Long Live Legacy and Ecosystem Transformation

Long Live Legacy and Ecosystem Transformation

When I started working at Celent back in November 2007, one of the research topic we were covering extensively was the legacy system modernization or replacement topic. Nowadays, legacy modernization remains a topic that has still a high importance in insurance CIOs’ agenda across the globe. Indeed based on our 2017 insurance CIO survey and out of 150 responses received across the globe, 57% of insurers are currently working on legacy modernization system projects. Another 10% are in the planning process and 11% will begin new legacy transformation projects next year.

It is therefore important for us to help our insurance customers understand what embarking in a core system replacement or modernization project means. While the benefits of modernizing core legacy systems are clear and compelling (gaining a competitive advantage — or achieving competitive parity, reducing operational and IT costs, making better underwriting and claims decisions, seizing analytic advantages when information and processes become completely digital), there are a lot of factors at play from the definition of the new system requirements, the approach to be chosen between the development of a new system and the purchase of a package or a best-of-breed component, to the selection of the optimal partners. Another crucial part of a legacy system replacement is the implementation of the new system as it can represent a major challenge notably in terms of project management, customization effort and migration. Implementations are particularly challenging when they involve multiple vendors and integrations.

To help our insurance customers figure out all the factors at play, every year we describe some cases in the frame of our Model Insurer program. This year we will be presenting the three cases we have received among more than 20 submissions in the frame of our Innovation & Insight Day event, which will take place in Boston on the 4th of April 2017. In addition to presenting the legacy modernization category award winners, we will also explain why they have decided to replace their legacy systems and what opportunities have been identified. We will also describe the implementation effort and draw out lessons learned. For those of you who will not be able to make it in person, we will publish a report profiling the three winners but I hope to meet you in big number at our event in Boston.

The Build vs. Buy Debate: An Update from the Insurance System Landscape

The Build vs. Buy Debate: An Update from the Insurance System Landscape

Celent will publish soon a research updating a report published in 2007: The Build vs. Buy Debate. This report will draw the result of a survey we launched earlier this year in order to gather a perspective from insurers regarding the build or buy question for different types of system and components, that cover the full spectrum of the insurance system landscape from the front-end to the back-end. The survey results demonstrate that insurance companies are going to prioritize the buy approach in the future and this not only for core systems but also for certain non-core systems. Actually, there are four methods that are still to be considered by insurers when replacing a system:

  • Build. There will always be insurance companies who prefer building applications internally and we think these companies will look for accelerators or frameworks from third parties. It is important to understand that the build approach is commonly used in continental Europe in all size of insurers.
  • Wrap and extend. This approach assumes some re-usable legacy code, which is wrappered and exposed to an enterprise service bus. Wrap and extend is typically used to keep back office functionality and radically update new business capabilities. Mid-size insurers in both the US and UK where there is not a large legacy estate tend to use this approach in addition to French mutuals.
  • Best-of-breed package. Nowadays many insurers want to choose components that are best-in-class. These companies prioritize functionality richness over cost of integration. This approach requires strong IT skills in integration and clear enterprise architecture. It is a common approach in North America and increasingly so amongst large insurance companies in Europe.
  • End-to-end package. The priority with the end-to-end package approach is cost of IT over functionality. This is a typical choice of small and mid-size insurers in Europe.

A combination of risk appetite and quick benefit is leading to a best-of-breed approach in the long run and insurers are part way through legacy modernization programmes that will ultimate address their system segmentation approach. For more details about this topic I invite you to read the report we are going to publish on our website and whose title is: The Build vs. Buy Debate: An Update from the Insurance System Landscape.