Insurance Technology's Ugly Legacy

Despite a decade of digital transformation, the insurance ownership gap is widening across the industry and productivity has been flat. Here's why....

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Insurance used to be a people business, but the legacy of insurance technology tells a different story. Despite a decade-long focus on digital transformation, those projects don't seem to have had a profound impact on the insurance ownership gap, which is widening across insurance segments and projected to reach $1.86 trillion by 2025, according to PwC. Meanwhile, insurance productivity has been mostly flat, according to McKinsey.

And while everyone talks about moving away from legacy and modern legacy systems, more than half of insurers responding to the "2022 Gartner CIO and Technology Executive Survey" said they are increasing funding for legacy application modernization.

Gartner forecast that global IT spending within insurance will grow to $271 billion in 2025, while retail spending will grow to an estimated $257.1 billion, but few people would argue insurance has kept pace with the advancements we've seen in retail, despite spending more.

So, what's missing from those legacy and modern legacy systems that makes them so inherently limiting?

To create seamless experiences offered by digital ecosystems leaders such as Netflix and Amazon -- in which people receive well-informed product recommendations, personalized bundles of products from a range of partners and the well-timed delivery of buying opportunities -- insurers' software applications, partners and data sources need to be connected via application programming interfaces (APIs).

APIs: Building blocks for customer-centric insurance

An API serves as a communications intermediary between technology systems, such as your policy admin system and a policyholder's IoT-connected usage-based insurance (telematics) dongle, fitness tracker or app, for example.

Because every API handles a specific communications task, complex interactions among technology applications typically require multiple APIs or a means of adapting them to different types of users. More technologically advanced insurance systems offer "persona-based APIs," which are simply specific APIs for different types of users and the tasks they perform. A billing agent, for example, needs different access to different data than a claims agent, or even a customer looking to review their billing information. These persona-based APIs accelerate insurers' ability to create customer-self service experiences and offer customized workflows that help customers, brokers, customer service representatives (CSRs), agents, partners and others do more with greater accuracy and speed.

This makes investing in an open (non-proprietary), API-rich technology platform the first step for ambitious insurers. Whether you use it to replace your monolithic legacy systems or deploy it as an integration layer to give you the real-time flexibility, agility and upgradability you need, an API-first digital insurance platform is crucial to delivering the personalized customer experiences that people now expect.

APIs, customer experience and retention

In most industries, brand loyalty is something to aspire to. But until insurers are able to consistently provide the right products and customer experiences -- those that create faster and simpler sales and services, produce better outcomes and promote well being -- they will remain in a price-driven market, where customers are motivated to change carriers based on discounts or disappointing customer experiences.

Through brokers and agents, insurers used to be good at knowing customers and servicing them as they marry, accumulate wealth and property, plan futures, start businesses and manage their health. But insurers' reliance on outdated technologies now stand in the way of the personalized products, services and real-time communications that create customers for life.

While it's a business imperative to decrease the total cost of ownership and increase operational efficiencies, they're just not market differentiators any more. To succeed, across business segments, insurers need to improve the user experience. We need to learn from the successes of other industries and create the ability to add, remove and change partners, systems, data sources and ecosystems as the market continues to change.

Open APIs -- designed for data accessibility and supporting insurance ecosystems -- unlock insurance data and can transform traditional administrative capabilities, such as underwriting, enrollment, billing, product setup and claims processing. Data accessibility truly is foundational to value delivery, improving the agent, broker, CSR, partner and insured's user experience and delivering better outcomes.

See also: A Wake-Up Call for Insurers

Insurers shouldn't use APIs as legacy lipstick

So, can you keep your legacy system and jump into the modern era by using tools to integrate with APIs? Sure, there are many options available that can enable you to link your legacy tech to the modern world via APIs. Just remember, while this might appear to be a quick fix, underneath the covers you still have a legacy system with all of the inherent legacy problems that come with it. You are simply putting off larger issues such as security risks, unmanageable IT costs, technical debt with maintaining multiple systems, the ability to attract and retain IT talent that can manage your legacy code, issues with unsupported code and hardware, compliance and certification barriers, to name just a few.

A better approach is to look at replacing your legacy sub-systems one at a time and migrating to a technology platform that follows the MACH foundation (microservices-based, API-first, cloud-native and headless). Truly ambitious insurers understand that to have a digital ecosystem such as Netflix or Amazon requires having a microservices based, API-first, cloud native and headless solution at the foundation.

Bob Meier

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Bob Meier

Bob Meier is EIS' product solutions manager. He has more than 25 years of experience, as well as a master's and a bachelor's degree in computer science.

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