In this article, Andrew Harrington, Chief Information Officer at Ripe, takes a look at the challenges of using – and upgrading – legacy systems, plus the benefits of transforming operations to the Cloud.
Our industry has come to rely on technology in a way unimaginable for the paper-led, filing, photocopying businesses of years gone by. From digital tracking to data usage, tech has revolutionised insurance provision – and the swift pace of change is far from slowing down. AI and machine learning are already making insurance smarter, faster and more accessible. The question remains, however, whether companies with legacy systems will be able to take advantage of these new opportunities in future.
Legacy systems and outdated infrastructure continue to be a major hurdle. It’s therefore vital that companies replace, integrate, or phase out their old technology as quickly as possible. Many organisations may think that getting rid of these systems will be too expensive, time intensive and complex to be worth the bother. However, relying on outdated systems brings with it risks and costs that will continue to grow, and significantly impede those companies who do not act.
Monetary costs
Although new technology and upgrades may seem expensive, outdated systems will likely cost more over time. The expenses associated with upkeeping legacy systems, including maintenance, regulatory changes and security updates and patches, are incredibly financially draining for businesses. According to PWC, on average about 70% of an insurer’s annual IT budget is spent on maintaining its legacy systems. And these systems increasingly are not fit for purpose.
Continuously deferring the upgrade of older technology creates a mounting burden known as ‘technical debt’. When companies delay necessary updates, this debt accrues, leading to more complex and costly migrations in the future. As competitors embrace modern systems, those shackled by technical debt risk losing the competitive advantage and falling further behind. The longer a company waits to upgrade, the harder and more expensive the transition becomes.
Security concerns
One of the most urgent risks associated with legacy technology is the heightened threat of security breaches. In an era where data protection is paramount, older systems often lack the robust security measures required to fend off sophisticated cyber threats. Insurers are prime targets for hackers because they are entrusted with vast amounts of sensitive customer data. Relying on outdated security protocols can leave these companies and their policyholders vulnerable, at risk of costly data breaches and tarnished reputations.
Legacy systems also suffer from limited compatibility with modern technology and automated systems. For insurance firms, seamless integration of data and systems is crucial for providing efficient services and valuable analytics. Legacy systems risk creating silos of data, hindering collaboration between departments and obstructing opportunities for innovation. Combined, this can hamper a firm’s ability to respond rapidly to market changes and evolving customer demands.
Shadow IT becomes a prominent problem with legacy platforms, where operational departments struggle to fulfil their day-to-day responsibilities with older technology. Businesses are forced to revert to creating off-platform and uncontrolled solutions, which is a high-risk strategy if business critical decisions are being made from basic spreadsheets. The global economic impact of data loss linked to shadow IT is estimated at about $1.7 trillion per year, according to findings from an EMC study.
Meeting evolving regulations and compliance standards
The insurance sector must adapt to ever-evolving regulatory and compliance requirements. But legacy technology often lacks the flexibility and technical capability to adapt quickly, making it challenging to stay on top of regulatory developments. Insurance businesses therefore risk exposing themselves to severe penalties, and potentially legal action, if they fail to adhere to new compliance standards.
One of the most significant risks of clinging to legacy technology is missing out on opportunities for innovation and growth. Companies that rely on outdated systems struggle to provide the level of service and personalisation that policyholders now expect. They may miss out on features like real-time reporting, API integrations, pricing algorithms, AI-assisted applications, and advanced customer insights, integrated services, machine learning and even cloud computing in some cases. This stagnation dulls competitive edge and leads to diminished customer satisfaction.
Progress is essential
In short, insurance companies must prioritise removal of legacy technology if they want to set themselves up for success. And, crucially, they must instate systems that are able to adapt and change as new technologies and innovations begin to shape the sector. Making continual, incremental updates to an agile system will be much more effective – in terms of both costs and operations – than one large update every decade or so.
Investing in continuous innovation will also help to build a resilient and future-proofed insurance sector. New digital architecture, cutting-edge security measures, and intelligent use of data will enable firms to thrive as the technological and regulatory landscape continues to rapidly evolve. What is cutting-edge today becomes the legacy technology of tomorrow.
The businesses that invest in building greenfield technology stacks—initiating development from a completely fresh start with new code—will be rewarded with a competitive edge. Leaders of insurance companies should look for ways to upgrade, evolve and instil agile systems built for the future.
As an industry that deals with risk day in and day out, we must ensure that we take these risks seriously and mitigate them in our organisations – or end up falling behind in more ways than one.
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