Crash Course: 4 Core System Replacement Strategies

As the insurance industry evolves, carriers are under increasing pressure to replace their inefficient and outdated legacy core systems with those that increase flexibility and efficiency, and allow for better communication and integration with partners and customers. The fact is, carriers' future success depends on their ability to do these things.

However, the switch to a modern core system holds a number of challenges -- caused, of course, by carriers' dependency on a patchwork of legacy systems and complex IT environments. These legacy systems have many downstream dependencies and integrations, such as regulatory or reporting systems. Switching to a new core system is not as simple as unplugging the dependent systems from the legacy core system and re-plugging them into the new one. Thus, challenges ensue.

Deflecting these challenges involves identifying not just the right technology solution and provider, but also the replacement approach that works best for your organization. (Yes, you have options!) There's no "right" way to do it, and plenty of wrong ways. Your approach depends on a number of factors -- not least of which are your organization's appetite for risk and its ability to absorb change.

[Previously from Guidewire: Cutting big up-front IT costs]

Read on to learn about your core system replacement strategy options, and discover that it's not as painful a process as you once thought:

Greenfield

The greenfield approach is well-suited to carriers that are expanding into new lines of business (LOBs) or regions, and whose legacy core systems don't have the flexibility to readily add new products or geographies. Essentially, it enables the carrier to begin its new business with new technology without having to immediately untangle the mess of its legacy system(s). With this approach, the new LOB can be up and running fairly quickly, and users have time to gain confidence in the new core system technology, build their skills and iron out the implementation process before tackling a more widespread replacement of the legacy core system.

Data & Core

Often, the overhaul of a carrier's data management infrastructure can be a logical time to retire its legacy system as well, especially cost-wise. However, the downtime and complexity associated with this approach could be prohibitive: Unplugging the many data leads and feeds from a legacy system to a new system can be a delicate endeavor, and there is also the worry of affecting a downstream process in another system. Equally as concerning is what to do with the existing data, as it must be converted to become compatible with the new core system.

Rather than using a patchwork of tactics to navigate through these roadblocks, carriers may opt to use an operational data store in parallel with transitioning to a new core system. With this approach, the operational data store acts as a central hub. All systems that are unplugged from the legacy core system are re-plugged into the operational data store during the course of the core system project, offering a number of advantages: Data and system connectors are integrated and tested for full performance before the transition; the data can be converted for compatibility with the new system; and launching the new system won't involve further unplugging or re-plugging of data feeds. All that remains is the process of linking the new infrastructure to the operational data store.

By Region or Line of Business

This "phased" approach is a versatile and very common strategy that replaces the carrier's legacy core system(s) bit by bit based on its risk appetite, resources, skill level of those resources, and so on. Often, these projects will start with the easiest LOB and move toward the most complex. A phased-approach project could also be deployed by geography; by personal then commercial lines; then by subsidiary or division. Conceivably, this approach can also be extended to encompass the debate as to which system is replaced first: The carrier knows eventually each system must be replaced, but the order and timing is its own call.

Similar to the greenfield approach, replacing in phases enables carriers to get their feet wet and build confidence for when they replace their most complex LOBs or most complex core systems. The phased approach is a great choice for carriers that have been working with the same enterprisewide core system for a decade or longer, and who need to ease into a new technology and unfamiliar processes.

By Function

A variant of the phased option but worth noting in its own right, this implementation option may see a carrier start its replacement journey with a claims system replacement because it is less risky to its business. Once success is found here, the more-complex policy administration project can be undertaken. The typical policy administration system has by far the most configuration requirements, is the most mission-critical to the carrier's business and is its prime area of competitive differentiation. There are also an increasing number of carriers opting to replace more than one of their core claims, policy administration and billing systems in parallel. This does add complexity to the overall project, but is an efficient way to move a transformation project along relatively quickly.

[Read how 2013 Elite 8 Amica Mutual CIO Peter Moreau tackled his company's full core replacement]

There's no question that deploying a modern core system is key to realizing success in a dynamic, evolving insurance industry. There's also no question that core system replacements are complex, involved projects requiring business and IT to work together. But they are also quite doable. It's also important to keep in mind that these approaches are not mutually exclusive: Often, the best approach may leverage elements of all or some of them. Determining the right implementation approach for your organization -- whether greenfield, data + core, phased, or a combination -- will yield a much less challenging core system replacement.

About the author: Amit Shah is product marketing manager for Guidewire.