For insurance companies, information technology complexity is seemingly a handmaiden of business growth. As insurance companies add lines of business or geographical regions through acquisition or grow organically, they can often acquire a warren of overlapping and redundant systems.
A new report from
“Insurers desiring to expand their activities in a new geography are always faced with the choice to implement a new system or to deploy an existing system already running in one of their entities,” the report, authored by Craig Beattie and Nicolas Michellod, states. “On one hand, insurers identify which decisions imply specific considerations around core system vendors or IT services vendor selection. On the other hand, a majority of insurers forget to analyze the competition landscape prior to making a decision between these two generic alternatives and the primary value of IT, which consists in enabling insurers to gain competitive advantage.”
Indeed, the need to rationalize underwriting and policy administration systems is not purely a matter of aesthetics. “Insurers want to simplify and standardize their IT system to save maintenance and development costs,” the report states. “Large multinational insurance firms have been living with complexity that has prevented them from finding synergies across regions and consequently replicate the same types of effort and costs at the group level.”
The authors say that many insurers decide to take advantage of the legacy modernization projects as a time to rationalize system complexity but should realize that the two processes are not the same thing. “Companies tend to structure projects by horizontal function in order to meet certain risk appetites,” they write. “With this structure, insurers are generally seeking quick benefits from their modernization projects. This project structure helps insurers realize benefits ahead of IT change but can delay the analysis and requirements for more drastic changes.”
Beattie and Michellod note that in Europe, some large insurers with activities in different countries have adopted the shared components and services approach to rationalize their IT systems and resources.
