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Beyond Technology Modernization: Will The Circle Be Unbroken?

We have all heard about the need for insurers to ‘modernize’ their core technologies in order to survive and thrive. But how long does a system stay ‘modern?’ And is modernization enough? Several experts suggest that modernization should not be a goal, but rather a process that requires other complementary investments to occur to achieve real success. How do you feel about technology modernization? If modernization is not enough, what else do you think insurers need to do?

How Long Does ‘Modern’ Last?

A recent blog post by Robert Regis Hyle for noted that while conversion from legacy policy, claims, and billing administration systems is an important development, it is not – in and of itself – a promise of a better (or different) future.  Hyle cites several sources which suggest that modernization may be a cycle that repeats itself as technology changes, as frequently as every 5-10 years.

Hyle writes, “If that sounds depressing, it should, but the technology of a decade ago is not as good as what is being utilized today. It doesn’t take a quantum leap to believe that the technology available in another 10 years will be even better.”    He admonishes those who believe that modernization is a once-and-done phenomenon: “Insurers held on to their policy systems for too long before lining up to replace their legacy policy systems. It would be nice to believe that this generation of policy systems would last a quarter century or more, but that’s not going to happen.”

So What’s The Purpose?

Certainly, the business owners don’t want to undertake large projects just to be modern.  In this day, there have to be solid business cases based on alignment with corporate objectives.  The problem is that these may not go far enough into the future nor deep enough into the changes that are really required.

Last October, we noted that some analysts and consultants are suggesting the current business cases for insurance core systems replacement may be overstating the value of reducing systems maintenance costs and improved business results while underestimating the costs of these projects.

Deb Smallwood, founder of Strategy Meets Action (SMA), recently summarized the results of an SMA study for an article in Insurance&Technology: “Early results indicate that a small percentage of insurers are making technology investments that are taking them beyond modernizing and optimizing to a level of real innovation and transformation – one that ultimately creates differentiation and competitive advantage.”

According to Smallwood, less than 40% of insurers are getting beyond systems modernization to achieve real optimization.  Moreover, the study concludes that only 15% of insurers are able to align investments to achieve a level allowing for innovation.

Smallwood notes that these investments must include a broader range of technologies that inform business processes.  She writes: “Successful innovators are unleashing creativity and infusing it with information – especially the new insights that can be gained from sophisticated analytics. These next-gen technologies (mobile, collaboration, analytics & big data, social, and cloud) not only become catalysts for the innovation process itself, they become part of the new processes and systems.

Want to Share Your Thoughts?  Want to Get More Information?

We’d like your thoughts on this.  Have the analysts got it right?  How is ‘modernization’ impacting your organization?  Are there close alignments with goals of optimization and innovation?  Please share your comments below.

Also, we are setting up several sessions at the 2013 Technology Conference along the theme of “Beyond Modern Technology”, which will involve analysts, practitioners and leading technology suppliers.

One Comment

David Kerr

There are different reasons to modernize (or just replace) technology. They can be purely IT driven or could be based on business imperatives. The business case for wholesale core systems replacement is often difficult – unless what you currently have is completely unsupportable or the business is expecting such significant change that there is not choice but to replace the existing systems.
Incremental change is generally preferred and can deliver more agility to the business, but your technology base needs to be “granular” enough to allow for improvements on a component basis. Nevertheless focus in areas that drive highest business benefit in areas that will tend to change the most (e.g. business process, channels, data analytics) may allow for that incremental change and help avoid that vicious modernization cycle.

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