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Kelly Sheridan
Kelly Sheridan
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The Rocky Road of Modernization

Today's top challenges in core system replacement, from choosing a system through implementation.

Legacy systems are becoming more expensive to operate, and certain skills required to update them, such as COBOL programming, are becoming outdated. Insurers are faced with the challenge of upgrading core systems not only to improve operational efficiency, but also to provide better service to their policyholders.

 “The industry is facing a significant number of system transformations over the past several years,” notes Dan Colarusso, CEO at The Copelind Group. Most of the core systems currently in place are not customer-centric, he explains, and primarily handle business processing by internal employees. Some insurers are implementing frontend additions on existing systems in order to serve clients better, rather than investing in system-wide modernization -- but these efforts are not enough.

Systems produced today, which are less expensive to maintain, are better able to handle the modern regulatory environment and provide the information and service that customers have come to expect. They also help agency employees better manage their businesses through improved onboarding processes, commission management, and access to information that will boost business growth. 

“The real key to success here is having a thought-proven methodology as to how you’re going to approach the conversion. Once you establish that, it becomes the fundamental vision to determining requirements.”

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Many businesses forget the critical process of formally planning the selection and implementation of new systems. This begins with creating a global vision of what the organization is trying to achieve, such as reduced costs, improved speed to market, or a stronger relationship with the system provider. If prices are similar, he says, insurers will typically choose to work with the easiest, most efficient vendor.

Core system priorities vary according to insurer type. P&C insurers face a more commoditized and highly competitive environment, while life and health carriers must adhere to strict regulatory mandates. “They need to have a system that satisfies both the client requirements and the regulatory requirements.”

Plenty of insurers also neglect to ensure they have enough staff to support the business throughout modernization. “They need to make sure business and IT have the appropriate level of resources and necessary skills to execute the process." The majority of the business will continue to execute on the legacy system until the conversion is complete, which usually takes 24 to 30 months. Colarusso advises insurers to modernize by implementing the most basic version of their chosen system, bringing it to a full production state, then enhancing it to suit their tastes.

The challenges don’t end once the system is implemented, as insurers then must transfer their data from the old system to the new one. “Data conversion is probably the most difficult and onerous piece of any system transformation.” Carriers hold data in a number of different systems, platforms, and databases, which he recommends storing in a data warehouse and normalizing.

Kelly Sheridan is the Staff Editor at Dark Reading, where she focuses on cybersecurity news and analysis. She is a business technology journalist who previously reported for InformationWeek, where she covered Microsoft, and Insurance & Technology, where she covered financial ... View Full Bio

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