Competing today with yesterday’s systems is like trying to fly with an elephant on your back. Most insurers recognize that their legacy systems inhibit their speed-to-market and drain their IT budgets. Legacy must give way to technology that is geared for current realities and ready for future possibilities. However, the insurance world is replete with cautionary tales of unsuccessful legacy modernization programs. To succeed, insurers must design their program in a way that enables integrated program management, comprehensive knowledge institutionalization, and accurate data migration. Only then will they get more value from their program, and finally unlock the business agility they seek from their technology systems .
The Burden of Legacy
In the insurance industry, operating ratios continue to stay high, competition is more intense, and pressure on margins remains unrelenting. On one hand, multiple mergers and acquisitions have given rise to a plethora of processes and multiple systems serving similar purposes. On the other, the emergence of new, disruptive technologies such as cloud, mobility, and big data has opened the market to the caprices of the end customer.
According to Forrester Consulting, legacy modernization is a top priority for CIOs with 49% of firms increasing the spend on legacy modernization. Though the insurance industry was quick to adopt technology during the early waves of computerization and connectivity, it has been a laggard in adopting newer technologies. This early adoption, coupled with subsequent restrain, has saddled the industry with a plethora of legacy applications that hold decades of data and operate with hard-coded business rules.
These early investments are acting like shackles, limiting insurers in their ability to welcome the possibilities unleashed by new-age technology. Adding to their woes are stringent compliance requirements, shrinking IT budgets, the resultant need to optimize costs and improve operational efficiency. They also face increased pressure to improve underwriting ratios and need to improve time-to-market on product changes and addition of new products. However, saddled with legacy technology, insurers feel acting on these imperatives is easier said than done.
Jettisoning Legacy is Not an Option
For the insurance industry, business agility is no longer a competitive strategy; it has become a survival strategy. Whilst modernization has been an area of focus for many insurers, the economic turbulence and technology disruption of recent times have created a sense of urgency in enhancing the capabilities of business processes and the underlying systems that support these business processes. The industry has begun acknowledging that to survive in the market, they need to adopt new, emerging technology and replace their existing core systems to make way for business agility.
Having said that, the scale of operations is too humungous for even the most profitable insurance company to rip-and-replace the existing setup. Legacy modernization continues to be seen as a more viable option than legacy replacement. Modernization means different things to different people. This paper will not get into the intricacies of what constitutes legacy modernization. Instead, it will detail the common challenges that are encountered by insurance companies engaging in a legacy modernization project, and provide suggestions on how best these can be tackled effectively.
Jettisoning Legacy is Not an Option
Gartner estimated that, by 2014, the legacy modernization programs of only 50% of global insurers will generate originally expected measurable organizational value. Since a large percentage of system transformation projects fail, life insurers and property and casualty (P&C) insurers will require best practices to mitigate some of the risks of legacy modernization.
Most insurers are not in a position to opt for an end-to-end approach when it comes to modernizing their legacy IT systems. Budgetary constraints and risk aversion are the two primary concerns. The big bang approach is extremely expensive and long-drawn with a potential to seriously impact the availability and dependability of the IT Landscape.
Yet, insurers have no choice but to modernize their systems. Competitive pressure necessitates launch of newer products or newer variations of existing products and the ability to continually push these in the market. A legacy IT landscape not only hinders this ability but also brings with it huge maintenance costs, and challenges in accessing talent due to the scarce availability of IT resources with these skillsets. Customers today expect to be able to access services online. This requires insurance carriers to be able to integrate their portal solutions with their legacy systems, which can be a challenging exercise. Thus, the need to modernize legacy systems cannot be overemphasized.
Each insurer has a specific context within which this modernization has to take place and each legacy modernization program has its own unique challenges and failure points. However, there are some common safeguards that can enhance the likelihood of success of a modernization program.
One Ship, One Captain: Business Ownership and Integrated Program Management
It is absolutely critical that legacy modernization is approached as a well-thought-out, integrated program that takes into account the needs and contradictions of each kind of stakeholder. The business case, program objectives, and strategy to achieve the same should be clearly articulated in a well-documented program plan. Any project therein should be aligned to this overall program strategy and should be evaluated in terms of its ability to meet the program objectives. There is a need to have defined intermediate checkpoints wherein the business case is reviewed and program recalibrated to ensure that the program is kept current in terms of its purpose and business alignment.
Unfortunately, many insurers adopt a piecemeal approach to the legacy programs. Various business units within the organization take on modernization projects based on their immediate requirements. Contradictory projects are sometimes taken up, with one team looking at consolidating existing applications, and another possibly wanting to replace a similar system with a modern-day avatar. These two teams might be working on similar modernization programs within different parts of the company with no communication links between them.
This leads to both operational inefficiencies as well as increased exposure to failure due to contradiction. Another by-product of a piecemeal approach is ineffective interface conversions that results when the impact of each change on the overall IT landscape has not been accounted for. Finally, lack of a defined business case with measurable return on investment (Rol) leads to lack of business sponsorship of the program and/or the projects, thus causing immense delays, resistance to change, and ultimately, program failure. Legacy modernization is often seen as an IT program as against a business program.
This leads to the following set of problems:
- Business users / sponsors do not give requisite priority to the program and massive delays creep in
- Business users do not take the program seriously till the application is closer to launch and fail to give complete integrated requirements during the early stages of the projects, thus causing significant re-work
- In times of budgetary constraints, these projects, being seen as discretionary, are the first to be put on hold or are shelved
In view of shrinking IT budgets and increasing pressure on IT to help deliver on business objectives, the first important step is to look at the IT landscape within the organization in its entirety. After due diligence and analysis of the as-is and to-be state, an enterprise-wide plan needs to be strategized. Measures should be taken to put in place an integrated dashboard to provide near-real-time reports on the progress and take proactive measures when necessary.
Most insurers continue to struggle with legacy systems and IT modernization. Initiatives to reduce the cost of maintenance, overcome resource limitations and improve business performance continue with Tier 1 and Tier 2 property and casualty and life insurers.Kimberly Harris-Ferrante Gartner -- Legacy Modernization and Core System Issues Among P&C and Life Insurers
No Surprises Please: The Need for Knowledge Institutionalization
Knowledge management has always been an overlooked area in the insurance industry. In many insurance companies, the original legacy applications would have evolved over the years based on emerging requirements that were rarely accompanied with the associated documentation updates.
More often than not, there is no single knowledge repository or system map that provides an insight into the as-is state. A large chunk of the information exists only in the mind of the individuals responsible for that particular system and process. This creates a huge dependence on these resources as the knowledge will be irretrievably lost if the individual retires or moves to another organization. Many legacy modernization / replacement programs have been severely impacted due to various unknowns that crop up whilst the program is underway, which were not accounted for during the estimation and/or blueprint design stages.
Some common unknowns that transformation managers face are business-owned applications and almost-defunct systems that are used in some extreme outlier condition, often very different from what the documentation of the application states. Insurers need to identity these gaps during the discovery phase, put in place a mechanism to capture such knowledge, and map it into the new applications during the modernization exercise. Template-based frameworks and impact analysis tools can accelerate this process significantly. An in-depth analysis based on established practices is required to fully map and capture knowledge from the existing apps. All this knowledge, once captured and categorized, needs to be maintained for maintenance and future transformations.
Stopping the Data Domino Effect with a Comprehensive Data Strategy
In insurance, data equals money. However, one typical problem faced in legacy applications is the quality of data. Data duplicity, redundancy and quality are typical challenges. A well-documented data strategy is essential to ensure efficiency and quality of data conversion.
In life insurance, where data has been kept for generations at times, data conversion has much larger challenges. However, given that most life platforms have the capability to create backdated products and transactions, a data conversion approach that relies on policy lifecycle conversion (cycle up the active policies from its transaction history) instead of point-in-time data conversion can simplify the process significantly and eliminate much of the data problems encountered as part of the conversion exercise.
Typical challenges to be addressed in data conversion are:
- Estimation of required time and effort
- Inaccuracies that have crept in over the years
- Data not reproducible or traceable
- Low quality of data
In the non-life category, data conversion and migration issues revolve more around planning than the actual data itself. One of the major questions is, “What needs to be converted and what is good enough to be archived?” The major challenges that could impact legacy modernization are:
- Business-owned apps are never accounted for in totality. The business would have created hundreds of apps to manage the data. During the course of an integration exercise, the realization about the unaccounted data strikes hard. This is one of the key reasons for scope and cost escalations.
- The documentation problem encountered in knowledge institutionalization plagues data strategy as well. In the case of a system consolidation project, in the legacy stage, the data might have resided in multiple systems and now would need to be consolidated into a single new system. The lack of documentation makes this a risky and difficult task. The data must be migrated accurately in its entirety while ensuring that the conversion is traceable and manageable.
- Additionally, as insurers modernize their systems by switching to more flexible and distributed solutions, they look at new ways of doing business to make the best use of their investments. For example, an organization may be able to now introduce new elements of predictive modeling into their rating system, which they could not do earlier in the legacy system due to the challenges in adding new fields.
While this can be an exciting option from a business perspective, it introduces an additional layer of complexity when trying to convert data from the legacy system and migrate it to the new system. Sometimes, success or failure in areas like these is predominantly dependent on effective change management and acceptance of change. This should an integral part of the program.
The Coforge Thought Board:
Legacy Modernization, Handled with Care
Value at the Heart of Modernization
For insurers, a legacy modernization program is too important to fail. It holds the key to unlocking the agility that will help them introduce new products faster and serve customers better. It also lays the groundwork for a larger digital transformation that will deliver a new competitive edge. When the stakes are so high, insurers must seek all avenues to maximize their chances of program success. A technology partner with relevant experience can not only guide the program from the get-go, but also help navigate the myriad challenges that are bound to arise over the lifecycle of the program.
At Coforge, we leverage insights gleaned from many large and complex legacy modernization initiatives to help insurers succeed in similar programs. With deep understanding of business and technology platforms deployed in different insurance domains and lines of business, we draft program blueprints that are designed to deliver more value across parameters like cost, resource quality, data synchronicity, change management, user adoption, and process transformation. By providing visibility into the progress of multiple program threads at every stage, we ensure that the modernization initiative is top-of-mind for different stakeholders. Ultimately, our scale enables an accelerated path to system flexibility for insurers, helping them compete at the speed of newfound agility.
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