The insurance sector has been embracing digital transformation for years — and seeing positive results. But there’s one factor that slows down the industry’s innovative trajectory: legacy systems.
The imperative of digital transformation
Legacy systems are defined as old, outdated technology still being used today. They are prevalent in any industry, but are particularly evident in the insurance sector often due to the industry’s complexity and compliance obligations.
Despite a push toward cloud technology, some experts say an estimated two-thirds of insurers are still using legacy systems for core business processes.
“The insurance industry has definitely lagged behind others, like banking, when it comes to digital transformation,” says Mariana Henriques, Product Marketing Director for Insurance at FintechOS in an interview with InsurTech.
“Though insurers have already taken major steps towards digitizing their business models and the way they engage with customers, there’s still much to be done. One of the main challenges for insurers has been the complexity of their business models, which adds to the complexities of deploying and using the technologies themselves.”
The continuous use of legacy comes with a cost. TechBlocks reports that maintenance costs for outdated systems increase nearly 15% each year they are in use.
Along with increasingly expensive upkeep, legacy systems can also require specialized support and licensing (especially for discontinued or unsupported software), inefficiency and increased energy expenditures versus newer energy-efficient alternatives, and potentially outsourced tech assistance.
The pitfalls of legacy systems
Staying the course with legacy solutions can seem like an easy answer. But it comes with significant risks and costs.
- Security risks. Legacy systems do not tend to receive regular security upgrades nor offer advanced features like firewalls or encryption designed to thwart modern threats. Without this protection, legacy systems can be easy targets for cyber attackers.
- Data silos. The inability to integrate legacy systems into a more modern tech ecosystem means its data must be incorporated manually—or be excluded from—advanced analytics or predictive modeling. This limits an insurer’s ability to tap into valuable insights across their entire dataset.
- Competitive disadvantages. Without full access to comprehensive data insights, an insurer is less likely to identify and capitalize on competitive advantages. This limitation increases exponentially as competitors embrace cloud solutions that integrate systems and datasets to drive innovation.
- Operational inefficiencies. Legacy systems often suffer from degraded performance due to a lack of features, capabilities, and scalability designed for modern business. This not only impacts system results but also employee and organization productivity.
- Eventual obsoletion. The reality is that, in time, a legacy system will stop functioning at a level that works for the business. The longer a business waits, and the closer the system gets to the end of its lifecycle, the more these other issues will be exacerbated.
- Considering that these issues will grow increasingly challenging the longer a legacy system is in use, cloud adoption in insurance is the most beneficial way to transition from an aging system to one that better meets today’s business demands and security and regulatory compliance standards.
Path to migration
There are three stages of digital transformation that focus on where the system lives:
| STAGE 1 On-premises ownership | In this stage, the legacy system is entirely on-premises and is completely owned and managed by the organization. |
| STAGE 2 Cloud migration | Moving the system into the cloud transitions data, applications, and workloads into a cloud-based infrastructure with the help of a trusted vendor partner who oversees the management and optimization of that system. |
| STAGE 3Leveraging as-a-service offerings | Once the system is cloud-based, insurers can leverage the benefits of the cloud, including increased security, better scalability and cost-savings, access to new technology, automated updates, and improved deployment times, to deliver new functionality and respond more nimbly to new market opportunities. |
To move successfully through each stage, the biggest factor for insurers to consider is choosing the right vendor partner. Ideally, insurers need a long-term partner they can trust to guide the business through each transformation stage. When assessing vendor options, here are some questions to ask:
VENDOR EXPERTISE
- What results have you achieved for other organizations like ours in the past few years?
- Have you worked with other companies at a similar stage in digital transformation?
- What insurance-specific integrations do you offer? Will we be able to integrate them with our system?
MIGRATION PROCESS
- What’s your approach to security, compliance, and privacy?
- What level of expertise will our organization need? Do you provide training?
- Are you able to map out how long the migration process will take?
ONGOING MAINTENANCE AND OPTIMIZATION
- How do you handle system upgrades?
- How proactive is your team in identifying and remediating issues?
- What customer support do you offer, and in what form does it come?
The role of partnerships
Finding the right partner to support migration to insurance cloud services is key for a confident transition.
Duck Creek Technologies and Microsoft have teamed up to provide a secure, resilient platform for property, casualty, and general insurance, with Duck Creek OnDemand hosted on Microsoft Azure. Should that matter to your organization? Absolutely, and here’s why:
Duck Creek evergreen software-as-a-service delivers a suite of comprehensive products that enables insurers to deliver transformative outcomes including faster speed-to-market, maximized operational efficiencies, personalized user experiences. It also features intelligence solutions that connect data and AI to help insurers make important decisions with speed and accuracy.
Microsoft Azure powers Duck Creek OnDemand with a secure, resilient and flexible cloud infrastructure and data and AI solutions that drive transformation across your business. Specifically, deploying important insurance applications and services with software as a service (SaaS) provides the flexibility and powerful tools to collect and analyze data, and streamline workflows that allow insurers to provide more customized, accurate, and efficient products and customer experiences.
Post-migration: A new digital era
Migrating to a more flexible cloud solution offers significant benefits for insurers, including:
- More accurate risk assessment: De-siloing data means an insurer’s full dataset can be harvested for more sophisticated data analysis including predictive analytics and machine learning.
- Improved customer experience: Cloud-based systems enable seamless self-service and a more tailored experience for customers.
- Real-time data analytics: Accessing data in real-time means insurers can make faster and better data-driven decisions.
- More efficient operation: The ability to automate repetitive tasks and processes, including claims processing and underwriting, facilitates quicker response times and helps reduce errors.
- Easier scalability: Cloud solutions offer more flexibility to scale resources up or down to meet customer needs and business demands.
- Better security: The updates and upgrades built into modern cloud solutions help ensure systems and data stay protected from emerging cyber threats.
- Increased cost savings: Cloud solutions help reduce IT spend by lowering maintenance costs, tech support requirements, and potential security risk mitigation.
To see the advantages of cloud migration in action, let’s take a closer look at two insurers who successfully embraced digital transformation.
GAINSCO – Shifting paradigms – a customer case study
GAINSCO’s existing policy administration and billing systems were predominantly run on mid-frame legacy applications, which were not ideal for modern programming and had a dwindling pool of developers. The company also aimed to expand operations into 44 states, requiring a scalable and flexible tech infrastructure.
The organization needed a solution with a strong suite of integration capabilities and functionality that did not require reliance on proprietary technology. GAINSCO chose Duck Creek OnDemand, Duck Creek Policy, Duck Creek Billing, and Duck Creek Distribution Management to replace its legacy technology.
The new architecture provided everyone with the same view, bridging the gap between the agency facing and internal facing systems. GAINSCO saw an increase in efficiency, speed of expansion, and agility to incorporate on-demand integrations for a customized ecosystem aligned with the company’s growth goals.
“We knew we had to do something different and that it was time for an upgrade,” said Phil West, GAINSCO CIO. “That’s how we ended up connecting with Duck Creek Technologies.”
(Read more about GAINSCO’s solution and results.)
Mutual Benefit Group – 6 months to a secure infrastructure – a customer case study
Mutual Benefit wanted to compete more effectively against larger carriers across its home, personal auto, and commercial lines. This meant improving operational efficiency, system performance, and customer experiences, and shifting more resources to new product and feature development to support agents and customers more directly.
Working with Duck Creek to implement their cloud solution on Azure, Mutual Benefit received 85 updates to their claims system over a six-month period, which were delivered continuously every two weeks. The updates were designed to better manage infrastructure and increase security.
As a result, the company improved business continuity and disaster recovery, increased usability and notification services, and streamlined payment and reserving processes.
“Moving our systems to a cloud-native, continuously updated, highly secure system is a transformative step in our journey to a model that will ensure we remain meaningful and competitive in our marketplace,” says Adam Solomon, Chief Information Officer. “Significant innovation is required to achieve this goal. Through the process, MBG is establishing and adopting a new standard for insurance operations that will give us a long-term viability in an ever-changing digital world.”
(https://www.duckcreek.com/mutual-benefit-group/ about Mutual Benefit’s transformation.)
Moving forward with cloud migration
Embracing insurance legacy system transformation can seem daunting, but finding a trusted migration partner is key to success. Future-proofing services with cloud solutions simplifies complexity, streamlines maintenance and management, adds advanced features and functionality not available in an on-premise legacy system, and paves the way to integrate emerging technology like AI set to revolutionize the insurance industry.
To learn more about how Microsoft Azure and Duck Creek can help you migrate to the cloud visit www.duckcreek.com/product/duck-creek-ondemand and www.duckcreek.com/partner/microsoft
