When it comes to core systems modernization, many small and medium-size insurers have found themselves between a rock and a hard place.
Most all recognize the many benefits of upgrading to more capable and functional policy, claims and billing systems, but many lack the resources – human and financial – to accomplish it as quickly as they’d like to.
And many modern core systems solution providers do them no favors by pricing and packaging their offerings for their target markets of large and multi-national insurers. These are expensive endeavors even for large insurers, which means that smaller insurers must be more creative and resourceful when it comes to core systems modernization. To that end, many have adopted a hybrid approach to modernizing their systems while still achieving transformational goals and/or adding new features.
In this approach, many smaller insurers have developed strategies that focus on keeping their incumbent systems alive while chipping away at the overall modernization boulder. It takes a balancing effort and a lot of cooperation between all of the stakeholders – business units, agents, and IT – but with the right approach it can be an effective way for smaller insurers to stay in the game.
The main idea is to combine the day-to-day support - including any manual effort required for or of business users for legacy systems - with the kinds of code re-factoring and functional upgrades that improve legacy systems and move them toward an eventual modernization upgrade or replacement. It’s not quite “systems-changing” one’s way to modernization, but it can come close. And for smaller insurers, coming close could be the difference between retaining market share and something less desirable.
There are several benefits to this approach, three to be mindful of include:
• First and foremost, management at smaller insurers can avoid the big-ticket price and resource burn often involved in trying to modernize all at once. This reduces management and organizational risk and eases the burden on employees and customers alike.
• Second, it allows the time required for all of the stakeholders to consider the most appropriate – and achievable – modernization approach. Many smaller insurers, must from necessity, take on modernization one bite at a time, and that requires a carefully planned and executed strategic and operational approach.
• Third, a hybrid approach allows time for the kinds of process and culture changes required of modernization to take root and grow, including the invaluable experience of learning from mistakes without any significant organizational risks. This should not be understated as an issue – a cultural adaption toward the change and disruption inevitably caused by modernization has caused problems even for larger insurers.
At smaller insurers, these changes often become amplified by factors like longer tenured employees, fewer employees per functional area, a comfortableness with the way things are, etc. These are not small matters for smaller, more “family-oriented” insurers.
Of course, the biggest downside of this approach is that it just plain takes longer to modernize all the core systems for smaller insurers. That, however, is the reality for many smaller insurers and that is why a hybrid approach may make sense for them.
Another key to a hybrid approach is planning strategically and executing tactically. It’s critical that smaller insurers lay out the aspirations and visions for modernization, complete with costs, resources and functionality built in while executing tactically and incrementally.
Questions such as, what are our current process and technology issues and limitations? What will our future process and technical issues and constraints look like? Can we future-proof some of these issues into our incremental modernization work? Done appropriately, this creates a strategic context for incremental improvements that always is building toward the big picture for the insurer.
One other important factor to consider when using the hybrid modernization approach is that because of its longer duration it becomes more of an exercise in expectation and change management than it does an exercise in technology disruption. This is a flip in orientation for many insurers, big or small. Most insurers spend much more time and resources on managing the technology process than they do managing the change process and its impact on all of the stakeholders involved.
It's an inconvenient truism that cultural shift is always more complicated than technological change. With the hybrid approach, the focus is on the incorporation of consistent change into the organizational ecosystem. This has the side benefit of acculturating all of the stakeholders to both the idea and the process of change. Change becomes constant for the insurer, so what was once a disruptive and even resisted event becomes part of a new and improved standard for the insurer, its agents and its policyholders.
The hybrid approach has important benefits for IT. Besides the obvious benefits of managing resources, priorities and expectations more uniformly, it provides the IT staff with the opportunity to improve its communications and overall relationship with its business customers. For instance, IT can build and engender confidence and trust from their business partners by delivering smaller bite-size technology improvements, rather than a problematic big bang delivery. IT also has an opportunity to train-up resources by introducing modern tools and coding techniques that'll be required when the eventual modernization upgrades occur. And finally, and perhaps most importantly, IT can build key relationships at all levels of the insurer – from the grassroots level needed to champion new processes and technologies, to the executive level necessary to sponsor and finance such initiatives.
While none of the above may be revelatory, it is important. Small and medium-sized insurers find themselves in a disruptive insurance ecosystem, and their agents and policyholders will demand the same customer-centric approach that the larger insurers are already moving toward.
Market share, profitability, and in some severe cases survivability are all at stake for small and medium insurers in this rapidly changing insurance environment. That's why it's imperative to have a well-conceived and executed modernization approach that emphasizes a cultural and technological change in equal parts.
The modernization strategy has to be achievable, affordable and sustainable, as one misstep for a smaller insurer can be the difference between a good year or several bad years. In other words, it has to work.
By Dominic Mersino, X by 2
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