I can just imagine the ad on Craigslist:
“$750,000 – Legacy Policy Administration System, P&C, 30 years old. Runs great! It’s our daily driver!!!”
You’ve been good to it (sort of). It’s been good to you (sort of). The idea of replacing it makes you a little nauseous. In fact, you have at least 30 good reasons—perhaps typed up and in your top desk drawer for when vendors call—that you haven’t been replacing your legacy system or systems.
For all the talk of modernization, many organizations still haven’t taken the plunge into system replacement and organizational transformation. And, until recently, many of those organizations were standing on some very good reasons. Many Tier 2 and Tier 3 carriers have maintained their systems reliably, like the 1950s cars frequently found in Cuba. The carriers have cared for the systems and nurtured them much as you might an aging car. In many cases, carriers have added modern support systems around the aging core, hoping that a sufficient stopgap solution might buy time for a more strategic replacement. This is analogous to adding a USB charger and a new stereo to that well-maintained 1950s car. Of course, those support systems have generated their own complexity, as these systems were never meant to do the things they’re being asked to do today (24 x 7 availability, Web front ends, real-time processing, etc.).
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An insurer’s particular market niche may also have kept it from desperately needing an updated core system. Group insurers, for example, have traditionally been faced with less direct consumer contact and a different model for sales and administration. Regional commercial insurers have operated with a small base of loyal clients that perhaps didn’t demand online service. Now these organizations are facing the same decisions they confronted five to 10 years ago, but they are coming to different conclusions. “Is replacement worth the hassle when the machine isn’t technically broken?” “How can we overcome our internal apprehensions?”
As it turns out, much of what keeps insurers from modernizing is the application of well-meaning thoughts and activities that reflect less on business realities and focus more on the hurdles. I call these RATs — Replacement Avoidance Tactics. Some RATs are theoretical. Others are concrete. They share the same issues, however, and they can be equally difficult to trap and remove—or exterminate!
RATs are an apt analogy. RATs act just like their namesake. They are pesky, non-life-threatening, quickly moving varmints that an organization can’t get a handle on. They are unfortunate, misplaced justifications, sometimes tied to job security, sometimes well-intentioned and sometimes simply misinformed. There are many types of RATs, but they all contribute to the same delinquency. They make it possible for perfectly logical organizations to come to the wrong conclusions. If we take a look at several of the more aggressive species of RATs, we may get a glimpse of how easy they are to get rid of with a simple twist in philosophy.
The Cost RAT
Dollar signs tend to dazzle and frazzle perfectly good plans for modernization. At Majesco, we regularly see organizations spending a great deal of time assessing potential ROI for projects large and small. We are great advocates of understanding ROI before moving forward, and we often help insurers with these assessments. To overcome this RAT, I suggest starting replacement discussions by highlighting demonstrated needs and not touching on the idea of cost until later. An insurer won’t truly know the cost nor the potential ROI until the actual need is understood, the solution has a definitive concept and the real benefits are outlined. Without first scoping out the full transformation (or just the replacement effort), the costs and benefits cannot possibly be fully understood or calculated. In fact, in some cases there may not be an acceptable “hard dollar” ROI, but the risk of broken systems or the opportunity costs of missed possibilities in the market are the real driver.
The Timing RAT
“Poor timing,” as a replacement avoidance tactic, is really just pain avoidance. The reality is that policy admin replacement—while painful—is in most cases necessary. It will relieve much unnecessary work, and delaying it simply adds to the difficulty of replacement—kicking the can down the road while compounding current and future problems and increasing the likely replacement cost. Yet, this RAT has burrowed into the philosophy of many insurers, working hand in hand with the Cost RAT and the Risk RAT.
The Detour RAT
I have driven through states and cities where the same roads seem to always be under construction. Drivers live with perpetual detours, and they seem to simply get used to it and accept it over time. We live in an era where insurance systems and processes face a similar challenge. In short, the Detour RAT is the one that allows companies to get lost in their own complexity and believe that it is just too hard to start over. Whether you’re simply attempting to replace your core systems due to end-of-life issues or for speed-to-market advantages, or—as in some segments of the industry—rapid change is fueling a need for continuous overhaul, organizations with legacy core systems often find themselves attempting to rebuild and restructure with piecemeal components or filling in gaps with business process outsourcing (BPO) and cloud offerings that may cover just the most vital areas. I’m sure many highway architects have thought, “I wish we could just scrap this interstate and build a new one two miles away.” Fortunately, in insurance (unlike in highway construction), you can do that! But to do it, the organization has to be willing to shut down some of the reconstruction that is currently in process. I have been in the room when well-meaning managers have discussed the amount of money they will have wasted on a project, even when they realize that scrapping it is the right thing to do.
The HR RAT
Whenever it comes to the impact on people within the organization, the discussion is always touchy. This may be a stereotype, but a Tier 3 regional insurer will typically be more concerned about what happens to current full-time employees than a Tier 1 global multi-national. Policy admin replacement can have the same impact on personnel as corporate restructuring. It makes sense. As you replace the “machinery,” individual toolsets may no longer be needed while others may need to be hired. Automation may very well lead to some roles becoming obsolete. It’s best to remember that policy admin replacement is good for the whole health of the organization. Is the organization’s goal to employ the most people? That would be rare. Help your people retool, but don’t allow HR concerns to sidetrack modernization. The right employees will reinvent themselves and create far more value in the new environment.
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The Risk RAT
The Risk RAT could also be called the Complexity RAT. From the inside, system replacement looks messy. It is like rats have been chewing on the wires and hoses. The structure is still sound (let's hope), but, if the complexity can’t be dealt with, the modernization process runs the risk of faltering and losing much of what has been built. This is one of the most genuinely valid concerns and certainly one of the highest hurdles. From the inside, complexity brings with it a psychological weight. From the outside, a partner such as Majesco can help to lift the weight of complexity. Outsiders can help the organization understand how a modern, flexible system will allow for complexity to be re-created only
where needed, but more importantly to understand where that flexibility can help reduce (often perceived) complexity. For example, we often find that an insurer believes it has 3,000-plus products in its policy administration system or thousands of compensation plans in its compensation systems, but with modern, flexible, rules-based solutions those thousands can be brought down by 90% or more—simply by creating a base plan with lots of variability.
There are probably seven more RATs that we could talk about. The key to overcoming each of them is to Continually Acknowledge Them (use this CAT to kill your RATs), so they don’t sidetrack modernization. Let the CATs help inform and guide your decisions, not derail them. Continually focusing teams on the positive results will help everyone understand how your efforts are tied to overall organizational health. Everyone knows RATs don’t belong in healthy environments.
Recognize RATs for what they are and encourage people to stop feeding them so much!