The need to replace core systems may seem self-evident to CIOs. Mitigating technical risks is an extremely important reason to replace aging systems, but it often fails to resonate with leaders of other business units. In such cases, CIOs can make the argument based on the enablement of key capabilities those business units care most about—capabilities tied to the Three Levers of Value for insurers: Sell More, Manage Risk Better, and Cost Less to Operate.
Modern core systems can help insurers sell more by enabling faster and more flexible product development. New products and efficient, straight-through processes enable insurers to serve new segments that were previously unreachable, unprofitable, or unknown. Other ways that the core helps carriers sell more include better support for integrating with business partners via APIs. Modern core systems can act as the foundation for improved data and analytics capabilities and the digital product offerings today’s customers demand. They also position carriers to gain agility when growing through acquisition, affiliation, or expansion of product offerings into new states.
Core systems replacement can help insurers manage risk better as core vendors expand the scope of their offerings into predictive scoring and analytics to supplement underwriting and claims. The value that predictive scoring models and artificial intelligence can derive is greatly enhanced when these models are operationalized by integrating them into core systems. Integrating these capabilities into business workflows is often difficult and expensive with legacy systems that lack strong integration and workflow capabilities. Modern core systems also support predictive scoring and analytics by supplying high-quality data for downstream analysis and modeling.
A modern core can also help insurers cost less to operate by avoiding costs and increasing productivity. This can be difficult to quantify, however, because many investments are about deploying new capabilities—and with them, new expenses—rather than cutting costs by automating existing processes. Improving agility and speed to market is best achieved in companies with the cultural discipline to limit customization and standardize integration and design architecture—which also helps manage overall operating costs.
Carriers that achieve a strong foundation with core systems are well-positioned to deliver products to market faster, increase distribution capabilities, and operate more efficiently. By focusing on use cases that relate to the Three Levers of Value, IT and business leaders will have the greatest potential for success—not only for developing a business case for core transformation, but for achieving it as well.
For more information, see our latest report, Core Systems in Insurance: Building the Business Case.
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