Lack of flexibility is the greatest liability for most insurers’ core system operations, according to the authors of “Tracking the Progress in Core Systems Replacement: Global Life Edition,” a new report from Celent. In an accompanying survey, 33 percent of respondents agreed, naming business agility as the key benefit they look for in a business case for change.

Coming in next was the reduction of IT costs (23 percent); followed by reducing business costs (10 percent) and increasing revenue (10 percent).

Interest in programs of change is continuing to grow, according to the results. Responses to the same survey taken four years ago indicated that one-in-four insurers were well into a program of change. In 2012, that number doubled to half of the respondents. Also, the number of insurers not considering a modernization program has dropped to zero percent.

The report provided five crucial findings in its investigation of core policy replacements in the life sector:

• Legacy remains a significant constraint

• The role of the business case in the change program is being underutilized

• Estimating costs is more art than science

• Managing the IT complexity of a change program is what keeps CIOs awake at night

• It’s time to partner with third party organizations

“Core systems are more configurable than ever before, reducing the chance of creating future legacy. The track record of core system implementation has improved, along with more proven and reliable services from implementation partners,” the report said. “The outsourcing market has matured considerably.”

In outlining the pain points, the report gives reason for taking advantage of that outsourcing market, saying “legacy modernization project is multidisciplinary, and, for its duration, will go well beyond the operational skills readily available inside the insurer.”

Indeed, Celent found one-in-four respondents are impacted by the difficulties of managing the IT complexity surrounding core system replacements programs and the related implications.

Having the right staff in the right areas is second on the list of challenges, followed closely by making the business case and managing the change on the organization.

The survey includes responses from 90 life/health/annuity insurers. More than 44 percent of respondents had more than $1 billion in annual premium; 82 percent sell individual life and annuity; 47 percent sell group life products; 25 percent sell long-term care, disability, or medical supplement. Most respondents sold a mix of these products.

Most respondents were on the IT side (51 percent) of firms or a mix of IT and business (26 percent), with about 22 percent on the business side.

Forty-eight percent of respondents had responsibility for North America, 32 percent for Europe, 25 percent for Asia, 9 percent for South America, and 13 percent for Africa and the Middle East.

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