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February 12, 2024

The three main roadblocks to insurance platform modernization

Steer clear of these common IPM roadblocks—legacy tech, lack of clear strategy and failure to pursue business goals.

The marketplace landscape isn’t getting any easier for today’s insurers, who face evolving consumer demands, regulatory compliance issues and rapid technological developments. As a result, business transformation has become crucial to remain competitive and efficient.

For that reason, insurance platform modernization (IPM) has become a very hot topic of late.

IPM refers to the transformation and upgrading of insurers’ legacy systems and business processes to better serve their customers, adapt to market changes and harness new technological advancements.

When done right, IPM can be a true game-changer—driving business agility, innovation, simplification and risk reduction. But the fact is, doing IPM right is not easy. There’s no silver bullet. More than a few carriers have tried and failed.

Why do IPM projects go wrong? In my experience, it’s for one of three reasons, and I present them below. You may want to use the following as a guide of the roadblocks you may encounter, and should seek to avoid, when you begin your own IPM initiative.

Roadblock #1: Legacy hardware and custom software

In the average insurance company data center, there’s a significant amount of disparate legacy hardware and software applications, and not a lot of cloud-native technology. In fact, much of that old technology can date back several decades.

How exactly does that happen? Chalk it up to “application sprawl,” the term given to the patchwork solutions that result when large, legacy monolithic applications are band-aided and appended again and again over the years, instead of replaced with a 21st century-worthy solution. The default mantra becomes "Let’s modify and build a couple more, then a couple more, then a couple more,” and data is eventually siloed in different applications, which requires significant integration down the line.

Another problem: custom software. Insurance is a complex, highly regulated industry, with multiple state-specific rules and regulations and requirements. To manage all those variables, insurers have highly customized their software to differentiate their products, making that software very difficult to modernize or replace.

Now compound both of the above challenges with the technology knowledge gap that all companies are facing today. There are not enough IT experts who understand these custom applications—which makes modernization that much more elusive a goal.

Roadblock #2: Inadequate strategy and roadmap

Another reason for misguided IPM initiatives is the absence of a real strategy. Many companies lack both a roadmap that drives business transformation and an operating model that is oriented around multi-cloud and on-premises applications.

Perhaps a specific scenario calls for an incremental deployment. Or perhaps a move everything to-the-cloud approach is appropriate, such as in cases of a divestiture, acquisition or data center exit strategy. But without an overarching strategy in place up front to drive the initiative, how can any modernization effort be expected to succeed?

Then, similarly to roadblock #1, talent is an issue as well—or more specifically, attracting that talent. In today’s labor market, it’s difficult to recruit and hire strong cloud engineers. That’s especially difficult for insurance companies, who must convince talented IT professionals to come and stay in an industry that is notorious for both dated technology and structural corporate and regulatory restrictions.

This paucity of talent is a challenge whatever the size or scale of one’s modernization effort. Even if, for example, you are looking to migrate only a fraction of your workload to the cloud, the effort often requires as full of an IT staff as a more expansive initiative requires.

Roadblock #3: Leading with technology instead of business

This is by far the most common of business transformation errors. Many modernization efforts are driven not by business strategy, but by technology teams, with limited or no engagement from the business side. When business leaders and teams are not involved in a modernization initiative, it becomes merely a technology project, shuffling data and applications from on-premises to the cloud.

Yet many insurers make that mistake, attempting a “geography move” or “lift and shift.” They summarily move all on-premises applications to the cloud, without a strategy, and measure success by counting the number of applications they need to or have migrated. (We moved 1,500 applications to the cloud!)

When technology, not business, leads the IPM charge, chronic issues such as siloed data and problematic data quality are often left unaddressed. That is, of course, a recipe for failure. When the effort is simply moving on-premises data to the cloud, on-premises problems aren’t solved; they simply become cloud-based problems. That leads directly to cost issues, both in the short and long run.

A successful business transformation, and the insurance platform modernization that fosters it, must begin with identifying strategic business goals. Then technology should be mapped to those goals and your organization’s ability to deliver against them.

Which areas of business value should you focus on (and fund)? Marketing? Distribution? Customer experience? Whatever your strategic imperative, that’s where your discussion should begin. It’s also how your budget should be allocated—again, business-goals-led. Rather than establishing an annual IT budget based on technology initiatives, then deciding which business strategies can be addressed by it, turn that formula around. Establish business strategies up front, then create the tech budget that meets those needs. After all, the reason you should want to transform to the cloud is to achieve the business goals to drive your company forward.

If you can successfully tackle the above three potential roadblocks to an effective IPM initiative—legacy technology, insufficient strategy and technology tunnel vision—you’ll have a leg up in your business transformation efforts. Good luck!

To learn more on how to modernize your insurance platform to advance your business, visit the Insurance Platform Modernization section of our website or contact us.

Susan Rickard

VP, CTO and Innovation Leader, BFS & Insurance

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Susan is the Chief Technology Officer for BFSI at Cognizant. She joined Cognizant in July 2022 after 32 years in IT leadership roles at The Hartford Financial Services Group Inc. Susan holds three US patents on, managing financial assets, a system to monitor water-related data, and to prevent hearing loss.

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