Perhaps the one thing as challenging as performing a core system replacement is getting an accurate picture of both the up-front costs and expected business benefits.

A new report from Boston-based Celent, "Hidden Costs in Modern Core Insurance Systems," explores how insurers can avoid pitfalls when deploying a new core system.

Much of the trouble comes from putting a value on the less tangible improvements that come with a modern system.  

"Hard benefits and costs are easily quantified into some monetary value and are frequently the focus of the business case,” the report, authored by Celent Analyst Craig Beattie, states. “Soft benefits and costs are not easily quantified. They may describe some quality of the organization, or simply lead to unpredictable impacts on the organization. A good example is the ability to get products to market faster. It is hard to predict up front how this will benefit the organization.”

A good example of this is how a new system will shift roles and responsibilities within an organization as tasks that were long associated with IT in a legacy environment are now performed within a business unit. “A key benefit of modern core systems is that nontechnical staff can perform business configuration,” the report states. “This may mean that a business user can amend key business rules, construct a new product line, or make simple changes to the consumer portal.”

For a true benefit realization such assumptions must be included into a cost-benefit analysis, Beattie says. “Long-established governance models and support processes may seem onerous and no longer fit for purpose, but they must be replaced by something that meets the original objective: timely, effective change at reasonable cost.” 

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