September 9, 2010 - The financial crisis gave pause to many technology investment plans, but 2010 has seen vigorous interest in core system replacement in the general insurance industry. But a perennial problem of poor back office systems remains.
As the saying goes, there are many ways to skin the legacy modernization program. These include: outsourcing, upgrading to a current version, replatforming, wrapping /extending, or the ever popular approach of rip-and-replace.
In conversations, many folk appear puzzled as to why insurers, particularly large insurers choose the rip-and-replace approach. Our view is that this appears, at least on the surface, to be conceptually an easier approach than, say, wrapping/extending. This latter approach also requires the insurer to have a skill set in architecture and design.
We’ve seen little in the way of system replacement among life insurers, and this is due to the thorny problem of data migration. CIOs quake at the idea of migrating 30 years of data — and who wouldn’t. The complexity of this task is far greater than that faced by P&C insurers, who at worst, can ignore data migration and move data across at renewal by hand. Failure for a life insurer doesn’t just mean some annoyed customers. It can bring down the wrath of the regulator.
The success or failure of these projects have seen the abrupt halt to the career of more than a few CIOs.
An alternative for the life insurer is to put an aggregation layer on top of the existing legacy while turning down the functionality of the old systems to that which they are best — core system of record. This aggregation layer affords the front office customer service functionality more suited to 2010. I expect we will see more of this approach in the future.
We wrote on this topic in 2008, and will be updating this research in the coming months. We’ll focus on where people are on their journey, and how attitudes to approaches have changed, if at all. Watch out for more on this topic. And if you have any interesting stories, please reach out to us.
(This commentary has been reprinted with permission from Celent.)
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