Future-proofing systems in the insurance industry

The mere mention of replacing core application solutions in an insurance company leaves many executives gasping for air around the boardroom table. This should not necessarily be the case.

Recent months have seen a flurry of activity with a number of insurance companies exploring ways to ensure their core operational systems will support their future requirements.

There are two main drivers for change when considering extending or replacing core system applications in an organisation. The first being the need to migrate to modern system architecture, as a result of the cost savings and integration capabilities that modern systems can bring about.

The second driver for change is the requirement from business to have a functionally fit solution that will enable them to not only fulfil their obligation as a service provider, but also capitalise on their strategic drivers.

Increasingly business is becoming an agent for change of systems, and the main reasons for this can be summarised as follows:

* Product innovation - increasing demand to bring new products to market to capitalise on opportunities, including emerging markets. In South Africa we are currently unlocking this potential, and companies need to ensure their systems can be extended to cater for alternative channels of marketing and administration.
* Compliance. The introduction of more regulation and legislation to govern the financial services industry puts an immense imperative on systems to comply. The cost associated with compliance should also not be ignored.
* Service responsiveness and productivity improvements - business' ability to re-engineer processes to drive down inefficiencies and offer more automation as an alternative to costly manual workarounds. Many legacy systems hold their users captive by not offering the option to change processes, leaving IT ruling the business rather than vice-versa. This, more often than not, is the result of the transactional nature of the current solution.
* Customer-centric. The ability to have a single view of the customer comprising information about engagements between parties, policies and claims both current and historical, proves challenging. Making this information readily available across your company will improve service levels, allowing you to take advantage of cross-selling opportunities and making it possible to predict and respond to customers' buying patterns.
* Integrated solution. Collaboration between insurance companies and their partners, suppliers and intermediaries, requires a certain degree of integration between systems. Information should be shared and the flow should be seamless and unobstructed. Sadly, legacy solutions either don't have the ability to interface with other systems or the effort involved to do this is too costly.

Deciding on a strategy of whether to rip out your current system and replace it with new technology, or to extend the use of existing technology, remains a question about your appetite for risk and the organisation's readiness for change.

Companies must consider their current position and the legacy that has been built up over time. If the key sponsor for change is indeed business, then the requirements for a replacement solution should prioritise a good functional fit with current processes and future improvements.

Despite business being the main driver for change, companies must warrant that the underlying technology of the alternative is aligned with the long-term IT strategy of the whole organisation. This would make total cost of ownership over an extended period more bearable.

Once the business and IT strategy has been decided upon, the following options need to be considered:

* Extend the current solution to satisfy the need for change; or * Replace the current solution with a more suitable alternative.

Legacy product companies are rejuvenating their solutions by offering extensions on current functionality, using service-oriented architecture (SOA) as an example. Businesses get a combination of a legacy solution, which is proven to handle the current requirements, and modern tools for product development, business process modelling and potentially also a custom-designed look and feel.

Should the underlying technology remain unchanged, companies are afforded an opportunity to further capitalise on current IT investment. Potentially they will also save costs associated with the expansion of support and training for users.

Deciding to replace your current system with a new solution brings another dimension of opportunity and risk. This is a decision that should not be taken lightly, as many companies have struggled to bridge the gap between the known and the unknown. Next-generation systems allow insurance companies to model their IT solution around the business processes.

These component-based systems allow various migration options to the new technology, because companies can plug in functionality when required. They can continue the use of existing systems where suitable, using the interfacing strengths to provide an integrated solution.

Companies will also gain the benefits of a mainstream solution with an industry-recognised upgrade path. These solutions often offer insurance-specific capability which expedites the delivery process and reduces associated risk.

Whatever decision is made, be it extend or replace, companies must consider the impact of this decision on their business in the short-, medium- and longer-term. Job insecurity, frustration with new processes, migration of data and change-management are only a few examples of what needs to be considered. This must then be weighed against the benefits and opportunities.

This window of opportunity to attract new customers to your company is small enough as it is. This should not be hampered any further by the inability of your current system to comply with the demand of both the business (internally) and the customer.