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?
- 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.
- 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.
- 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.