Even prior to the onset of the COVID-19 pandemic last year, insurers were under pressure to modernise their legacy systems as customers started expecting more agile solutions capable of benefiting from advances in digitalisation, the cloud and even machine learning technologies. Global events over the past 17 months have accelerated the need for this as an increasingly connected customer base now demand tailored solutions reflecting the world of today.
According to research, insurers can capture three primary areas of value by transforming their business model and modernising their core IT systems. The first is increased gross written premiums and reduced churn. According to McKinsey, flexible, digitised product systems enable insurers to revamp their product innovation process, translating to faster time to market. Secondly, increased operations productivity. By overhauling legacy environments, insurers can improve processes and enable employees to become more effective at doing their jobs. And finally, reducing IT cost. Modern IT systems can reduce the cost of infrastructure reliant on a commodity hardware approach versus one more adaptive to a cloud business model.
Up to now, legacy infrastructure has proven to be relatively stable, reliable and able to handle large amounts of data. Furthermore, these systems permeate virtually every aspect of the insurer’s business. However, the limitations of a legacy approach means the time has come for insurers to reinvent themselves and embrace a more modern and agile way of meeting evolving customer demand. It is no longer a question of if change must occur. Instead, it is a priority to modernise and digitalise as quickly and effectively as possible.
But beyond addressing customer needs, insurers must also mitigate the risk of the rising number of insurtechs bringing meaningful change in the competitive landscape. With this comes the potential to enhance existing capabilities by partnering with them to leverage each other’s strengths. This does require a willingness to change and embrace collaborating with partners the insurer ordinarily would not have considered previously.
Another consideration is mergers and acquisitions. Insurers need to preserve value for investors. Adopting more sustainable and agile digital infrastructure ensures this can happen. It also equips the insurer with the ability to respond to emerging challenges especially given the continued lockdown conditions in South Africa.
The success of insurance is built on security, trust, and the ability to deliver solutions that meet customer needs especially during these critical times. As part of this, self-service becomes an important consideration especially when moving away from legacy systems. Empowering customers to manage more themselves gives them a sense of control over their policies and other products. Simply put, legacy environments do not offer that degree of flexibility.
These usability elements include enhancing the customer experience when using digital channels, making claims processes clearer, or providing additional customer service channels through more contemporary routes, like social media – all of which can be enabled by technology.
Ultimately, modern insurers require modern systems that are digitally driven. So, while legacy fulfilled a critical role in the past, the time has come to change and become more agile for the connected world today.