Rethink, don’t reboot your commercial insurance systems

We’re all familiar with Uber, Zoom and Google. They make our lives easier, make accessing products and services seamless and are effortless to use.

By Martin Stewart : 31st of December 2020

But the challenge for commercial insurers is that because of the innovation these companies have created, every customer, decision-maker and stakeholder now expect the same ease of use with every service.

While some commercial insurers have been thinking about modernising their systems to meet customer demand, many have deprioritised innovation as a result of the COVID-19 pandemic. According to research by McKinsey, insurers are instead choosing to shore up their core business, pursue more immediate opportunities, conserve cash and minimise risk.

With digital challengers on the rise this is a risky approach. New competitors have the potential to not only meet your customer’s expectations but exceed them, capturing their loyalty and business in the process. And they’ll be at an advantage in keeping these customers once the shock of the pandemic has passed.

COVID-19 has also thrown a range of challenges at commercial insurance companies, from the need to carry on their own operations remotely, to managing an unprecedented number of claims. Insurers with legacy IT systems are much more exposed to fraud and working from home is much more challenging for insurers relying on paper-based manual processes.

While Commerical Insurers often have many insurance products running on extremely thin margins making it difficult to justify the cost of a brand new system the hidden costs of running legacy systems grow higher every year. In almost every case, a new and more automated system will end up costing you less in the long-run.

To not only catch up but be really competitive, it’s time to for a complete rethink of your systems and processes.

Legacy systems can hinder your progress

Insurers with modernised systems are
substantially more productive
than those operating on
legacy systems.

Insurers with modernised systems are
substantially more productive
than those operating on
legacy systems.

The challenge for most commercial insurers is that legacy systems are still pervasive and they’re holding them back from real change. According to McKinsey, insurers with modernised systems are substantially more productive than those operating on legacy systems.

This is unsurprising when you consider that some legacy systems have existed for over 30 years, long before the internet and smartphones. The developers who understand these systems intimately have either retired or don’t have experience working with new technologies. And it’s also rare to find good developers with experience in modern technology who want to work on systems that were created before they were born.

Often, it’s not just one legacy system that you’ve to contend with, but an entire ecosystem of siloed systems that have been patched together, making them a nightmare to upgrade or maintain. Significant amounts of manual data entry and lack of data validation create additional challenges in data quality and formats, compounding the inefficiency created by a mass of systems.

It can be almost impossible to find and bring together all the information you require to provide a single customer view or analyse the profitability of an agent’s portfolio. Manual processing also results in human error and a lack of data quality, meaning you lack the insight needed to make effective decisions.

Commercial insurers designed their
processes around their legacy
systems so customer experience
takes a backseat

Commercial insurers designed their
processes around their legacy
systems so customer experience
takes a backseat

But it’s not just systems which are causing issues. Many commercial insurers have designed their business processes and products around their legacy systems which means customer experience takes a backseat. This is the complete opposite of more digitally led companies that are able to design their products and processes around their customers’ wants and needs.

Additional complexity comes with the diversity of your users. Agents, service providers, reinsurers and end customers all need direct access to your systems. So, what should be done?

Three approaches to legacy insurance systems

The issues with legacy systems are well known and there are three approaches to solve them - modernise, build or buy.

Modernising a legacy system, that is adding a customer friendly layer on the top, is a low-risk approach where you own the system and can gradually enhance functionality. While putting lipstick on an existing system may portray progress, in the backend the processes are still largely manual, data stays siloed and the ability to gain insights and run the business effectively remains a challenge.

Many insurers eschew this option in favour of building their own platform. While the stakes are higher, many are convinced this is required in order to build exactly what their business needs, or to provide a solution that differentiates their business in the market. The downside comes in terms of complexity (defining an entire set of business rules and requirements from scratch), the time required and the cost of the team for the build and for ongoing maintenance.

For anyone who’s been through a large IT replacement project, it’s understandable why senior executives are reluctant to gamble their careers on another one. IT projects are rarely quick and often take much longer and cost a lot more than originally planned for. The reality is the true complexity of an IT project won’t be known until you’re knee-deep into the project and sunk costs have been incurred - making it hard to change course.

It can also be challenging to show a healthy return on the investment needed to replace back-end systems that aren’t directly linked to sales. A new platform will provide intangible benefits such as job satisfaction and a better client experience, but this may be hard to esitmate and track.

Leverage the thinking & software of
software vendors who’ve done this
many time before to give
you a huge head start.

Leverage the thinking & software of
software vendors who’ve done this
many time before to give
you a huge head start.

The third alternative is working in a partnership model with a well-established insurance software specalist. This option lets you can benefit from the knowledge of developers who’ve spent years working on solving the special challenges of the insurance business. Look for a supplier with a solution that supports rapid development and a flexible approach to the engagement so you can flex as you uncover new requirements and need to adapt rapidly to changes in government rules and in your business strategies.

Don’t bother looking for an out-of-the-box solution which you can just tweak to match your requirements. Your business IS different, and it will be different again in a few years. And technology is now changing so quickly last years solution is quickly out of date. Buying a rigid out-of-the-box solution is just going put you bad into the legacy hole again.

Replacing your system requires a plan

Replacing systems for an existing business can take time, but the risk and time can be mitigated if you plan for a progressive replacement. We’ve taken this approach with our client the Bank of New Zealand, by progressively replacing their old systems, starting with new business, then claims, developing a front end for the core legacy system, Talisman, and the final stage is tom igrate over the data.

When going down this path, you first need to determine what your business strategy is and identify the gaps and problems to be addressed. For instance, your priority may be to automate the end-to-end claims process or put in place clear pricing rules and reporting.

Once the business strategy is set, develop a roadmap to support your new business model. Where most fail is when they take a big bang approach. One of the best ways to test, learn and improve is to have a pilot project that’ll deliver enough to gain internal support and prove the approach. You can then progressively move to a new platform.

But prepare for this plan to change

While this tried-and-true process will ensure delivery of the new business model, challenges come when the desired business model changes before the project is finished. The market is continually changing so your ideal end state may alter considerably during the process.

Your project will need to follow an
agile approach. Be prepared
to regularly readjust
your plans.

Your project will need to follow an
agile approach. Be prepared
to regularly readjust
your plans.

Your project will need to follow an agile approach. Be prepared to regularly readjust the plan. This may mean doing things that you may have avoided in the past such as accepting the need for a change in direction and writing off sunk investment costs. While perhaps uncomfortable, the benefit is that by re-evaluating quickly you can minimise the investment you make in an out-of-date strategy, thus retaining more funds for your new direction.

Don’t reinvent the wheel, rethink it

When it comes to replacing your legacy systems, there are plenty of best practices that can be relied on to ensure your project is a success.

No large project will succeed unless the whole business is behind it. Many aspects of the business will need to be re-engineered and if executives merely pay lip-service to the project it’ll be undermined and destined to fail.

Transformation begins at the top

Leadership matters. The CEO must sponsor the project and be committed to its success. This requires not only talking the talk but also being prepared to dive into the detail or delegating completely to someone who is. While high-level strategy is important, IT projects thrive or die in the detail.

Reduce the complexity before you start

Before the project commences, make sure your house is in order. Don’t take known issues into the project. Simplify what you can before you begin, like removing duplicate products and streamline your business organisation. This will reduce the complexity that the new system needs to cope with, improving its efficiency from the outset.

Choose a team with experience

The team that manages the project must also have experience with similar projects. Implementing a major system change requires knowledge that only comes from having been through the process before. It may take time and money to find the right team, but the investment will be worth it.

Ensure governance remains agile

With the right team in place, your executives can confidently step aside and let them do their job. This means allowing the team to run the project as they see fit rather than slowing them down with inflexible processes, fixed project plans and complicated reporting. Of course, the team will also need to have a reasonable budget in place. Ensuring they’ve sufficient funds allocated to deliver on the plan will set them up to succeed.

Aligned with a progressive roadmap is an agile approach. Agile processes have been proven time and time again to achieve success. It enables iterative delivery, starting small and delivering business benefits quickly. At each step, you’ll be able to see the project unfold successfully rather than waiting with bated breath for 12 months to see anything.

Match your technology to the challenge

A key element is the technology. You must be using the best, current technology; easy to work with and capable of delivering your requirements. Starting with a sub-optimal solution will only set the project up to fail.

Don’t stay in the same box

You’ve now able to work with new technology and implement systems they way your business should run. Don’t fall into the trap of trying to make the new technology and processes work the same as you existing systems and processes.

Probably a lot of your current processes are semi-manual, now is the time to streamline. There will be lots of pressure to keep things the way they were. People can cope with processing every item dfferently. Systems work best when everything can be fully automated. You need to be thinking what would be the best approach if you were starting from scratch unencumbered by the existing legacy systems.

Now is also the time for look for new opportunities for growth and reinvent the business. You may find you can now enter new channels and develop new products that would have been too complex or expensive to tackle with our old technology.

With over 10,000 different bonds no
thought it was possible. Now
Propeller clients can buy
Surety Bonds in minutes

With over 10,000 different bonds no
thought it was possible. Now
Propeller clients can buy
Surety Bonds in minutes

We’ve helped Propeller, a Texas-based surety bonds provider achieve the impossible by automating the entire process of buying surety bonds online. With over 10,000 different bonds no one had previously thought this was possible and yet our adaptive Axelerator platform has enabled clients to buy bonds in a few minutes.

By rethinking your business roadmap, having a committed sponsor and putting in place an agile project plan, you can become a disruptive force, reshaping how commercial insurance is provided. You can have a truly digital system that your clients are keen to use. And, as things change and you learn more, you can make changes on the fly without having to rely on long development cycles and prohibitive costs.

With new systems based on the latest technology you will be able to deliver changes today without compromising what you can do tomorrow. This will enable you to truly engage and tap into your current market and quickly adapt to new opportunities, while delivering smooth customer journeys that build trust and drive loyalty.

Whether you’re looking for an innovative platform to support business growth, you’re over capacity and need to outsource a project, or you’re in a jam and need a rapid solution, Axe is ready to support you.