For decades, legacy systems have served the insurance industry as the underpinning for managing policies, claims, billing, and all other vital business processes. But these old systems are a huge pain point for insurers in today’s digital world: They’re inflexible, they’re insecure, and they’re expensive to run. Customers’ expectations and market dynamics are changing at a pace that causes insurers to modernize their technology infrastructure to stay competitive.
This article will provide an overview of common legacy system issues in insurance and how replacing legacy systems with flexible, cloud-based software-as-a-service (SaaS) insurance solutions can position insurers for the future. Specific modernization benefits covered include:
- Improving customer and agent experiences
- Enabling product and business model innovation
- Boosting operational efficiency
- Reducing security and compliance risks
- Controlling costs
Challenges Posed by Legacy Insurance Systems
The majority of insurers rely on legacy systems that are 10 to 30 years old on average. These antiquated systems present major roadblocks:
- Inflexibility: Legacy systems contain hard-coded business logic that makes it extremely difficult to change products, workflows, and processes quickly. This limits insurers’ ability to meet shifting customer expectations and market demands.
- Security risks: Older systems were designed before cybersecurity became critical, and they often have vulnerabilities that provide more entry points for attacks. The insurance sector sees an average of over 33,561 cyberattacks per year, yet legacy systems make it challenging to implement modern defenses.
- High costs: Maintaining aging infrastructure is resource-intensive, from keeping obsolete programming languages running to manually patching security flaws. Legacy systems require significant capital costs to customize and upgrade over time. Due to inefficiency, they also have high operating expenses.
These challenges will intensify as customer behaviors, emerging technologies, regulations, and competitors’ moves accelerate industry change. An IAIS survey found that 90% of insurers believe technology barriers are restricting their business growth. Modern solutions are essential to overcome legacy IT challenges holding insurers back.
Key Benefits of Modern Insurance Technology
Replacing legacy systems can transform insurers’ capabilities across key functions:
Enriched Customer Experiences
Customers are now expecting protection options that are specific to their unique risks, seamless omnichannel communication and quick digital claims processing. Today’s modern insurance IT systems embed the customer-centricity that is required to deliver personalized pricing, responsive self-service access across devices, and frictionless claims resolution.
Cloud platform insurer Lemonade has leveraged AI and behavioral economics to allow customers to purchase customized renters and homeowners insurance via mobile app in as little as 90 seconds. The startup has achieved above 70 NPS scores by eliminating paperwork hassles for online claims filing.
Agile Product Development
Adjusting risk models and product sets based on real-time market changes is critical to grow profitably. Insurtech platforms built on flexible microservices architectures allow for rapid testing and refinement of new coverage options.
Metromile’s pay-per-mile auto insurer leverages real-time telematics and an advanced CRM system to tailor premiums and engagement for more profitable conversion and retention. Their technology stack upgrades every two weeks on average vs. once annually for legacy suites.
Optimized Operations
Automating manual processes and integrating data silos will cut administrative costs and lower error rates essentially by half. Claims automation and straight-through processing in policy admin systems with the help of AI provides efficiency gains of up to 30%.
A fast-growing SMB insurance company, Next Insurance, has cut loss ratios by 10 percent by using machine learning to spot suspicious claims patterns that require further investigation. This has reduced fraudulent payouts. Their automated coverage recommendations have also raised sales conversion by 50%.
Reduced Risk
This centralizes data storage under strict access control and can do so much faster so that nobody gets off with a data breach that could have been avoided or a regulatory penalty. Loss ratios are further reduced using predictive analytics.
By scanning clients’ networks daily for vulnerabilities and using behavioral modeling to price risk exposure appropriately, cyber insurer Corvus has an industry-leading loss ratio of under 30%. Their security data lake identifies company risk levels earlier than competitors, minimizing payouts.
Lower Costs
Insurtech software solutions avoid extensive custom coding requirements, and their cloud-native architecture provides continuous update delivery. This reduces change request tickets by 90%, dramatically lowering support costs compared to legacy suites.
Lemonade’s tech stack has allowed them to acquire customers for an average CAC of $21 versus the incumbent’s average of $243. They also resolve claims in as little as 3 seconds with AI vs. 30 days typically for manual reviews, saving over $1 million annually.
Overcoming Modernization Barriers
Insurers often struggle to get momentum behind transformation initiatives, even knowing legacy systems are an albatross. Common modernization barriers include:
- Resource constraints: Initiatives stall due to limited capital and skill gaps in areas like cloud orchestration.
- Data risks: Migrating decades of legacy data to new systems raises quality and accuracy concerns.
- Compliance uncertainty: Vetting innovative solutions’ security and regulatory alignment creates delays.
- Process disruption: Business processes built around legacy system constraints require redesign.
- Change resistance: Leadership or employees wedded to existing tools impede the adoption of new solutions.
However, insurers can pursue focused strategies to overcome these barriers systematically:
- Set a Clear Technology Vision. Do a team-building exercise to build consensus on what problems to solve, key capability gaps to fill and what success looks like. Align goals to corporate objectives.
- Take an Iterative Approach. Instead of trying to rip and replace all at once with a massive, high-risk project, modernize with an agile approach. Identify the highest-value changes first.
- Choose Solutions Carefully. Assess insurtech tools thoroughly in terms of architecture, security, support, and ease of integration. Ensure vendor continued stability and alignment of needs on the roadmap.
- Clean Data Early. The first step in getting the most out of new systems is to invest in data migration, integration and quality checks.
- Pilot Innovations. First, modern solutions should be tested on targeted segments to prove value and then scale wins all over the organization.
- Encourage Adoption. Get buy-in for transformation, promote employee skill building and communicate wins often.
Insurers who take deliberate, focused steps to build capabilities while managing change can overcome modernization barriers.
Cloud-Native Insurance Platforms: 5 Key Features
Specialized insurtech solutions built ground-up for the cloud provide the versatility and resilience needed for the future. Advanced core suites share these traits:
- API-First Architecture – Microservices and open APIs allow integration of third-party data sources and applications to extend functionality.
- Continuous Delivery – New capabilities are added seamlessly without downtime through weekly upgrades to avoid version lock.
- Optimized User Experience – Responsive portal design and personalized workflow rules cater to agent and customer needs.
- Embedded Analytics – Real-time dashboards and reporting provide insights to guide decisions at the point of impact.
- Extended Ecosystem – Marketplace access to complementary insurtech app partners enables faster embedding of innovations.
Below, we explore top platforms enabling insurers to replace legacy systems with cloud-native technology rapidly.
Insurance Platforms Comparison
Here, we compare the capabilities of leading next-generation solutions rearchitected specifically for insurance:
Planck | Socotra | Bold Penguin | |
Core Functions | Policy, Claims & Billing Engine | Policy & Claims Management | Quoting & Rating Engine |
Key Users | Agents, Carriers | Carriers, Programs | MGAs, Carriers |
Key Strength | Rapid Implementation | Product Configuration | Risk Assessment |
Key Partners | Guidewire, Duck Creek | AWS, Deloitte | Salesforce |
Customer Examples | Metromile, Buckle | PCF Insurance Services | Hippo Insurance |
Ideal For Insurers Seeking | Launch New Digital Experiences | Flexible Product Innovation | Improve Underwriting Quality |
While each platform takes a different focus area, they all allow insurers to overcome critical legacy system constraints through cloud-native architecture – a necessity for competing as the industry transforms.
Planck – Launch New Digital Offerings Faster
Planck provides an end-to-end policy, billing, and claims SaaS suite to equip insurers with the digital distribution of personalized products. Their lightweight cloud infrastructure integrates easily with existing legacy systems during the transition to the cloud. It typically takes 4-8 weeks for the insurers to implement rapidly so they can launch modern digital engagement channels to attract and retain customers who expect seamless digital experiences. Quickly configured usage-based insurance options can be used to address new segments who are interested in pay-as-you-go models.
Socotra – Configure Any Product in Weeks
Socotra’s product management and underwriting tools, rated #1 by Gartner, enable insurers to rapidly develop even highly complex products without coding via user-friendly UI configuration. Streamlined workflows and no-code tools to modify rules and data models reduce time-to-market for new offerings by 90%. File-and-use product approval is also 3x faster. These capabilities make Socotra ideal for managing general agencies (MGAs) and program administrators.
Bold Penguin – Optimize Risk Selection
AI enables tools from Bold Penguin to deliver rapid quoting, rating, and binding across channels through the assessment of unique risk attributes beyond standard factors to precise pricing and underwriting. Using machine learning algorithms that incorporate thousands of internal and external data sources, we provide a 360-degree view of exposure, eliminating the risk of adverse selection. With predictive models, we accurately predict policies that are likely to incur losses for prudent risk selection and reserved allocation.
Making the Move to Modern Technology
By moving from rigid legacy suites to agile, cloud-native platforms, insurers are able to prepare for the next decade of industry change. Those putting modernization initiatives in motion today will gain a sustained competitive advantage.
Technology capabilities that are aligned with customer expectations and market dynamics enable the launching of new digital products, underwriting optimization, simplification of claims, and leveraging ecosystem partnerships for innovation. Insurtech solutions built specifically for the cloud provide the versatility needed.
Prioritizing the highest-impact challenges first, tapping modern suites’ faster speed of change, and managing adoption through strong change management allows insurers to decommission legacy systems systematically. Now is the time to pursue platform modernization initiatives so insurance businesses can remain responsive, resilient and profitable in a changing risk landscape.