How Do Insurers Really Change Their Core Systems?

For nearly a decade, insurers have assumed that digital transformation required massive core systems replacement projects. But new ways of thinking have emerged among insurers that want to deliver digital customer experiences and transform their processes and culture without all the drama.

In a recent webinar, we spoke with a globally recognized thought leader in technology, innovation, and leadership. Michael Davies, founder of Endeavour Partners, is a senior lecturer at the Massachusetts Institute of Technology as well as at the London Business School, and a thoughtful participant in the financial technology space.

As the discussion turned to how vendors “make” insurers change their core systems, the energy level picked up markedly. Industry vets were quick to dispel several common misperceptions around systems upgrades, replacements, and strategies for success.

The discussion below has been edited for length and clarity.

Moderator: How do you make big carriers change their core systems? We still see people deciding to go with “newer” core systems that aren’t “future-ready.” If someone’s already made that decision―and they’re heading down the wrong path―how do you make that business argument? 

Samantha Chow, LAH Marketing Lead at EIS: First and foremost: you don’t change the core for everything. You need to focus on what’s important. And what’s important is going forward. You need to figure out what to do with all those old platforms and business that have been there forever, whether you sell off that business or—if it’s worth something to you―you keep it. Those are decisions you have to make. Migrating all of your business to a new core system is costly, and typically not the right business decision. Focus on moving forward and not backward.

Key performance indicators are great for taking some of the risk off of you, that’s first and foremost in making the business case for replacing or adding new core systems. The second thing is, you need to be looking for solutions that aren’t 20-years old and wearing API layers that make them look modern but with a lot of legacy underneath.

Michael Davies: The only way to make significant innovation happen is not to do a “root and branch” translation of the core. Build fresh and stay away from monolithic systems.

I shake my head in sadness. I’ve become a very aggressive proponent of not spending money on incrementally improving the core. We’re seeing a technology shift that has completely different performance characteristics in terms of the customer experience, the cost to operate, the ability to integrate with other services, and you ain’t going to get that by tweaking the core. You’re going to get it by being ambitious.

Joel Yarde, Technology Marketing Lead, EIS: I agree completely. Don’t put lipstick on the pig. I’d go one step further. If you’re going to try to do a transformation: don’t. Instead, carve out a targeted project or business case and do that in a completely separate system―a new system that gives you the value you need. See if that works, then think about a transformation.

Michael Davies: Can I add something? When those people say: “Well, I can’t support everything I’m doing with my current product portfolio.” Your answer is: “It’s probably the product portfolio that’s wrong. You should probably go off and radically simplify it.” Those marginal products are probably not the ones that people want. In my experience in the telco space, I’ve seen one client go from having 1,500 price plans to five. Now, it’s nice to build a fresh system to support five. It’s really hard to build them to support 1500 legacy plans. How many products do you really need to have?

Moderator: I totally agree. Otherwise, you’re clogging your budget with stuff that’s not going to deliver the business requirement of the future. All the executives have heard it. They’ve read all the Accenture and PwC reports about why they need to change. We’re sitting at a critical moment in the industry where we actually do need to change. But, what’s the implication if you don’t?

Samantha Chow: If you don’t do it now, you’re going to get left behind. And that’s failure. It shouldn’t be an option. The industry needs you, plain and simple. Insurance is important to everybody. We need you to make it right.

Michael Davies: All these technologies are creating a wave of innovation and empowering entrepreneurship. So, if not you, someone else is going to do it. And here’s the second one: COVID-19 changed the world’s perception about how to get shit done. You expose people who had never used modern digital technology to using it on a daily basis to talk to their families, get stuff delivered, interact with their broker. The adoption and awareness of digital technologies is a giant trigger for change. And we’ve already seen a huge gap between the laggards―and they’re failing―and the leaders, who are equipped to do a great job of delivering service. We have fundamentally changed the perceptions of every single person in the developed world, and much of the developing world, about how to run your life.

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