Core systems continue to receive the lion’s share of new technology budgets for insurance carriers with the biggest portion
focused on maintaining current systems, according to Jeffrey
Goldberg, vice president, research and consulting for Novarica.
That’s good news for the industry in general, concedes Goldberg, but on the flip side, the cost and time to implement a new
core system keeps going up and he sees more push-back coming
from both the vendor and insurance community.
“We need to focus on time to value, more than just value,”
he says. “It’s not enough to get a new modern system; we need
to get that system up quickly in
an agile way to get value early and
reset if we need to. That’s not the
focus of all vendors, though.”
Many vendors don’t have their
own support staff to do implemen-
tations and push carriers in the
direction of a systems integrator
(SI), which adds cost to a project,
points out Goldberg.
“When you are working with
a SI, you, in theory, are paying for
their expertise in implementing a
core system. If you are getting that
expertise you can expect to pay more, but it doesn’t necessarily
shorten the time to delivery,” he says.
Replacing core systems is different today than it will be in
the future. Insurers are replacing system that are 20-plus-years-
old. Carriers got a long life out of those systems, but Goldberg
doesn’t believe anyone today thinks the modern systems they
are now implementing are going to last 20 or 30 years.
The pace of technological change has increased and the
feeling is modern systems are not going to be the same systems
insurers will use in another 10 years.
“It doesn’t mean you are going to be working with a new
vendor, but it does mean you need to break the cycle of putting
in a new system and letting it sit there,” says Goldberg. “You
need regular upgrades and to view the vendor as a partner.”
As solution providers release new functionality and compo-
nents, carriers need to take advantage of those changes so that
in 10 years it will still be the same vendor and technically the
same system, but the system will have the modern functionality
“If you haven’t done that you are going to have to start look-
State of the Core Market
The inner debate over core systems replacement and maintaining a legacy
environment keeps insurance carriers bouncing back and forth like a ping-pong ball.
ing around for a new vendor,” says Goldberg.
Goldberg believes it is the responsibility of the vendors to
see that their clients are up-to-date with current platforms, because if upgrading their system is going to cost $2 million and
take nine months, the insurer might as well shop around for a
brand new solution.
Insurers also must consider the lifespan of any new software
they put into place as they look at implementation scheduling.
“If what you put in production involves a three-and-a-half-
year implementation, that is eating into almost half the pro-
jected life of a new system,” says Goldberg. “You are spending
almost all your time putting it in production rather than getting
value from it.”
The cost to maintain new systems often goes up, but Gold-
berg insists carriers have to put that in context. Those still oper-
ating in a legacy environment probably are no longer paying an
annual maintenance fee to the vendor; with a modern system
that will have to be part of the IT budget.
Secondly, the problem with maintaining a legacy system
is it usually means maintaing the status quo. If a carrier wants
to add a new product or change the rating model, it requires
developers up to six months to write new code and dive into the
legacy system, test the impact, and get it into production.
“There are simply some things you can’t do in a legacy environment,” says Goldberg. “Two major reasons carriers replace
their legacy systems are product flexibility and speed-to-market.”
The multi-channel approach to distribution is another reason to
replace core systems. Goldberg believes it is fine to keep a legacy
system as long as the carrier is selling legacy products to legacy
customers through a legacy process. But if insurers want to sell
new products, reach new customers, and want to do business in
new ways, that’s when they need a modern system.
Insurers that aren’t quite ready to replace their legacy
system, will do what Goldberg calls “surround and modernize.”
They will bring in new components, such as rating, underwriting, and portals. The back-end core system remains their legacy
system and they can keep that system in place until they finish
off the conversion. The modern system then takes over.
“That happens when a major driver involves modernizing
the interaction with customers and getting portals in place,” he
says. “We are talking about policyholders and agents and how
we react to the agents through their channel.” ITA