In an era of rapidly changing technology and unexpected global catastrophes, the greatest challenge facing the insurance industry is its ability to keep up with consumer demand while being weighed down by inadequate legacy systems.
In February, Sophia Yen, EY Americas Insurance Strategy & Innovation Leader, wrote, "insurers experienced more change in the last 10 months than they had in the previous 10 years, with important shifts across the business. Many were long overdue and set the stage for a more disruptive future."
EY had “found that the insurance industry has created only five new product classes during the last 30 years.” There was a now a need for insurers to reimagine “product development around the emerging needs of customers. To design better solutions, they must be systematic about embedding customer insight into product innovation.”
Today's insurance customer wants affordable products with a hassle-free experience and prompt digital service. However, the insurance industry is supported by decades-old technologies designed with proprietary codes which cannot readily plug into many new eco-systems or interact with external interfaces. We have all seen how frustrated product managers become attempting to respond quickly to an opportunity, a crisis, or even sudden regulatory changes on legacy systems. The costs and time required are a serious limitation to innovation.
Life Insurance and other long-term products in particular are often quite complex, requiring complicated rules and transaction management. A product may have been created on a legacy system more than 20 years ago, the time and effort needed even to adapt to changing regulations becomes a real issue. Things are even more difficult when trying to meet the expectations of digital servicing for clients whose policies sit on these systems.
As it stands, the insurance industry faces four critical operation issues moving forward with legacy systems:
A diminishing pool of IT talent for maintenance and support resulting in increased costs.
Decreasing support from system vendors, thereby threatening business continuity.
Operational errors due to a lack of digital integration and manual data entry.
The ever-increasing demands of regulatory compliance.
How to Respond
Insurers generally handle the legacy system issue in a fairly predictable way, with the choices often boiling down to variations on refactor, replace, and preserve & run off.
Refactoring is basically removing complex middle layers of the technology environment, sometimes unbundling some business process functions while leaving the central core
Preservation and run-off means to wrap legacy systems with a new layer of modern technology to introduce new functionality or interactions, while allowing the closed book of business to run itself off without adding any new business. It requires in parallel the introduction of a new greenfield system to handle new products and new business sales.
Replacing the systems altogether, whether it is done in a Big Bang or as a phased approach, is often very expensive and risky, involving complex data mapping, transformation and migration effort that can take years to complete.
A Better Way
Ignatica helps insurers meet consumers’ demands with the minimum of business disruption. Our technology and methodology are tailored to our clients' needs. New products can be created, tested and brought to market within days on our platform, which is designed to coexist side by side with current legacy. As clients look to retire their legacy systems, we offer an efficient and low risk approach to product migration that minimizes risk and improves time to value.
A lot of opportunity is being left on the table, not because the concepts are unproven, or the risks are not understood, but because the price of implementation and the cost of administration is so huge insurers are forced to leave segments untouched and products not launched.
Ignatica is confident that our suite of SaaS platform modules across product definition, policy admin, and data intelligence is extremely effective in responding to each market need and the challenges ahead.
ARTICLE WRITTEN BY: MANUEL SAN MIGUEL
Manuel San Miguel is the CEO and Co-Founder of Ignatica. Ignatica is a part of our Batch 5 Insurtech Program in Singapore. To find out more about our programs in Singapore, click here.
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