The insurance industry is at a crossroads. Modernization isn't a choice — it's a necessity. Yet, as firms race toward the future, they face a pivotal decision: Should they build or purchase entirely new platforms or "wrap" their existing legacy systems with modern technology? The answer isn't straightforward. Both approaches have their merits, risks and complexities. What's clear is that the stakes couldn't be higher. Conversion risks are large, and advanced technologies driven by artificial intelligence are poised to tackle the legacy transformation problem.
Let's delve into the debate and help you navigate the path forward.
Legacy Systems: The Double-Edged Sword
Legacy systems are the backbone of many insurance operations. They've served reliably for decades, processing claims, underwriting policies and managing customer data. Yet they're also infamous for their rigidity, inefficiency and inability to adapt to new technologies. Many insurers hesitate to part with these systems because of the cost, time and risk involved in full-scale replacements.
But here's the reality: clinging to outdated systems is like driving a horse-drawn carriage on a highway. You might get there eventually, but you'll be outrun by modern competitors driving high-speed cars.
New Builds: Starting Fresh with a Clean Slate
Building a new platform from the ground up is the dream scenario for many. Imagine a sleek, cloud-native system, designed to leverage AI, automation and data analytics seamlessly. A new build promises:
- Flexibility: Tailor-made solutions that can adapt to changing business needs.
- Speed: Faster integration with emerging technologies and third-party solutions.
- Scalability: The ability to grow alongside your business and handle increasing data volumes.
However, the dream comes with challenges. A new build is time-intensive and costly and carries conversion risk. Data migration can be a nightmare, with the potential for loss, corruption or downtime that disrupts operations. Employee adoption can also be slow, as new workflows require training and adjustment.
Wrappers: Breathing New Life into Old Systems
For firms wary of the risks and costs of starting fresh, wrapping existing legacy systems with modern application programming interfaces (APIs) and other interfaces offers a compelling alternative. This approach allows insurers to:
- Extend the Life of Legacy Systems: By integrating modern tools, firms can enhance the capabilities of older platforms without a full overhaul.
- Reduce Costs: Wrappers are generally more affordable than building a new system from scratch.
- Accelerate Deployment: Wrappers can be implemented faster, ensuring quicker ROI and less disruption.
But this approach has its limits. Wrapping a legacy system doesn't eliminate its inherent flaws. The underlying system remains brittle, and scalability can be an issue. Over time, the patchwork of old and new may become more cumbersome to manage, potentially leading to higher long-term costs.
Conversion - The Elephant in the Room
No matter which path you choose, conversion risk is a major consideration. Migrating data, ensuring compatibility and maintaining operations during the transition are monumental tasks. This is where careful planning and strong partnerships become critical. Insurers must:
- Conduct Thorough Assessments: Evaluate the current state of your legacy systems and the specific needs of your business.
- Choose the Right Partners: Collaborate with technology providers experienced in minimizing conversion risk.
- Test and Validate: Use phased rollouts, sandbox testing and pilot programs to identify potential pitfalls before going live.
Disruption is another key factor. The technology landscape is evolving rapidly, with advancements like quantum computing and advanced AI knocking at the door. Insurers that delay modernization risk being blindsided by competitors who leverage these breakthroughs to deliver faster, smarter and more personalized services.
The Case for Bold Action
Whether you choose a new build or a wrapper, the key is to act decisively. Staying stagnant is not an option. The insurance industry is on the brink of transformation, and the firms that thrive will be those that balance innovation with practicality.
What Lies Ahead
As you weigh your modernization options, consider your long-term goals. Are you seeking to simply keep up with the competition, or do you want to lead the charge? Your decision today will shape your ability to compete in a world where customer expectations are higher, and the pace of change is faster than ever.
