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What Comes First: Core Modernization or Innovation?

Insurers should expect more from new core systems than process improvement, says SMA’s Karen Furtado. How can they activate innovation in core systems?

If your organization is embarking on or already involved in a core systems modernization or replacement effort and there isn't a vision of how the upgraded platform can enable the company to innovate processes, products and functions, you're missing a golden opportunity to optimize the investment. That's according to SMA partner Karen Furtado, who argues it's almost impossible for insurers to take advantage of emerging leading-edge capabilities such as predictive analytics without modern core systems.

Karen Furtado, SMA
Karen Furtado, SMA
"Many insurers now understand that the core system is the cornerstone in the operation, and if the core system isn't performing, everything is held back," Furtado says. "So even if you want to be on edge of mobile, or you want to use big data and analytics, you want to be able to do telematics -- if you want to use any of what SMA puts in the 'next gen' category, you've got to have dealt with, what is the core system giving you today and is it enabling these technologies to move forward?"

It all starts with the system implementation itself, and that tends to be an all-consuming effort. "It's very hard to optimize while you're in middle of a core systems change," Furtado acknowledges. "If you're taking into consideration the people, the processes, and the technology, you're going to bump up against a natural tension as you go through that core systems change. After it's in is a wonderful time to be able to optimize."

[SMA's Furtado on The State Of Policy Admin Systems Modernization]

A growing number of insurers are approaching core systems modernization not just as a legacy systems replacement, but also as the foundation of innovation, notes Furtado, who will elaborate on the theme of activating innovation in relation to core systems at the upcoming SMA Summit, "The Innovation Journey," September 15, 2014, Mandarin Oriental, Boston. "They've dealt with their core systems, they've got that configurable system that allows them to adapt to change – they're now able to look at people and processes through a whole a different lens." This is where true innovation occurs, she adds, since it goes beyond automating or improving an underwriting or claims process – it completely reinvents the process. Although insurance companies often have been accused of doing things the same way for years, Furtado points out, "What we're really doing is starting to challenge the way of doing things."

The next-generation technologies have the potential to transform claims and underwriting because they enable insurers to "think about how to take steps out of a process," she says. "That's what these next gen technologies can do for you. It's displacing steps, you're not even going to do those steps. It's very hard to do that without a modern core system."

Inevitably, core systems modernization is going to have an impact on the structure of an insurance company as well, according to Furtado. However, many organizations tend to approach core modernization as a project to be completed, she notes. If there hasn't been a concurrent effort to align this with business processes and how employees handle them, it is extremely disruptive -- and not in the good, "disruptive technology" way.

It can take years to recover from the disruption, and "that's ... years you're losing any further investment in that technology," Furtado says. Carriers tend to be "so focused on trying to get the operations efficient and effective, [but] without a really solid plan going in on those big bang conversions, you might get the technology to work, but the people and process are much harder. You really have to think about that conversion story and how do you come out of that with innovative thinking for the people and processes.

"You have to get beyond that core systems change," she continues. "That's where you can get really hung up. It can take some time to get through those issues if it is not planned out well ahead of time."

[Learn more about the Internet of Things at Interop's Internet of Things Summit on Monday, September 29.]

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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