Insurers Need to Focus on Time to Value for Core System Replacements

Jeff Goldberg

Insurance core systems are not going to last thirty years anymore. That’s one of Novarica’s key messages about core system replacement. The pace of change, as always, is increasing, and a system an insurer puts in place today will have a lifespan of about ten years. Sometimes systems stick around longer than their actual lifespan–as a platform for legacy data or as a system that’s been offloaded to a BPO–but the new policies and claims will be flowing elsewhere.

At the same time, the time to implement new core systems has been increasing. Modern core systems have made huge improvements: they are configurable, have open architectures, accessible data, and help drive best practices at an organization. Unfortunately, insurers are spending years putting them into production. On average, mid-size insurers take 2-4 years (if not longer) for a complete implementation of all lines and states. These long timelines are partially driven by insurers looking to take a slow rollout approach to minimize risk. It’s also because insurers take too much advantage of the flexibility in configurable modern solutions.

Whatever the reason for these long timelines, it’s made more alarming when one considers the lifespan of the system. A system that will last ten years takes 4 years to implement? That means an insurer spends almost half the system’s lifespan putting it into production! This is not a sustainable trend.

What should an insurer looking to replace a core system do about this?

  1. Focus on reducing implementation timelines with the vendor. Push them for reasonable but aggressive milestones, but remain skeptical unless they’ve proven those timelines with other clients.
  2. Look at time-to-value. Understand the difference between getting everything into production and getting something of value. Even if there’s a longer timeline for the whole project, an insurer should be live and seeing real results early on in the implementation.
  3. Accept the system’s built-in best practices. Any time the team considers configuring the system away from its out-of-the-box behavior, someone should be pushing back and asking whether that change is really necessary.

There is some good news. When an insurer chooses a new core system, the goal isn’t just to find the best system for today but the best system going forward. A vendor will continue to improve and expand their offering, so understanding the product roadmap is just as important as understanding the current feature set. It’s the insurer’s job to work with the vendor to take frequent upgrades and keep the system up-to-date.

If an insurer follows the upgrade path, putting the time and resources into continual modernization, that means in ten years’ time the system they put in place today will hopefully have evolved and grown into a new system that reflects the latest trends and technology. So a ten-year lifespan doesn’t necessarily mean that an insurer will need to start a brand new vendor selection and replacement project. The new system in ten years might be with the same vendor they started. On the other hand, if the insurers hasn’t kept up-to-date, then they will find themselves running the next legacy system. The cost of upgrade will have grown so expensive that it’s as expensive as bringing on a brand new system. So either the insurer puts the time and resources into upgrading all along or they put that into another system replacement project in ten years.

This means an insurer looking to replace a core system should follow one more rule:

    4.Talk to the vendor about their upgrades and how to start on the right upgrade path early and often. If the overall implementation timeline is more than a year, then the insurer should go through at least one upgrade before that initial project is even complete.

As an industry we need to focus on getting a faster time to value for core system replacement projects. But we should also be making sure the systems we put in place today don’t become legacy before the system is even live.

Novarica Council Gathers Insurer CIOs to Address The First Year of the Future

Matthew Josefowicz

Nearly 70 IT leaders from more than 50 insurers gathered last week at the 9th Annual Novarica Insurance Technology Research Council Meeting to participate in panels and workshop sessions with their peers, get insights from Novarica’s senior team, and attend keynote sessions from outside experts on operational transparency and cyber-security.

The First Year of the Future

We dubbed last year “The Year the Future Arrived” for insurance, when nascent trends like wearables, Internet of Things, consumer internet giants’ interest in the sector, and a growth of direct sales beyond personal lines became a reality. This year, the clock is no longer counting down, but counting forward.

Keynote: Nine Trends and Issues…


My keynote focused on our Novarica Nine for 2016 and Beyond, looking how these and other trends are shaping the industry, as well as what kinds of technology strategies insurers are taking to address these trends, and how they are managing their IT organizations to deliver these capabilities.

…100 Technology-Enabled Capabilities


We also reviewed our expanded “Benchmarking the New Normal” framework, which we will publish this summer, looking at deployment rates for 100 key technology-enabled capabilities across functional areas like product, marketing, distribution, customer engagement, billing, claims, and finance/operations and technology areas like data, digital, and core.

CIO Panel: Core, Agile, Evolving Customer and Employee Dynamics

Our CIO Panel, which included Kate Miller of Unum, Scott McClintock of OneBeacon, and Paul Brady of Arbellla, addressed strategic issues ranging from core systems replacement to embracing agile development to redesigning their organizations to make insurance IT an attractive career option for millennials.

Operational Transparency for External and Internal Customers

Our guest keynote, associate professor Ryan Buell of Harvard Business School, presented his research on operational transparency and its impact on customer service to a tremendously responsive and engaged group. We’d invited Dr. Buell to join us because his research is so applicable not just to the insurance customer experience, but to the relationship between IT and other business units. See this recent post for more on this session

Novarica Research on Core Transformation, Data, Digital

On the second day, the Novarica panel of Rob McIsaac, Martina Conlon, Mitch Wein, and Jeff Goldberg from our team discussed some of their recent research and customer projects in areas like core systems selection, transformation project assurance, data strategy, meeting agents’ digital needs, and a wide range of other trends and best practices.

Discussion Groups of CIO Members Focus on Their Key Issues

Special interest group discussions for group voluntary benefits, individual annuities, individual life, personal lines, specialty, commercial lines, and workers comp explored recent research relevant to each sector. In discussions co-led by a Novarica expert and a CIO chairperson, these groups addressed topics like enrollment standards, impact of the DOL fiduciary ruling, market dynamic changes, ISO rating, and core systems vendors.

Cyber-Security Threat Evolution and Preparation

Distinguished professor and Department of State cyber-security adviser Dr. John Savage gave a closing keynote on the cyber-security, emphasizing the importance of managing security beyond perimeter protection and staying engaged with industry groups to monitor the evolution of new threats globally.

Knowledge-Sharing and Networking

novarica-councilCouncil members valued the opportunity to network and learn from each other in a private, vendor-free environment, and many of the special interest groups have already made plans to meet again later this year. We’ll be publishing a report summarizing the discussions and panels next month, and the 10th Annual meeting will occur in late April, 2017.

For more information on joining the Council, senior insurer IT executives are invited to visit and request membership. Membership is free and has no obligations.

Operational Transparency, Agile, and Perceived Value

Matthew Josefowicz

Our guest keynote speaker at the recent Novarica Insurance Technology Research Council Meeting was professor Ryan Buell of Harvard Business School, who presented some of his recent research on operational transparency and its impact on customer service.

Transparency Changes Perceptions

The main finding of Dr. Buell’s research is that service providers perform better when they see the impact that their work has on customers, and that customers are more appreciative and feel better served when they see the work that has gone into providing services to them.

Here’s a video of Dr. Buell presenting on this topic as it relates to government services, from his website:

I invited Dr. Buell to join us after encountering his research online, and realizing how important this topic was not just for insurance customers, but for the internal customers of insurance IT leaders.

Insurance is an opaque product

For customers, insurance is an invisible and mysterious product. Few customers know what goes into underwriting and issuing a policy or processing a claim. Even for distributors, a major source of frustration is not understanding when or how decisions are being made. Some insurers have found that simple process additions like progress bars, proactive process notifications, or simple explanations can have an impact on customer and agent satisfaction levels.

IT is also an opaque product

IT is an equally opaque product to its internal customers. Leaders and staff in other business units generally have a poor understanding of IT, why things that seem simple are complex, how long tasks actually take, and generally just what the heck those technology guys are doing all day. This lack of understanding and lack of transparency leads to frustration and turns other business executives towards trying to manage IT with the only tool they do understand: budgets. This rarely leads to value creation.

For IT, Agile is helping

With the mass adoption of Agile development by insurers, this is starting to change. One of the main benefits of Agile is enforcing regular communication and review of progress between technology staff and other business units.

As shown below, the majority of insurers report that this is improving end-user satisfaction with delivered products, relations between IT and other business units, and even IT job satisfaction.


Through frequent interactions and reviews, other business units feel greater ownership in IT projects, and IT feels like it’s making a difference in achieving overall business goals.

Future collaboration

We believe that insurers can benefit from an operational transparency orientation in multiple areas, and we’re currently in discussion with Dr. Buell about future collaboration and activities with our team and Novarica Research Council members. Contact me if you’re interested in learning more.

Related Research

  • Novarica Nine Insurance Technology Trends and Issues for 2016
  • Agile at Insurers 2015
  • Talking to the Board, Talking to Millennials (and How the Two are Related)

    Matthew Josefowicz

    As insurers increasingly become tech companies that sell insurance, ensuring that the highest levels of management understand that technology is a source of competitive advantage rather than a risk should be on every CIO’s list of priorities for 2016.

    Our annual Quick IT Benchmarks report provides Insurer CIOs with data on the state of IT spending and initiatives at their operational peers. These benchmarks are designed to provide both an opportunity for self-assessment and a tool to help CIOs communicate with senior management at their companies. In a recent report on Technology and Corporate Governance in Insurance (check out the webinar here), we found that few corporate boards have the experience to manage IT in a strategic way, yet that’s precisely what will be required over the next few years as boomers retire and millennials take their place in society.

    This generational change, and the change in mindset it will necessitate in insurers, is the real theme of our recent report on the Internet of Things. While the IoT is not exactly pervasive yet, the larger point is that it’s symptomatic of a change in the expectations consumers, agents, and employees have of technology. Proactive, usability driven, smart – how many insurer’s systems currently measure up to these expectations?

    Related Research

    It’s About Time for a New Board Committee

    Frank Petersmark

    Most IT leaders have experience with the various committees that are part of a company’s Board of Directors structure. It’s common for IT leaders to have to report to a board audit committee on security or other issues, or to a board finance committee as a prelude to asking for a large IT investment. Besides those two committees, many boards have several other committees, including ones for compensation, legal, nominating, governance, and sometimes even one for enterprise risk management, which is usually more focused on financial risks than anything else. What most boards don’t have, though, is a committee that focuses on what many now believe to be the most impactful company function of all – technology.

    That seems short sighted and odd at best, and something else perhaps at worst. In nearly all of the current research and surveys of business executives, including Novarica’s, technology is nearly universally identified as the driving force in the company, for better or worse. Most business executives seem to believe that the very future of their company – its product portfolio, market position, and overall profitability – depends on the company’s ability to effectively master and leverage the right technologies for their business. That begs the question of why more companies do not have standing, board of director level technology committees to oversee nothing less than the future of the company.

    Part of that answer might lie in the fact that old habits die hard, and traditionally that kind of board committee has just never existed. It might also be the case that many companies have IT executive or steering committees already established. Those are generally comprised of the CIO and/or other IT leaders, business function executives, and maybe a sitting board member. However, neither of these are enough of a reason for companies and their boards to ignore establishing this critical function at the highest management and oversight level of the company. In fact, companies who don’t strongly consider the establishment of a board technology committee may soon find themselves at a serious competitive disadvantage.

    And why should be this be so?

    First, the technology investments that most companies consider and ultimately make, certainly rise to a level of materiality so that direct oversight is required. It also makes sense to have technology investments considered independently from the board’s finance committee, whose purview is the entire company, but whose membership often lacks the experience and perspective required for important technology investments.

    Second, the potential for resource impacts across the entire company as a result of technology initiatives certainly rises to the level of materiality where direct and knowledgeable oversight is warranted. Consider the recent trend of core systems modernization occurring at most insurers over the past several years. Often the most under-considered part of these initiatives is the widespread impact they have on resources in almost all of the functional areas of a company. This causes, among other things, resource conflicts and tensions that often lead to diminished productivity and customer facing impacts.

    Third, most technology efforts are not about the technology ultimately, but are about the process impacts on the organization. Sticking with the core systems modernization example, new systems often replace decades’ worth of functional processes – and the cultural biases that have evolved with them – and the degree to which employees and customers are willing and able to adapt to the new processes has a major impact on a company in the short and long term. That is the definition of materiality.
    Fourth, nearly all technology initiatives nowadays are somehow related to market competitiveness. Whether the technology enables mobility to improve customer acquisition and retention, or improves processes for efficiency, or allows for the rapid development and implementation of new products, or enabling the levers required to turn information into action, it has an impact on the company’s ability to compete in their marketplace. Once again, that’s materiality.

    For all of these reasons and more, it is actually past time for companies to implement a technology focused board committee. The fact that it exists at very few companies in the industry only means that the industry, survey responses to the contrary, has not really made the executive management connection to the materiality and impact of technology, as other industries clearly have. That sounds like an opportunity for some insurers to get a jump on the competition.

    Update from Orlando: Themes for 2016

    Rob McIsaac

    I had the opportunity to participate in the revamped CSC user conference recently, which was a terrific opportunity to visit with both the issues … and the challenges … facing carriers as they move into the final stages of 2015’s Budget Season. With technology developments moving quickly and the reality of raised expectations around what “good experiences” should really be like, carriers face some important prioritization decisions in the near future.


    For carriers we see continued efforts to push toward the concurrent addressing of legacy technology issues while trying to improve capabilities related to product deployments and improved end user experiences for consumers and producers. Time to market continues to be a recurring theme for carriers although in the session I had a chance to facilitate there was a clear distinction raised by some CIOs who, armed with process metrics, were able to confirm that the IT group was no longer the “long pole” in that tent. This was but one manifestation of how better analytics can help organizations be more effective and efficient … while potentially helping build greater trust between IT teams and their “other business unit” customers.


    That said, one of the laments of the CIOs in the session was the overwhelming percentage of their spending annually that goes to “keeping the lights on”. For the vast majority of carriers this continues to hover at or above 75% (equal to the “Run” plus “Grow” spending in our new Insurer IT Budgets and Projects 2016 report), leaving limited headroom for transformational efforts and innovation.

    To that end, there was considerable discussion across the conference events related to both BPO services (as a mechanism for addressing legacy products and platforms) and increased interest in the role cloud solutions can play in the future. This is certainly consistent with other research Novarica has done and positive cloud experiences with SFDC and Office365 seem to be confirming that key workloads can effectively be handled for carriers. Both of these capabilities can ultimately allow CIOs to respond to what we are seeing in the 2016 budget surveys for carriers: a continuation of a theme that requires “doing more … without much more money.”

    Data and Digital

    Analytics and expanded digital capabilities are also top of mind for many carriers. The need to think about distribution system issues, highlighted by the average agent age now riding to 59 in the U.S. should be impacting more investment decisions than it is at the moment. The realization that Millennials now (and forever more) outnumber Baby Boomers does not yet seem to have sunk in for many organizations.

    Innovation, in varying forms, was a topic that emerged in almost every conversation at this event. In addition to the M&A activity that a number of carriers (and solution providers) embarked on in 2015 to build their own set of capabilities, there was considerable interest in the investment funds that a number of carriers have very publicly deployed over the course of the past year. For some small carriers, this raised a concern about the best way forward to competing in a rapidly evolving space. To that end, discussions about the Global Insurance Incubator (Des Moines, IA) and other local shared sourcing events proved interesting. Further, approaches that carriers have made to create innovation centers from Silicon Valley to Silicon Alley were very much on the minds of carriers in the sessions we facilitated.

    Talent and IT Organizations

    Another area of considerable interest related to some of the challenges carriers face with both managing an aging IT workforce to address their current needs, exacerbated by some of the challenges carriers have experienced with attracting and retaining a younger generation of associates to support their technical needs. Recent research we’ve done at Novarica both highlights the “Silver Tsunami” issue and offers insights into actionable steps CIOs can take now to address the concerns.

    The Future

    We have repeatedly said that 2015 has been, in many ways, the year that the future arrived. Competition among solution and service providers heightens their “game” for delivering the functionality carriers will need in their own battles to stay competitive (and relevant) in that future. The transformational journeys for L&A and P&C carriers are evolving along somewhat unique pathways, no doubt tied to the length of the tails associated with their primary product offerings. Irrespective of the lines of business, however, the realization that legacy solutions can’t provide the horsepower needed to address the future state needs of the carriers they support is increasingly clear for CIOs and their senior teams. Armed with a range of solutions for both technical capabilities and hosting options, the future promises to be dynamic. And yes, the insurance industry has clearly entered a period of interesting times.

    Hello from NAMIC – San Diego

    Tom Benton

    This week I’m attending the NAMIC Annual Convention in San Diego. NAMIC expects this year’s Convention to include over 2000 attendees from over 250 Property and Casualty Mutual companies from the United States and Canada, along with a large number of vendors serving this market. This year marks the 120th anniversary of the organization, which represents the interests of mutual companies through advocacy and other services provided by the national organization and in state chapters.

    Many of the Mutual companies that are part of NAMIC are small carriers, insuring farms or other properties and equipment in rural communities, with a few larger national companies. From the discussions I’ve had with various mutual executives since arriving here yesterday, there are a few common issues that they are facing:

    • IT Strategy – many need to determine a strategy to update technology to meet the increasing demands of customers, including the increased use of independent agents by many mutual insurers.
    • Regulatory concerns – smaller insurers in general are facing issues keeping processes and systems up to date with current regulation changes, and potential changes from congressional pressure being placed on federal agencies in response to international regulatory changes.
    • Reinsurance needs – many mutuals are dependent on reinsurers due to lack of capital, but feel somewhat restricted in terms of product changes and supporting their customer base.

    In general, I’m hearing many of the same technology challenges as other small carriers I’ve talked with in the last few months.  For more on challenges and best practices at small carriers, see my webinar recording on Novarica’s website.

    The NAMIC Annual Convention has a different atmosphere than many conferences I’ve attended – this is a very important event to mutuals and is attended by many CEOs/Presidents along with representatives from their Boards of Directors.  There is a high level of engagement on the vendor floor as these executives and their key stakeholders look to technology and services to better meet the needs of their organizations.  The keynote presentation on Monday by Erik Wahl was very different… more on that in another blog post soon.

    3.5%? Really?

    Frank Petersmark

    Having just returned from the annual PCI Technology Conference, it seems an appropriate time to reflect on some of the macro trends discussed. As is usually the case, it was packed with interesting and actionable content. It’s also one of the few conferences where the networking and perspectives exchanges amongst participants is as valuable as the sessions themselves. This year, among the usual pledges to do more with data and analytics, and to keep powering through those core systems transformations, there was one other theme that is worth noting.

    In his annual update, Matt Josefowicz of Novarica provided some interesting data and perspectives on the forces propelling IT initiatives and their corresponding spend in the industry. However, the one that really caught my attention was a slide that Matt noted had not changed much, if at all, in at least the past ten years, and perhaps longer. And that was a graphic illustrating the amount of money insurance companies were spending on technology, as a percentage of direct written premium. That percentage was, is, and if you were an actuarial reviewing the trend line, will be, 3.5%.

    Novarica PCI Tech Presentation 2015 Slide IT Budgets

    Wait a minute. Based on the many discussions over the strategic importance of IT and technology to insurers, at this conference and over the past several years, it does not seem plausible that the investment amount has not increased. In fact, PCI featured a couple of excellent sessions wherein CIOs and their bosses – in this case a CEO and a COO – extolled the strategic import of technology in everything they were doing, and were planning on doing. They were preaching to the choir of course, but it doesn’t seem to align well with 3.5% investment statistic. Why should this be the case?

    There may be many external factors, including macro market conditions, investment returns for insurers, underwriting profitability, etc. But I can’t help but believe that there may be another factor at play, as incongruous as it may sound, and that is that IT leaders, when it comes right down to it, still struggle at some level to effectively communicate the strategic value of IT that would justify additional strategic investments in technology and IT. It’s difficult to believe that would still be the case, but it’s also difficult to believe that the investment amount has not changed across this long time frame. If one didn’t know better, or hear the conversations in the PCI technology conference, one might simply look at that 3.5% investment over time as just another budget line item, like for real estate or office supplies. But that’s not the case, and it’s certainly not how some of those who make these investment decisions view the importance of technology, based on the many conference conversations over the past few years.

    It seems for the 3.5% number to increase, IT leaders are going to have to become much better at communicating what they’re bringing to the table, and what that can do for the organization over the short and long term. That can be done, but it requires a different communications approach for many IT leaders when they meet with their executive steering committees and their boards. We have written recently on the importance of finding a common communications language that will resonate with an organization’s top decision makers. If the needle is ever going to move on the 3.5% investment number, this is the place to start.

    I’ll be presenting my work in this are in a free webinar on Thursday, September 24, at 2:00pm EDT. Pre-register here .

    Emerging Cyber Threats

    Mitch Wein

    I recently attended the IASA Mid-Atlantic conference in Atlantic City. This conference had a lot of business people from insurance, particularly from areas like regulatory reporting, accounting, audit and legal. Many topics that you would expect like GAAP and tax reporting, Economic Outlook for 2015, reporting under the Affordable Car Act were covered.

    However, what was notable for a conference with almost no IT people was that almost half of the discussions were about cyber-security and cyber risk management. Acting as a communication vehicle to the board, the NAIC cyber security principles, emerging compliance coming from NAIC and FINRA requirements, user behavioral analytics and even security war games were covered.

    The FBI did an excellent briefing on the type of cyber threats there are as well as the scam patterns that have emerged in recent years. This covered areas addressed by their Cyber division including infrastructure defense, nation state attacks, hacktivism, espionage and terrorism coordination through social media. This also covered the scam areas addressed by their criminal investigation division including the counterfeit check scam which targets attorney’s and CPA’s, the account takeover scam targeting business and individuals after personal information compromise, and business email compromise targeting businesses working with foreign suppliers and/or performing wire transfers.

    We have written before about the importance of cyber security especially as insurers transition to a digital future and retaining insured and agent trust. It was obvious to me that every business person in insurance needs to understand cyber security and what they need to do relative to their job functions and roles. Every insurance company is now a combatant in a war against criminals and terrorists. This is the new normal.

    Note: I’ll be presenting my recent work on IT Security Frameworks for Insurers on a free webinar on Sept 30 at 2pm. Pre-register here.

    Related Research

    IT Security Frameworks: NIST and SSE-CCM
    IT Security Issues Update

    Workers’ Comp Insurers Look to Analytics and Core Systems

    Jeff Goldberg

    In our most recent Novarica Council Special Interest Group meeting, several Workers’ Compensation CIOs discussed core systems replacement strategies and long-term visions, as well as emerging uses of mobile, analytics, and end-user-facing technologies.

    All the attendees were in various stages of core system replacement—ranging from just-completed to the initial stages—so they were eager to learn from others’ experiences, and to gain perspective on their own challenges. Everyone agreed that a flexible, modern core system was at this point table stakes, hence the flurry of transformation activity. A minority of companies are changing appetite, but the vast majority of P/C insurers are looking to grow by moving into new territories. To do that a modern, flexible system is absolutely necessary.

    The shrinking lifespan and growing price of core systems was another area of concern. Everyone agreed that that new core systems are increasingly costly to implement, and that they must be replaced more frequently than older legacy systems. Gone are the days that a core system lasted for 40 years. Some participants also noted that many strategic business initiatives—like new product deployment—must be put on hold during a multi-year implementation project, increasing the indirect costs of the implementation.

    As an antidote to this gloom and doom, the CIOs in attendance were confident in their strategy to overcome these obstacles. Core systems today are much more flexible than legacy systems, relying on componentized architectures and configurable logic, meaning that the next round of replacements (and possibly even conversions) should be easier. More importantly, past lessons have been learned, and both insurers and vendors know how important it is to avoid custom coding and to stick with a vendor’s upgrade path. If those rules are followed, ten or fifteen years down the road the insurer’s system will be “new” even if they’ve stayed with the same vendor and system all along! It’s critical to choose a vendor who acts as a long-term partner and not just a one-time purveyor of a technology.

    Of all the strategic considerations discussed, one of the most important was a concrete plan for data conversion and sun-setting old systems. One participant shared that if he could go back in time, he’d focus much more on a transition plan, so as not to lose the project’s momentum after go-live. Other attendees described the challenges of data conversion and new data warehouses, and the legal and data integrity-related risks of fully sun-setting old components.

    Attracting and retaining good talent was another concern for many of the attendees. One insurer reported being well ahead of their Guidewire implementation schedule, due to a concerted effort to focus talented IT and other business unit resources on the project. Several attendees noted that the structure of their projects—agile, waterfall, or a combination of the two—was much less important than the staffing and communication strategies of those projects. When agile first started becoming prevalent in the insurance industry, carriers all over the country were told it might be the answer to all their project/logistical problems. But that’s not how software works. Everyone in attendance was reminded that there are rarely, if ever, silver bullets for these huge problems.

    Related Research:
    Business and Technology Trends in Workers Compensation