Ask not for whom the bell tolls; it tolls for carriers' legacy systems. At least that's the conclusion of a survey conducted by Guidewire Software Inc., a San Mateo, Calif.-based Web-based claims system provider.Three-quarters of property/casualty and workers' compensation carriers are engaged in significant claims system projects, according to Guidewire (see chart). "Mid-sized carriers are really biting the bullet-looking at what's in front of them and starting to take steps," says James Kwak, vice president of marketing at Guidewire. "So we're seeing many of them looking at replacing their claims systems."

Large carriers are also retiring their legacy systems, the survey found. But unlike, mid-sized carriers-who are replacing their older systems application by application, large carriers are taking a "hollowing out" approach-building new functionality on new technology, while continuing to run legacy applications alongside the new systems.

"A lot of large carriers are introducing projects to see how they can expand their current systems with the option to replace them in the long-term," Kwak explains.

Lower risk approach

Large carriers are taking the "hollowing out" approach because the risk is lower and they have the resources to operate multiple systems simultaneously, according to Kwak. "Large carriers are not cutting over immediately to a new system," he says. "But they have the resources and skills to take this approach, which is more complicated."

In addition, the Guidewire research found that legacy claims and underwriting systems are being replaced before policy administration systems. The reason? Financial information is usually obtained from a carrier's policy system, says Kwak.

"When insurers replace their policy system, there's more downstream integration and reporting that they have to rebuild, whereas with the front-end systems, there's still a lot of work, but less has to be taken out and replaced," he says.

Not surprisingly, 96% of the insurance companies surveyed are running their claims operations on legacy systems-defined by Guidewire as any software application running on an obsolete technology platform.

Only 4% of claims organizations are using a Web-based claims system that is consistent with their technology preferences and business needs, according to Guidewire. A full 48% of carriers surveyed are using mainframe-based claims systems, 11% are using AS/400-based systems, 33% are running client/server claims systems, and 4% are PC-based.

Of these legacy claims systems, 70% went into production in the 1980s or earlier, with the average operating age across all legacy systems being 17 years (see chart, above).

"If you're the CIO of an insurance company, you want to get to a better place technologically, but you want to manage your risk as much as you can as you do that," Kwak says.

As a result, Guidewire supports the incremental approach that 46% of mid-sized carriers and 47% of large carriers are taking-as well as the hollowing out approach that 40% of large carriers it surveyed are using. Only 4% of mid-sized carriers are "hollowing out" their legacy systems, primarily because it's too costly.

Legacy preserved

Even with the limitations of their legacy systems, 33% of mid-sized carriers and 13% of large carriers are taking a "wait and see" approach to replacing them. Instead, they are preserving their existing legacy systems for the foreseeable future, making minor enhancements such as Web-based interfaces, Guidewire found.

A few brave mid-sized carriers (17%) are taking a "big bang" approach to legacy replacement, according to the research. These companies are replacing their entire legacy infrastructure, or large portions of it, at once-usually by replacing the policy, underwriting, claims and billing systems in one major impact.

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