Very few organisations struggle with the burden of legacy technology debt to the extent that major insurance carriers do.

The world’s 10 largest insurers have an average age of more than 130 years. And during that time, they have built up a fragmented patchwork of heavily customised applications that are increasingly holding back their ability to transform the business to stay relevant and competitive in the digital era.

Customers want to be able to purchase new products in seconds and be able to gain instant access to information on existing policies. However, decades-old processes underpinned by creaking claims, policy and underwriting systems are slowing them down. Research from industry analyst firm teknowlogy Group found that 50 per cent of insurers believe their software applications will become more of a barrier to achieving business objectives, while 94 per cent state that legacy modernisation is important to achieving their digital strategy.

So how can carriers tackle the legacy challenge? The vogue for big-bang, rip-and-replace programmes — where multiple legacy systems are succeeded by a single, new on-premises platform — has fizzled out during the past 10 years. One reason is that it’s hugely challenging for insurers to find a platform that can support all the unique requirements of different product lines and territories. Another reason is that no carrier can afford to wait for 2 or 3 years to implement and integrate a new system.

One tactic has been to drive improvements in the look and feel of legacy applications by adding a digital wrapper around the business process management system. The chief information officer at Allianz Insurance recently stated that many insurers have taken this approach over the past 10 years, but now need to “bite the bullet” and undertake a more fundamental transformation of their legacy landscape.

The focus is shifting to initiatives that will help carriers more rapidly unlock the value that exists in their legacy assets. One increasingly popular option is to refactor and re-engineer existing legacy workloads onto modern cloud-based infrastructure, with the aim of creating a new environment that can enable a vastly improved user experience. By migrating critical elements from these systems to a more agile platform, carriers can gain new levels of insight through opening their data to advanced analytics tools and can accelerate the time to market to develop new products and services.

Another increasingly common path is to adopt cloud-native applications, or software as a service (SaaS). While insurers have been hesitant about replacing large-scale policy or claims platforms with consumption-based services, many have adopted SaaS as a way to support new product lines. By using component-based configuration, insurers are able to make changes to SaaS solutions much more quickly than re-coding a legacy on-premises system.

As a result, a growing number of carriers are taking a cloud-first approach to their applications road map. The teknowlogy Group forecasts that insurance carriers will increase their spending on SaaS at a rate of more than 20 per cent during the next 5 years. By 2022, SaaS will account for more than a third of all software investment in the insurance sector, up from a current level of 19 per cent. Union Insurance Company is one example of a carrier that has put SaaS front and centre in its future application strategy.

The pace of technology transformation has been slower in insurance than in other sectors, due in part to the lack of a real disruptive force. But with younger consumers increasingly turning their backs on traditional insurance products and a new competitive threat emerging in the form of new and established brands, carriers need to move quickly to ensure that they have the agility to remain relevant.

Here are some key considerations for strategy leaders at insurance carriers planning the next phase of their applications modernisation strategy:

Make a business case for change. Saying “Let’s get rid of the legacy systems” is not sufficient. What is the business’s future model going to look like? Will the systems meet the company’s future business requirements in terms of flexibility and scalability?

Look at what your peers in the market are doing in order to assess the real pace of change. Most of today’s applications transformation programmes start small and build momentum over time once a new platform or approach has been proven.

Consider SaaS as a solution for supporting the launch of a new product line or a new regional operation. Cloud-based solutions may not be suitable vehicles for replacing major policy and claims platforms, but they can offer agility for new ventures that may need to be rapidly scaled up or down.

Consider bringing in an IT services partner. Platform transformation requires skills that may not currently reside within your own IT function. When selecting an IT services partner, balance the need for cost-efficiency with ensuring that the company has sufficiently relevant domain experience in working with core insurance platforms in your region and at your scale.