The challenge: old world limitations
Blog: Capgemini CTO Blog
When trying to understand what the future state of life and annuity and group/employee benefits core systems will look like, it can be instructive to examine the property and casualty (P&C) space. Over the past 20 years, P&C insurers have embarked on journeys to modernize core systems with varying degrees of success. Several technology and platform vendors in the P&C core systems space have achieved critical mass, led by Guidewire’s $7 billion market cap and Duck Creek’s consistently strong growth. While very few P&C insurers have consolidated all their products on to a modern platform (or platforms), many have made meaningful progress for their critical lines of business.
Life, annuity, and group benefits providers of all sizes are playing catch up with their P&C counterparts.
Change is long overdue, but insurers in the individual life, supplemental health, and group benefits space are grappling with myriad challenges:
- Aging/outdated platforms with complex infrastructures that are costly to maintain and secure
- Inflexibility and inability to support new business initiatives (e.g., new product launches/open integration)
- Inadequate reporting and business analytics capabilities
- Widespread inconsistency across channels in terms of customer experience (e.g., downtime or inaccurate data due to batch windows), and weak support of some necessary channels.
With L&A/group IT budgets typically remaining flat or growing only modestly – while CIOs are pushed to do more – the challenges continue to escalate. Organizations must use an ever-increasing share of their budgets just to maintain existing legacy systems rather than invest in innovation. Most insurers are ready to modernize, but – not surprisingly – only a few carriers are running on the current version of these platforms. When an insurer looks at solutions that are appropriate for their needs, there aren’t more than a handful of available modern solutions that their peers use, and fewer still that are used by a significant number of peers.
Contrary to what most insurers want to hear, there’s no completely “off-the-shelf” solution for core systems modernization. A one-size-fits-all solution would be cost-prohibitive and inflexible, or too customized to be considered truly off the shelf. When an organization selects a solution that’s not a close fit, it often ends up with another system to maintain – one that exclusively supports new lines of business or products separate from the firm’s legacy systems. It often lacks the breadth and flexibility to achieve end-to-end business model transformation that does better things and does things better. It also adds cost to the already-crushing legacy maintenance burden. In some cases, this approach may be warranted in order to allow an insurer to get new products out the door quickly, but even then, the insurer should have a plan for the disposition of at least some of the remaining platforms.
In reality, system replacement is just one of many options. While it is critically important, it is just one piece of the puzzle.
In the upcoming weeks, we will share a series of posts that explore:
- Critical systems insurers must address
- How to address system challenges, whether via replacement or other options
- The transformation process
- Best practices for modernization and transformation to achieve business goals.
This blog was co-authored with Lawrence Krasner. To continue this conversation, connect with me or Lawrence on social media.
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