It’s time to talk retirement: Unpicking the true costs of running a legacy system
As pension and life insurance markets evolve, and as new insurtech business models spring up around you, the imperative to retire your legacy systems and move to a modern policy administration infrastructure is reaching a crescendo.
But while providers like you have probably been considering this transformation for some time, progress is often slow. Digital innovation in insurance might be a prominent fixture on the boardroom agenda, but the relative comfort of your dependable, stable and already paid-for legacy policy administration systems (PAS) is a powerful source of inertia.
There are many major benefits in migrating to a modern policy administration environment. But perhaps more urgently, there are huge, hidden and mounting costs in delaying legacy retirement.
This blog explores some of the most opaque and insidious hidden risks and costs of sweating legacy policy management assets, as well as the opportunities that modernization brings.
Let’s dive in.
Slash your hidden operating costs
You might consider it just plain common sense to sweat your existing legacy PAS for maximum ROI. But it’s a false economy—the money you “save” bleeds from your organization in less visible ways. And this slow cash haemorrhage diverts money from areas you should be investing in – like your customer experience.
Firstly, the human skills required to maintain these aging platforms are dwindling, with outdated technologies and a diminishing knowledge of those solutions, the skills gap shortage and key man risk is prevalent. Moving forwards, these risks will only rise as more and more people retire.
Moreover, just as the skills are becoming scarcer for your existing platform, shadow IT is causing administrative workloads to rise. This is when people across your business implement additional systems and processes – often without oversight from IT – to overcome the shortcomings of your PAS solution.
These are cropping up everywhere and have to be integrated with your legacy systems. Typically, that means consolidating data between batch and modern digital processes, or amalgamating functionality, all of which creates extra work.
Continuing to simply pour man hours into these manual fixes and workarounds is highly inefficient, and a poor use of resources.
A modern policy administration environment will most likely support all your shadow IT requirements, or at least offer far simpler and more future-proof integration. Above all, it will free up your valuable IT people to stop just plugging holes and start thinking about your business’s strategic needs.
Reduce your exposure to operational risk
Since 2016, the EU’s Solvency II directive has required insurance companies to put up enough capital to offset their operational risks.
That means you need to have a buffer for the risk of your building burning down or – in the specific case of your PAS – support ending for your hardware or software, or your business no longer having the skills required to manage it.
Yet, besides the money, you also need a plan to survive such events. So what would you do?
Many insurance companies have tackled this by simply outsourcing their legacy platforms, but that brings its own challenges and some projects have failed badly.
A more sustainable approach is to implement a modern, cloud-based, policy administration environment. This not only offers far greater technical resilience and flexibility to adapt to a changing world, but also eliminates concerns around outdated systems shackling you to a single point in time.
Catch-up to your competitor’s revenue-boosting customer experiences
As digital innovation in insurance continues at pace, how can your business – with its legacy PAS solution – possibly hope to compete and protect its revenues?
The pension and life insurance world has evolved a lot over the last 30 years, and today’s insuretech business models are accelerating those changes. The vast majority of legacy systems simply can’t handle modern expectations.
For example, because these platforms are usually batch systems, customers aren’t able to get up-to-date information regarding their policies. It’s most likely a couple of days out of date. For pension and life insurance products that may not seem like a critical requirement. But, if your competitors are offering it, why can’t you?
Also, some legacy platforms can only handle a limited set of mutual funds, because that was all that was envisaged 20 or 30 years ago. If that’s your system, how will you launch new products to even participate in today’s market? Yes, you can compensate by building other systems around your core PAS, but – as noted above – that will just fuel your operating costs.
It’s far better to move your business to a modern, cloud-based policy administration environment, where you can easily create and tailor your products at will. That will enable you to build customer experiences that are truly competitive, so you can grow your revenues as effectively as possible.
Never miss another opportunity
Perhaps the most immediate potential cost of holding onto your legacy PAS is missing out on big or strategically important opportunities that require a more agile and flexible environment.
Modern insuretech businesses run the latest digital platforms. It’s costly and time-consuming to build interfaces to legacy platforms. So you need to have the adaptability to connect your environment to theirs without fuss. And you need to be agile enough to tailor your products and offerings to specific customer demands.
If your technology doesn’t meet the qualifying criteria in a bid process, you’ll lose out. Indeed, it’s almost impossible to take advantage of digital innovation opportunities in pensions and life insurance with a legacy system – and that will become ever truer.
Read our blog, ‘Cloud adoption’, to learn more about how to build the best possible cloud-based environment to support innovation.
Join the Prudent Revolution
Find a safe path from your legacy PAS to a modern and agile policy administration environment. Read our ebook, ‘The five principles of the Prudent Revolution’, to learn more.
