What is core modernization in insurance?
Core modernization in insurance is the process of modernizing and integrating core systems that operate on different legacy systems, stringent codes, and outdated technologies that slow the operation and innovation of products and services within the insurance industry. Insurance companies that use obsolete systems rely on rigid applications that create technical debt, stagnating efforts to pursue digital innovations. Companies needing core modernization operate on technology infrastructure that is too slow to keep up with business demands and cannot support new digital services. These legacy systems do not support data integration. They are usually built for specific applications in the insurance process, creating inefficiencies in how quickly insurance companies can process the customer's data. Insurers that operate with this infrastructure cannot improve their digital services or the customer experience.
Customers expect digital services that provide quick access to policy plans and on-demand claims processing. Core services like – billing, pricing, underwriting, finance, quotes, and underwriting – need to be modernized to innovate day-to-day operations and generate new sources of revenue. Core modernization allows insurers to update existing applications, creating flexible digitized products that enhance system performance, improve processes, and increase productivity. Modernized software leads to better digital tools that enhance competitiveness by providing customers with a buying experience that is quick and seamless.
In response to rapidly changing consumer demands, insurance companies are implementing core modernization to automate the application process, quote generation, rate selection, and risk assessment. A modernized core's benefits are business productivity, cost reductions, quicker application processing, virtual damage assessments, and in-app claims reporting. Restructured core systems for agility can help businesses keep up with market demands, such as integrating new payment models. By automating insurance services and interactions, insurers will have more ability to create new products that increase their share of market demand.
A successful approach focuses on where modernization efforts are most critical to implement digital-first strategies.
The right core modernization strategy can help insurance businesses to:
- Use AI and machine learning to capture data that can help in the claims process
- Limit adverse selection
- Process claims settlements with decreased risk
- Reduce the cost of processing new clients
- Build new platforms that provide better business value
- Increase customer satisfaction by delivering virtual assessments
- Create new products with digital tools that market to customer expectations
- Enhance IT operational performance and productivity
Best practices for core modernization in insurance
Core modernization requires an in-depth analysis of the current IT infrastructure. Any legacy technologies that cannot be utilized to innovate existing processes should be assessed on how to minimize or remove them from overall operations. Insurers need to consider implementing modernization efforts step-by-step, as there is no standard adoption of re-platforming or remediating measures that work across all mainframe legacy systems.
To minimize disruption to daily operations, companies must consider what areas they need to update to solve unique business challenges.
There are three different areas to evaluate when developing modernization strategies:
- Infrastructure: The modernization journey usually starts by examining what type of infrastructure is used to house operations. This usually consists of Kubernetes-based containers, hybrid cloud infrastructure, and an application programming interface (API) centric approach.
- Applications: Core applications can be modernized to operate on container and cloud infrastructure. The application architecture can remain unchanged if adding new layers or shifting the system into a container, giving it more flexibility to operate anywhere the container platform works. If a more profound system overhaul is deemed necessary, applications can be replaced to create an entirely new application architecture.
- Approaches: Different approaches can be leveraged to create applications that work together, enhancing agility across the entire system architecture. Choosing a winning strategy depends on the business needs and desired benefits from modernization initiatives. This can entail enablement solutions that use subject matter experts to detail timeframes for technology changes or create a functional roadmap highlighting all system architecture changes. With the efforts of the IT team, companies can decide how much of their system they want to change by enhancing delivery capabilities, ensuring the process is balanced with existing applications. Once system requirements and governance structures are communicated throughout the organization to minimize risk, core modernization efforts can be introduced to redesign the transactional layer to improve analytics or replace applications with PaaS solution packages.
Once system competencies, IT capabilities, and business goals have been analyzed, insurers can choose from three different approaches:
- Lift and Shift: This strategy moves only a portion of the legacy system to the cloud with minimal changes and disruption to the application's architecture. Applications receive an upgraded operating system that allows dependencies to be placed in containers, making operations run quicker, smoother, and more agile.
- Augment and Layering: System applications that need code and configuration changes that require a deeper level of work will benefit from layering new applications. This approach does not change the current architecture; it only adds a new interface layer that makes applications accessible to one another with the help of APIs. Applications are scaled to move the system to the cloud.
- Rewrite: Legacy systems that do not benefit from incremental modernization require a complete rewrite. Applications and software that are too outdated to optimize business practices must be rebuilt and updated for a personalized architecture. This enables easier maintenance of new applications and a scalable tech stack that improves productivity and innovation. New applications easily support overall business processes, leading to reliable digital assets that enhance company operations.
Benefits of core modernization for insurers:
- Cost Efficiency: Modern IT systems reduce the cost of operations due to automation and better accuracy of claims information, providing better quote generation and coverage.
- Product Innovation: Applications become more agile, speeding up time to market for claims processing and policy changes. Application connectivity optimizes user interfaces, helping ease the decision process.
- Enhanced Productivity: Business operations are improved with automated processes and containerized microservices. These lead to better workflows. Digitized tools increase the availability of resources, leading to faster rate selection and more accurate risk pricing.
In an insurance market shaped by consumer demands, core modernization is imperative to drive data-based solutions.