Insurance Networking News asked John Del Santo, managing director for Accenture's Insurance Practice, to explain why some insurers are replacing core systems and others aren't.INN: Why are some insurers replacing their core systems?
JD: Insurers are looking to differentiate themselves based on products and services. They want to sustain profitability through product innovation, efficient operations and customer loyalty. The strategies they are pursuing force each company to take a hard look at operating models, which often are based on a fragmented collection of core legacy systems.
Those older core systems have accumulated over time through mergers or the introduction of platforms to support new products that existing systems did not support. Saddled with those old systems, many insurers are finding themselves at a severe competitive disadvantage. High-performing insurers can rapidly implement new and popular product features through streamlined business processes and systems.
High performers have at least two things in common. First, they use simplified operating models based on integrated technology platforms. Second, they have diversified product offerings that they can rapidly deploy and reengineer. Against that backdrop, we're seeing a need for systems replacement.
INN: Why do other insurers seem reticent to replace core systems?
JD: Insurance companies sometimes underestimate the complexity of their products and business processes. Thus, they tend to treat core systems replacements as "IT projects," rather than as business integration or transformation projects. These business-driven projects require specialized business and technology teams.
Here's an example: Replacing policy administration or claims applications requires complex data conversion and business rules designs. Insurers need the data and rules to support products in the patchwork of regulatory systems imposed by various states. What's more, the number of business rules and amounts of data are often staggering.
At the same time, many companies have had the unfortunate experience of wasting considerable time and resources to implement new systems with teams that lacked experience in insurance processing and technology integration. The resulting problems have made some companies reticent to try again.
Some simply don't know how much the new generation of technology can increase speed-to-market and efficiency. They're also unfamiliar with the adaptability and sophistication of modern business rules engines.
As the industry works to leverage service oriented architecture (SOA), which designs solutions around process and service definitions, we see business and IT drawn together to tackle the complexity. Companies that get this right are excelling.
INN: What is the biggest challenge companies face-technology or culture?
JD: Culture can kill core systems replacements. High performers have corporate cultures that thrive on the kinds of change that make core systems replacement succeed.
Enormous challenges also come from bad technical design, sloppy data conversion and architecture that doesn't scale. Core replacements typically lead to many streams of work that require integrated, programmatic management.
In our experience, these projects succeed when the company understands the culture, communication, knowledge and other human factors, and uses that understanding to plan the project and transition. So, in that sense, the cultural and technological challenges really go hand in hand.
INN: Where should companies begin the job of replacing core systems?
JD: It's critical to begin with a specific end in mind. The company could determine, for example, which applications require renovation or replacement and then create a plan to achieve that.
Getting full agreement and active sponsorship of top management also can prove critical. Develop and agree upon a comprehensive strategy and business plan-one that's driven from the highest level of the organization. Complement the plan with a business roadmap.
Intelligent partnerships with suppliers are another early step in the process. That means selecting core system solutions that blend modern technology with deep insurance expertise and are proven to scale.
SOA also allows companies to consider an incremental approach to technological change, without losing the capacity for broad transformation at a later date.
INN: Where do insurers stand to gain the most from core system replacements?
JD: In a high-volume, financially critical function like claims, clear benefits come from successful replacements. However, doing a poor job on the replacement can result in significant costs.
We see benefits in claims, where insurers are achieving fine-grained business processing, workflows are configurable, tools increase productivity and multiple sources of data integrate through an SOA approach.
We see the greatest benefits in technology that can help claims processes outgrow the four walls of the claims operation, adding value across other functions and reducing costs through alternative sourcing.
