TechTalk: Insurers still grappling with legacy system challenges

According to the 2024 Industry Trends Report, published by insurance software company Earnix in November 2024, modernising legacy technology systems is the biggest challenge for insurers today – 49% of the 431 global insurance executive respondents added that they were behind schedule with their digital transformation journeys to update legacy programmes.

As for why this type of internal technology housekeeping is so important, Earnix’s report found that the use of legacy technology could impact insurers’ ability to win and retain market share, generate revenue and affect their capability to manage their business effectively.

Although the motivation to strip out legacy technology is evident, putting this into practice is easier said than done – for example, it is vital that insurers consider the pace of implementing change, while still keeping the business ticking over.

Aaron Wright, director of strategy at Earnix, told Insurance Times: “It’s like trying to switch out the engine while driving the car on the motorway – it’s not an easy thing to do.

“You talk to some companies that say ‘we’re just going to do it in parallel’, which doesn’t really solve the problem, or they’ll start in one spot but then find out that it has tentacles all over the place.

“The upheaval [of updating legacy technology] comes in being able to still operate and do the things [insurers] need to do to maintain profitability [while also undergoing digital transformation].”

Historic pain points

James Nicholson, chief claims officer at Zurich UK, noted that legacy systems played a “critical role” in Zurich’s prior claims information technology (IT) infrastructure because “despite their age and the inability to upgrade them, they are incredibly reliable and highly stable”.

The disadvantages, however, are that ”maintenance can be expensive and expertise [around these systems] rests with a small number of IT experts”. Furthermore, some legacy systems can be prone to ”security vulnerabilities”.

Legacy platforms can also hinder the absorption and better use of data.

“Any desire for more granular data that helps with future insights and risk appetite is often thwarted by legacy systems because the data is harder to access,” Nicholson continued. ”While we have found ways of stitching the data in, it is often lovingly hand crafted rather than done at the press of a button.”

These friction points led to Zurich implementing a new single platform across its claims architecture about a decade ago. This provides ”increased agility, futureproofing, enhanced performance and increased security”.

Nicholson added: “It also gives us an improved ability to mine data and connect to application programming interfaces (API).”

Another insurer that has reviewed its technology stack is Allianz UK. 

The company’s chief information officer, Ben Turner, said that although Allianz UK has been on a “digital transformation journey” in recent years, it is “almost impossible not to have legacy systems of some description”.

Turner added: “The minute a new system is delivered it becomes legacy due to the nature of technological evolution. The critical part is to manage and govern these systems properly and to remove risk when it appears.”

Prompt product changes

For Will McAllister, managing director of Europe, Middle East and Africa (Emea) at Guidewire, a “real challenge” that legacy technology facilitates is timely changes to insurance products. Updating particular products based on legacy systems can take between four or five months, on average, he noted.

McAllister continued: “Because of the way products have been built in [legacy] technology stacks, changes can’t be made easily. [Insurers] have to do coding to make large scale changes to the underlying product model and data flows to get the revised product on the market.

“A lot of the challenges in the market right now [are] because [insurers] have got older technology in their stacks, [so] making changes to products [is] very resource intensive.

“What we need to do is get the industry using modern technology to remove resourcing constraint.”

Evolving customer expectations

A key consideration when exploring any internal changes to processes or systems is what the impact could be on end customers – something that is at the fore of most business’ agendas following the introduction of Consumer Duty in July 2023.

Shirley Woolham, chief executive at Minster Law, noted that “legacy systems can slow down digitisation efforts and create inconsistent customer experiences at different points in the customer journey”.

She continued: “While replacing [legacy systems] can be costly, time consuming and can sometimes risk service disruption, doing so is critical to meeting customer expectations and complying with Consumer Duty rules.

“Insurers understand this and have made great strides to update and replace legacy systems in recent years. But more focus is needed on the impact of outdated systems across the whole supply chain.”

For example, when submitting a claim, a customer might interact with different organisations – such as a repair garage – and expect a fully digitised journey, but not every company in the supply chain will have the underlying systems to properly deliver a seamless digital journey.

Woolham added: “While certain parts of the [claims] process are rightly analogue, we also need to be open to improving digital access points where possible and this requires joined up thinking. It also needs to be front of mind for insurers during procurement processes.

“With today’s technology, data can flow more easily across organisations. This gives us an opportunity to use that data to improve customer outcomes and legacy systems.”

Nicholson, meanwhile, noted that “the user experience for millennials and gen Z also tends to be at odds with modern everyday systems”, which “often feeds into customer experience”. 

For example, he cited that many customers from these age demographics want to track claims progress in the same way they would track Amazon deliveries.

However, legacy technology should not be removed and updated just for the sake of it – any digital transformation work ”must be considered extremely carefully with clear strategic goals in mind” in order to maintain a high quality customer service, added Turner.

He continued: “The most important factors to consider always need to be how any implementation will impact employees and customers for the better – from this perspective, an existing system that works perfectly may be a better option than something new and untried.

“Transformation does not happen overnight, but rather through carefully orchestrated increments that lead to improvements, ultimately focused on customer value.”