Insurance Technology Featured Article

The Gains Are Worth the Headaches When Refreshing Legacy IT Systems

December 27, 2012

Replacing legacy IT systems is essential for business agility, and most businesses know it. But the cost and hassle of implementing infrastructure upgrades keeps many firms tottering on without the IT necessary to meet their business goals, according to a new study by research firm, Celent.

Roughly 58 percent of respondents cited business agility as the main benefit of core systems replacement, according to the study, which surveyed 141 insurers, more than a third of which have more than $1 billion in annual premium.

The benefits of increased underwriting efficiency through workflow, rapid product design and improved customer service are clear, according to Celent, but it says that many firms fail to act on this knowledge because it is a big job and the quantifiable monetary benefits are hard to accurately forecast.

“Why does Celent dedicate so much time to researching these engines? It is the misalignment of the abilities and the business aspirations that attracts our attention,” the report noted.

“Should the business need to drive on the autobahn at 200 mph, the engine should be ready to go that fast,” the report noted. “This flexibility is what is missing from most great engines in the insurer. As such, restrictions are placed on what the business is able to execute. Current engines may allow the insurer to speed up, but not too fast, and certainly not to execute any emergency braking.”

The biggest challenges of legacy systems, according to respondents, were inflexibility of applications, inflexibility of data models and difficulty of integrating with other systems.

But replacing legacy systems are not easy, and the report found that companies that undertake legacy upgrades struggle the most with having the right staff in the right areas to take on the challenge, deciding on the best approach for the legacy modernization program, and managing the impact on the organization.

IT departments need to improve the accuracy of their requirements definition, system configuration, data conversion and system integrator costs, noted the report, and the needs, costs and goals of system replacement must be more clearly communicated to senior management. Yet, many IT departments fail to treat this business case for upgrade as a living document, which hinders acceptance and adoption.

Managing the complexity of an IT change also hinders adoption, according to the report. The IT landscape has grown and so have many interfaces, interdependencies on systems and the technology stack, and using an outsourcing partner is often viewed as adding complexity. Yet, insurers are ready to leverage the strategic skills and expertise of third parties, noted the report.

Some suggestions that insurers might want to take to heart when upgrading legacy systems include making sure that legacy modernization is undertaken with backing by senior management, as any upgrade will have a significant impact on several areas of the business; breaking upgrades into manageable projects that last no longer than six to nine months, and having associated benefits with each project; and avoiding the creation of new systems that will quickly turn into the legacy systems of the future by leveraging a service-oriented architecture that allows for business logic to be developed once and used whenever required, with incremental replacement over time.

Celent also noted that outdated business rules and processes are often embedded in legacy systems, and partnering with a handful of system integrators with deep expertise and knowledge is an important factor for minimizing risk during an upgrade. 

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Edited by Peter Bernstein

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