{"id":86507,"date":"2025-02-05T09:41:59","date_gmt":"2025-02-05T07:41:59","guid":{"rendered":"https:\/\/intellias.com\/?post_type=blog&p=86507"},"modified":"2025-11-13T15:02:42","modified_gmt":"2025-11-13T13:02:42","slug":"insurance-legacy-system-transformation","status":"publish","type":"blog","link":"https:\/\/intellias.com\/insurance-legacy-system-transformation\/","title":{"rendered":"Insurance Legacy System Transformation: Challenges & Trends"},"content":{"rendered":"

Legacy technology in the insurance industry<\/a> is a 1982 Toyota Corolla on a highway full of Teslas. Like the aroma of exhaust fumes, an outdated legacy system might feel familiar in the era of digital insurance<\/a>. But legacy data and platforms will never be as capable, efficient, or secure as their modern counterparts. As the performance gap between them widens, insurance legacy system transformation becomes increasingly necessary.<\/p>\n

Many modern solutions are improving aging insurance systems, including cloud computing<\/a>, robotic process automation<\/a>, and artificial intelligence (AI)<\/a>. Insurance providers are using them for tasks including policy management, underwriting, and customer relations. They are also spending a lot of money on these modernization efforts. By 2027, Gartner<\/a> predicts the insurance industry will spend US$15.9 billion on new software improvements. That is an five-year CAGR of 18.2%. Much of the money will go toward modernizing legacy insurance operations.<\/p>\n

Companies are willing to spend money because the payoff of an insurance legacy system transformation can be significant. In fact, insurers can expect a 40% productivity increase after an insurance legacy system transformation. Why? Core insurance system (CIS) modernizations use technology that processes claims more accurately and reduces churn. These modern solutions also decrease processing costs and lower policy premiums. Moreover, they offer secure endpoints with many personal devices connected to the Internet of Things (IoT)<\/a>.<\/p>\n

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Legacy insurance systems<\/h2>\n

Yet, most insurance companies are not driving in the fast lane, instead relying on aging core systems for essential daily operations. Today\u2019s legacy systems were once considered essential for streamlining workflows, preventing fraud, and delivering customer notifications. Today, these systems still process high volumes of data. But they do not meet modern business needs.<\/p>\n

For example, legacy systems in the insurance industry cannot personalize policies. They also cannot automate claims, and they do not offer robust security. These restrictions affect customer relations and reduce competitiveness. Nevertheless, many insurance providers find value in their legacy systems. According to a Novarica survey of 10 large insurance providers<\/a>, only 10% have modernized more than half of their systems.<\/p>\n

A core insurance system includes four legacy technologies covering policy administration, customer relationship management, business intelligence, and underwriting.<\/p>\n

A policy administration system (PAS) is a legacy claims processing system. It is important for claims and billing, but it operates in a silo. That makes it harder for modern applications to access data. A customer relationship management (CRM) system organizes customer data. However, CRMs often lack modern features such as analytics, which insurers can use to gain customer insights and provide personalized service. CRMs also tend to fragment data and lack modern communication tools.<\/p>\n

To analyze large amounts of data, insurers use business intelligence (BI) systems. However, BI systems cannot analyze real-time data that could be used for risk assessment or fraud detection. Finally, underwriting systems ensure that insurance agents use accurate pricing and adhere to underwriting rules. Still, the rules must be applied and updated manually.<\/p>\n

Drivers for technology investment<\/h2>\n

With aging legacy systems and advancements in technology, the insurance industry<\/a> has a renewed interest in modernizing legacy applications and data. The main driver of this interest in the insurance sector is an increasingly competitive operating environment. Closely related is the effect of disparate systems on customer retention. Customers who cannot find the solutions they want will go elsewhere for insurance.<\/p>\n

Drivers of insurance core system modernization<\/h4>\n

\"A<\/p>\n

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Source: Deloitte \u2013 Legacy Systems and Modernization<\/a>\u00a0<\/em><\/p>\n

There are legal reasons for modernization, too. Regulatory actions have intensified. For example, the EU\u2019s Financial Data Access (FiDA) regulation<\/a> prioritizes digital access to insurance data, while the Gramm-Leach-Bliley Act (GLBA)<\/a> in the US requires financial institutions to explain their information-sharing practices and protect sensitive consumer data. But many legacy systems work in data silos, which complicates compliance.<\/p>\n

Reasons insurance companies choose to modernize systems<\/h4>\n

\"A<\/p>\n

Source: Gartner \u2013 Top Customer Expectations for Insurance Transaction<\/a>s<\/em><\/p>\n

An insurance legacy system transformation also helps companies analyze complex risks. For example, risk analysis can provide valuable insights about climate change trends that could affect property insurance. It can also predict patterns in vehicle crashes that could be used in auto insurance.<\/p>\n

Roadblocks to modernization<\/h2>\n

Insurance companies are paying big price tags for these new features. In fact, sticker shock can be a roadblock to replacing legacy systems. In the US, insurance companies are expected to spend<\/a> $132.86 billion in 2024 on modernizing legacy systems. By 2029, they are expected to spend $229.07 billion.<\/p>\n

For large insurers, an insurance legacy system transformation can cost over $5 million. Delays in integrating legacy and modern systems can interrupt operations, and some projects can take 12 to 18 months to complete. Economic instability, market volatility, and inflation can also end a legacy insurance system transformation.<\/p>\n

How much each challenge affects insurance legacy system modernization<\/h4>\n

\"A<\/p>\n

Source: Gartner \u2013 Top Five Challenges to Legacy Modernization<\/a><\/em><\/p>\n

Seizing digital opportunities<\/h2>\n

Still, companies can begin modernizing insurance legacy systems without having to spend millions. By partnering with a technology company that provides solutions such as cloud computing and custom software development<\/a>, insurance companies can accelerate their digital transformation<\/a>. They can also make data available to meet growing consumer demands.<\/p>\n

Technologies like AI and ML are further reshaping the industry. AI-powered tools enhance risk assessment, streamline fraud detection, and enable tailored policies. They also improve customer satisfaction. For instance, AI-driven claims assessment accelerates settlements and reduces processing times.<\/p>\n

Recently, generative AI has brought new opportunities for modernization. Deloitte reports that generative AI use cases for insurance<\/a> are already helping customers, and the number of use cases is growing. For example, generative AI allows insurance agents to obtain information about their customers that allows them to write personalized policies. This lets them sell more efficiently. Generative AI can also create text- and image-based product summaries to help close sales and can develop coverage comparisons, personalized coverage recommendations, and real-time illustrations.<\/p>\n

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Choosing a path to modernization<\/h2>\n

To take advantage of these benefits, a company must first select a project management model to guide the process. Three models provide direction while transitioning from legacy systems:<\/p>\n

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  1. Centralized approach<\/strong>: Relies on existing legacy IT resources<\/a> for CIS transformation, with the corporate IT team managing the modernization effort.<\/li>\n
  2. Federated approach<\/strong>: Responsibilities are decentralized and distributed across various organizational units.<\/li>\n
  3. Hybrid approach<\/strong>: Balances power by assigning some responsibilities to the central unit while giving others to different organizational units.<\/li>\n<\/ol>\n

    Modernization best practices for an insurance legacy system transformation<\/strong><\/p>\n

    Regardless of the approach, using these best practices will ensure a successful insurance legacy system transformation:<\/p>\n