In last month's article, I explored how P&C modernization is an ongoing journey, not a destination. However, before getting that long and winding journey underway, I encourage insurers to look before they leap to make sure they head in the right direction with the right expectations. Each company is unique and an assessment of objectives, priorities, strengths, and limitations will determine the best modernization path.
Which modernization approach fits your organization best?
For every P&C insurer, there is a different approach to modernization. One organization may choose to undergo a major "big bang" project where almost every system gets replaced. Or they may instead choose to replace systems component by component, knocking out subsystems such as billing and claims prior to tackling larger projects such as policy administration. They may choose to deal with data issues first or take some of the systems and data management to the cloud, relieving some operational and resource issues.
In most cases, there is no right or wrong way, but the methods need to meet the goals while fitting an organization's resource bandwidth, capabilities, and project tolerance level. It is important to accurately assess company-wide support, funding, modernization leadership, and any competing initiatives.
Two questions are key:
- Does the organization have the ability to manage a large program?
- Are there ways to modernize without tremendous increases in IT investment and major resource additions?
The big bang
The primary benefit to a big-bang implementation is that it tends to take into consideration every facet of the organization, resulting in benefit to the operation at an enterprise level.
It comes with some drawbacks, however. First, it takes time. In the three to five years that it may take to complete a big-bang modernization, the initial target goals defined in 2014 will likely have shifted.
Technology changes, too. System lifecycles have become much shorter. What is modern today becomes legacy much sooner than it did in years past. A big bang approach is less apt to effectively deal with the moving targets.
However, organizations that may be sitting on many legacy systems resulting from mergers and acquisitions should consider unifying and simplifying them under a big bang approach, but only if they are able to handle large projects and commit dedicated resources over extended periods of time.
Vertical component replacement
A component-based approach to modernization is certainly more palatable for many organizations. It allows for a singular focus on one facet of modernization. Legacy replacements can be handled in order of priority, modernizing first the system that needs to be tackled soonest. That, in turn, allows carriers to be more flexible to respond to circumstances and priority changes that are commonplace among P&C insurers.
Component-by-component replacement is logistically simpler. It requires fewer resources and financial investments are incremental, though they may be higher overall. Testing is easier and shorter implementation times mean it is easier to hit target goals.
Data is the one factor that is pushing many P&C insurers to postpone core system replacement temporarily in favor of replacing data warehousing and data management systems. Why? Data proliferates faster than many carriers can handle it, yet most carriers want to handle their valuable data with care.
Modern data warehousing is crucial for operations and customer service, while data analysis is vital for growth. A system replacement within the data layer can bring fresh life to outmoded systems, capitalizing on data assets and buying time for a more complete legacy modernization.
While it is natural to see policy administration as the core of an insurer, increasingly the data layer is functioning as the core for organizations running multiple administration systems because it is a logical consolidation point.
Whichever approach an organization takes, there are some common considerations:
- Cloud and BPO: It may help some insurers to consider moving support systems such as billing or claims to either a cloud-based or a BPO solution. Moving these data-intensive, transaction-heavy systems out of house can free up internal resources and save IT overhead.
- Periodic payoffs: The modernization plan should be designed to deliver benefits along the way. These "periodic payoffs" demonstrate business benefits sooner and ongoing.
- Mid-stream changes: Whichever modernization approach is taken, it needs to be fluid and flexible enough to allow for continually shifting business as well as organizational priorities.
- Strong business case: Any modernization effort needs to deliver value. In IT, it is easy to focus on what needs to be done and forget to provide business with snapshots of the past and visions for the future. Regular, clear, big picture communication is important to keeping the whole organization engaged and committed.
Determining a direction for modernization may not be easy, but CIOs are fortunate to have excellent options available to them that go beyond traditional legacy replacement. Finding a solution that fits well within an organization's unique structure will make modernization flow more smoothly, meet business needs, and accomplish everyone's goals.
Anil Chitale, Senior Vice President & Chief Product Evangelist, leads the P&C division at MajescoMastek. Anil was the Co-founder of STG and a principal architect of the STG suite of products. View Full Bio