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Does Insurance Modernization Matter?

Ram Sundaram
Insurance Experts' Forum, March 21, 2014

This blog entry is the first of a two-part series.

Insurance modernization doesnít matter? Most people in the industry would hotly disagree.† †


Over the last 15 years Iíve interacted in one way or another with dozens of insurance carriers of all varieties. Virtually all of them have been, or are on, the modernization journey; many of them at least a few times. ††

Analysts, vendors, consultants and motivational keynote speakers at industry events ó all of these people frequently exhort everyone to modernize: Modernize or die is their rallying cry. Growth, speed to market, product and service innovation and operational efficiencies are the promises. ††

Itís as if a modern day Pied Piper of Hamelin was playing some mystical tune thatís luring everyone in a trance-march toward modernization. Armies of people have no doubt slogged hard. Insurers have bought. Insurers have built. Insurers have executed onshore, offshore, near shore and every hybrid in between. ††

There are special workshops held to teach CIOs how to sell modernization to the CEO and the board. There are events, online forums and probably even therapy sessions to exchange experiences ó Iíll tell you about mine, if youíll tell me about yours. Hundreds of millions ó perhaps billions of dollars ó have been spent. ††

Yet, Iíd be hard-pressed to convincingly name those that have truly realized the modernization promise or its benefits in a quantifiable sense. I canít think of an insurance company that has failed or gone out of business for lack of modernization. I canít find statistics of carriers that have modernized and, as a result, ďstolenĒ sizeable market share from those that havenít. ††

Also see 3 Trends in Legacy Modernization

Consumers arenít impacted much, or if they are, their marketplace behavior doesnít seem to reflect that. How serious is the service inconvenience when you have to interact only three or four times a year at most with your carrier? True, I couldnít pull up my proof-of-insurance on my mobile recently while getting a loaner from my Acura dealer. But my agent faxed it over in a minute (apparently a few of those machines are still around) and I got on with it. ††

Unlike the consumer electronics industry that is constantly rolling out compelling new products (drones are now in), the insurance industry hasnít introduced an innovative insurance product or coverage that I can recall telling myself I had to have. And I havenít personally come across huge price differentials being offered by the modernized haves versus the have-nots. (They may exist, but I havenít seen them.) Pricing appears relatively uniform, much like the airline industry. ††

Based on the available evidence then, shall we conclude that insurance modernization doesnít really matter? Is this all just another over-hyped hype cycle that solutions providers and insurers alike feel like they shouldnít miss out on?

No.

Modernization definitely matters, although maybe not in the short-term. It may not matter for those of us who are Baby Boomers or even Gen-Xers, although this may be argued. But for insurance carriers that have been around a while and wish to be reckoned with for the coming decades and longer, it absolutely does matter. In Part II, Iíll discuss why.

Ram Sundaram is a principal of X by 2, a technology consulting firm that specializes in IT transformation projects for the insurance industry.

Readers are encouraged to respond to Ram using the ďAdd Your CommentsĒ box below. He can also be reached at†ksundaram@xby2.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

Comments (1)

Thanks for your thoughts.br /
Here are some complementary thoughts.br /
br /
Growth, speed to market, product and service innovation and operational efficiencies are obvious modernisation promises to the business. But they are also other technical imperatives to the modernisation and radical transformation of legacy systems: br /
br /

- The proliferation over past decades of jury-rigged outdated and heterogeneous parts/sub-systems of an Insurance Administration Systems (from Policy Admin to Claims including Billing and Collection) built with a narrow scope (per line of business or product family but also covering part of the value chain)br /
- The huge problems raised by the integration and the interconnections (interfacing) between all these heterogeneous sub-systems. Heterogeneous in their scope, architecture, design and implementation choices. br /
- The huge overall system footprint and lack of nimbleness (agility, lightness, gracefulness)br /
- The huge amount of data and functional redundancy and inconsistency between these sub-systemsbr /
- The lack of scalability, ease of integration, accessibility and modularitybr /
- The growing risk related to those ageing legacy sub-systems composed of elements poorly documented and written in languages in which competencies become rare. br /
Think for example about assembler routines which play key roles in calculations. Think also about modules that run well today and are key to the business today but on which people hesitate to replace because no-one knows what they are doing exactly. br /
br /
Insurers often do not dare to touch to their legacy systems because they don't know the cascading effects of touching to those components on the continuity of their business.br /
br /
Technical drivers for modernisation are usually not compelling enough for convincing business executives to invest in modernisation because of the limited business value generated in the short term but they become a matter of business continuity in the longer term.br /
br /
Rather than embarking on big-bang approaches insures need to start clever modernisation today by building new cross-line of business production chains in parallel to their legacy ones and progressively migrate their product lines to the new platform. The longer they will wait before modernising their systems the higher the level of urgency will increase and the higher the risk for business operations failures will become.br /
br /
Insurance modernisation, to be successful at the end, should therefore start from a global and long term architectural view across all lines of business and across the whole value chain. br /
br /
The challenge is to drive vendors to deliver solutions implementing such a global and long term architectural view.br /

Posted by: Jean-Pol Castus | March 24, 2014 5:37 AM

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