Like all financial services companies, insurers rely on technology — which changes faster than any other aspect of the business. Core information technology systems, including mainframe technology, are aging rapidly, causing significant problems. These old systems require increased maintenance, which drives up costs, while operating knowledge is at risk of being lost as the workforce with the knowledge to maintain these systems ages and retires.
Older systems cause process and decision-making friction, degrading business agility, which can easily degenerate into strategic risks. Worse, the short-term fixes adopted by insurance companies over the years to postpone modernization mask broader long-term issues, and the patchwork of old and new technology is preventing firms from innovating and becoming more agile, efficient and customer-centric, risking loss of market share.
At the same time, the potential benefits of modernization are compelling: Increased premium growth through improved distribution effectiveness, targeted marketing, cross-selling, expanded analytics, improved customer service, improved pricing, and shorter new product cycle times.
Nevertheless, making the case for modernization can be a tall order because projects of this scale are typically measured in years and hundreds of millions of dollars. Cost and time were the biggest hurdles, cited by 44 percent of financial services executives in a recent Protiviti survey.
With so much riding on a successful implementation, a clear core modernization roadmap is critical. A new Protiviti white paper, Modernizing Legacy Systems in Insurance, makes the case for implementation drawing on the experiences of those who have gone before to help those just beginning the modernization process.
Without going into every detail in this post, here are the top ten lessons learned:
- View a legacy modernization program as an opportunity to achieve world-class performance — without this vision, the expense is hard to justify.
- Ensure long-term senior executive support and buy-in as required for a strategically-important project of this magnitude.
- Begin with the end in mind: Define strategy, objectives, investment, business value, and the target operating model.
- Build a business case for change that does not underestimate the change management component.
- Establish success criteria upfront and measure success in terms of tangible business benefits.
- Establish governance that includes key constituents.
- Avoid “paving the cow paths,” or investing in new technology and then performing the work the same old way. Instead, redesign processes for efficiency, service and agility.
- Apply proven techniques from leading financial services organizations: Straight-through processing, automation, robotics, data analytics and digitization.
- Use a program management office (PMO) and manage the project with discipline, enabling collaboration with key stakeholders and providing constant communication between the teams.
- Legacy modernization projects are complex and challenging; they require the “A” team. Obtain outside assistance as required.
Take special note of lesson seven. One of the most common mistakes companies make when upgrading technology is failing to optimize the underlying business processes.
Good questions to ask when developing your roadmap include: Why are we doing this? What is the business case? When should we proceed? Where will the technology be located? Who will help us? How will we manage the project in a risk-aware manner?
Taking time to answer these questions and carefully planning upfront will help to mitigate implementation risk and ensure that your organization gets optimal return on its technology investment.
Read the full white paper here.