Insurance profitability is being squeezed by rising costs and competition, while the ability to do anything material about this is being hampered by outdated technology and working practises. But there are signs this is starting to change.

The deployment of the AI and ML capabilities and improved customer interfaces, which could offer considerable opportunity for insurers to address these business challenges, has not yet been widely grasped. This is not due to a lack of awareness from insurers, who recognise the need to transition away from legacy IT systems, but often because of other structural hurdles.

Legacy systems are an integral part of the insurance IT landscape, which have developed over decades and are therefore not going to disappear soon. But although businesses are dependent on them, they understand the importance of transitioning away from those cumbersome structures if they are to improve competitiveness and efficiency.

Radical change is rarely embraced in an industry where both internal user acceptance and skills are usually still available. Consequently, many jobs depend on existing systems. Most insurers have therefore tried to optimise their system landscape over time due to fears of business and IT disruption from more wholesale change. Original developments were also mainly built using programming languages that are hardly used today, despite many later adaptions for new products, capabilities, and regulatory requirements still being built on the old code base.

This process can now be achieved in modular steps that deliver measurable ROE benefits with minimum disruption to existing operations. The results improve competitiveness, increase both customer and employee loyalty, and drive efficiencies that lift bottom-line performance. The deployment of smarter IT solutions can then both enhance legacy systems, while also making a significant difference in overcoming these new challenges.

Therefore, they are effectively becoming able to replace older systems in measured steps. System landscapes are slowly in upheaval, allowing future-oriented architectures and uniform SaaS or IaaS cloud-based solutions to be explored to enable the integration of new technologies and modules.

This means API interfaces between legacy systems and state-of-the-art technologies can be deployed to increasingly support digital capabilities. Most insurers now realise that their main source of differentiation and competitiveness will lie in the ability to deliver superior customer experience, which can be achieved with a modernization of IT systems that does not disrupt existing infrastructure.

However, a key factor in starting on that pathway is the selection of a vendor with sufficient expertise and experience to ensure each modular step achieves the required outcomes and lays the foundation for the subsequent enhancements.