required skills.

The need for ongoing maintenance can quickly drain IT budgets, leaving limited funds for critical digital transformation and strategic initiatives. Per PwC, insurance companies spend about 70% of IT budgets maintaining legacy systems, with costs growing parallel to the fragility and age of outdated tech. 

Modernization helps you overcome these limitations and stay competitive.

Benefits of upgrading legacy systems in InsurTech

Modernized systems have many advantages, including enhanced data processing, greater flexibility, improved customer experience, reduced expenses, and advanced analytics capabilities. Here’s a closer look at some of these benefits:

  • Increased productivity: Upgrading legacy systems in InsurTech optimizes processes and workflows, boosting productivity by over 40%.
  • Improved risk management: Modern core systems feature advanced analytics and predictive scoring capabilities that InsurTech companies can integrate into existing workflows to minimize underwriting and claim adjudication risks.
  • Lower IT costs: While modernization requires a significant investment, the cost savings due to improved agility, productivity, and process efficiency more than offset it. Moreover, modernized systems are significantly cheaper and easier to maintain.

Strategies for successful legacy system upgrade

Practical strategies decision-makers at InsurTech companies can use to modernize legacy systems include the following:

Phased implementation

When it comes to legacy system upgrades, too much too quickly always fails. Due to the size and scope of a typical modernization initiative, InsurTech companies often must take a phased (iterative) approach as opposed to a monolithic rollout.

A phased implementation allows for the gradual migration of components from legacy systems to modern ones with minimal risk, downtime, and workflow disruptions. It helps you avoid costly surprises resulting from introducing massive changes simultaneously and provides more time to solve issues as they arise. Defining and measuring success is easier when fewer variables are involved.

Stakeholder engagement

Decision-makers should engage all stakeholders from the onset to ensure modernization initiatives address the entire organization’s needs.  The most effective way to earn support for modernization is by effectively communicating the benefits the initiative will bring.

Prioritizing critical system components

Given that legacy tech often can’t be modernized all at once, decision-makers need to work closely with stakeholders to get buy-in and understand how different components affect employees, operations, and customer experience.

This collaboration should help identify the most costly components to run, create the greatest risk, and impede progress. Decision makers can use that information to determine which components to modernize and in what order — and which ones can be left for later.

Navigating challenges in the upgrade process

One of the biggest challenges InsurTech companies face in the upgrade process is integrating legacy systems into modern architectures. Because legacy systems are typically designed as standalone solutions, it can be difficult to accommodate today’s highly modular, interconnected environments driven by cloud services, APIs, and microservices. 

Integration isn’t just a matter of connecting two systems either; you often must contend with disparate communication protocols, contrasting programming languages, and varying data structures. This adds more layers of complexity to an already challenging process.

Additionally, there’s a potential to migrate the legacy system’s outdated security mechanisms (e.g., less sophisticated authentication methods and weaker encryption standards) during the integration, creating vulnerabilities that could compromise the entire system.

Therefore, InsurTech companies must carefully evaluate the legacy system’s compatibility with the target platform when planning upgrades. They must also implement comprehensive testing and validation procedures for seamless integration and minimum disruptions.

Security should be factored in early in the design phase of the integration strategy to ensure no vulnerabilities slip through the cracks. The security framework should adapt to and build upon the capabilities of the legacy system to ensure data security.

Beyond technical and security challenges, InsurTech firms may also face resistance to change from employees accustomed to working with the legacy system. This happens when the system has been in place for many years or when employees lack the skills to work with a modern system. Therefore, winning employee support and adequately training them to use the new system should be part of the modernization strategy.

Embracing a future-ready InsurTech landscape

Legacy systems are ill-equipped for the demands of the new era of insurance. InsurTech companies must transition to modernized systems to meet the constantly evolving regulatory requirements, customer demands, and market conditions. 

As you embark on modernization, remember that an iterative approach involving all stakeholders and prioritizing critical components creates better outcomes. Having a reliable partner with experience in legacy system conversions to help you navigate can ensure you’re taking every right step.

Contact Susco today to help evolve your capabilities.

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