Core Insurance

Core Modernization Strategies for Insurers: Key Takeaways From a CIO Roundtable

Core modernization is an ongoing priority for insurance IT leaders. The technology underpinning an insurer’s business operations is vital to its ongoing success, but in many cases, these core systems are decades old and coded in a language few developers are trained in. In addition, the majority of legacy systems lack configuration and workflow capabilities, which impact speed to market, experience, and operational efficiency.

While some insurers I’ve spoken to have completed a core modernization effort, many are either just beginning or are only partway through their journey. That’s because, as any insurer CIO can tell you, modernizing these legacy systems is a complex, time-consuming effort. However, despite the complexity, there are several best practices insurers can follow to pave the way for a smoother core modernization initiative.

Navigating a Core Modernization Project

There is no single right way to handle a core modernization initiative: Each insurer has its own unique business goals, market considerations, and technology ecosystem. Despite the differences, there are steps insurer IT leaders can take to ensure the project is set up for success with limited disruption to the business.

This was a key theme at the recent Datos Insights CIO roundtable hosted in Boston, MA, where I moderated a discussion on strategies for modernizing core systems. No matter the organization’s size or lines of business supported, IT leaders are facing similar challenges when it comes to modernizing their technology infrastructure. Here are a few best practices straight from insurance CIOs that can help lead carriers through a successful core modernization effort.

1. “Pay now or pay later” – Determine the project scope from the outset.

It’s not easy to decide how to approach a core modernization project. A carrier could focus exclusively on implementing the new core system, while continuing to feed legacy systems with the goal of tackling these later.

However, working on modernizing legacy platforms in parallel to implementing the new system can tax teams’ capacity, especially since some legacy systems have decades of modifications coded into them with limited in-house knowledge of all of the customizations.

Structuring the project before beginning any work helps insurers avoid ending up with a modern core but back-end systems that are still creating technical debt. Planning the route to decommission old systems along with the core modernization effort will take a lot of organizational bandwidth, but it will ensure that the project doesn’t stretch longer than it has to, create disparate parallel systems, or fail to yield the targeted benefits.

2. Ensure business buy-in and commitment.

It can be difficult for IT-led initiatives to succeed without buy-in from the business. But adequate business sponsorship and engagement ensures the right perspectives and gains access to top business subject matter experts (SMEs) who will drive the success of the modernization project. IT leaders who allocate the required time and effort garnering buy-in show a significantly higher probability of success. Emphasizing this angle to business stakeholders will ensure alignment with the strategic goals and avoid inadvertent outcomes from misalignment.

Many insurers approach core modernization initiatives as a way to transform their business beyond a simple lift-and-shift legacy replacement. They may embark on efforts like product rationalization, process automation, rules and data-driven workflows, persona-based user experience to improve their speed to market and efficiency. These types of initiatives can help garner business buy-in and collaboration.

Gaining the support of a business sponsor early on helps ensure that other top-level SMEs are involved in these large-scale projects. SMEs from various parts of the organization will all be able to point out various use cases or business requirements that should be factored into the transformation efforts. Having a shared sense of success and commitment to the modernization initiative is one of the best ways to ensure a positive outcome.

Having a shared ownership will also alleviate some classic challenges for organizations where adoption of Agile project management practices is in its infancy. Shared ownership and Agile practices can help alleviate the fear held by some business stakeholders that if a requested feature is not part of the day one implementation, it will never happen.

3. Prepare for change management.

Oftentimes insurers engaged in core modernization have to contend with adjusting business processes after the initial rollout, while simultaneously stabilizing the new system. Change management is a key component for executing any large-scale technology project successfully.

How will the organization realign its processes with the modern core platform? In addition, after the initial deployment, all of the day two items that were not considered necessary before launch will have to be addressed.

Ironing out the process so that everyone involved is comfortable with it takes a concerted effort, but it’s an important step to be prepared for before embarking on a core modernization initiative.

4. Know how you’ll measure success.

Benefits realization is a top concern for insurance organizations, especially from the business side. It’s important to establish up front how the success of a core modernization project will be measured.

This is true not only to see what outcomes were made possible by initial rollouts, but also because the success of such initial rollouts may well pave the way for future funding — for instance, for the next products or geographies that will follow the initial rollout.

Capturing the benefits of a significant IT investment like a modern core implementation is a major component of the business case for further IT modernization efforts. Establishing success metrics prior to doing any work can help keep all parties aligned during the process and aware of which items are top priority and which will come in a later phase.

5. Find an experienced implementation partner.

The bandwidth required to successfully execute a major IT project is almost always outside the scope of an insurer’s in-house team. On top of that, a core modernization is something most insurers only undergo a few times.

Bringing in the expertise of IT professionals who work on these types of transformation projects every day can help ease the burden on your team to ensure business keeps going as it should while the modernization is underway.

Expertise alone isn’t enough, however. Given the duration of core modernization initiatives, a good cultural fit is a vital part of choosing the right implementation partner. The right team will mesh seamlessly with the carrier’s own team in addition to having the IT experience and knowledge needed to execute the project.

Taking the Next Step

As more insurers move forward with their core modernization goals, they’ll be navigating the many challenges that come with these years-long projects. And once the modernization efforts are complete, measuring the results can help lead to further investment in IT projects. Applying the best practices above can help prepare an organization for a more successful outcome.

To learn more about how core systems can help insurers achieve their business goals, watch our on-demand expert panel webinar, “How to Leverage Core Systems to Drive Business Growth.”