The property and casualty (P&C) insurance sector is grappling with significant modernization challenges. Traditional core systems, designed for outdated paper-based frameworks, are increasingly inadequate. Carriers face operational inefficiencies, rising IT maintenance costs, and mounting demands for customer-centric services like real-time quotes and accelerated claims processing. To remain competitive, embracing scalable, cloud-based solutions is essential for automation, data analytics, and enhanced ecosystem connectivity.

A New Era for Modernization Decisions

Today’s landscape for modernization is markedly different from a decade ago. The emergence of robust software-as-a-service (SaaS) platforms equipped with modern architectures has made it easier for insurers to implement continuous updates and integrate smoothly with their ecosystems. Moreover, the integration of data, generative AI, and cloud computing now allows insurers to harness innovative technologies at scale, given that the platforms are stable and scalable.

The Crossroads of Modernization

As some U.S. carriers invest in revamping their systems, many struggle to yield the anticipated benefits. This has led to a dilemma: should they continue to invest in legacy systems, transition to new platforms, or develop in-house solutions? In Europe, insurers frequently choose vendor systems due to smaller operational scales but face challenges justifying significant investments in comprehensive replacements. Incremental modernization strategies, such as upgrading specific components or gradually phasing out legacy systems, are common. Meanwhile, in Japan, leading carriers moving away from mainframe systems are cautiously evaluating cloud-based vendor options amidst stringent regulatory requirements.

The Need for Collaborative Transformation

Modernization efforts often appear IT-centric, but engaging business stakeholders in reimagining processes is critical for achieving meaningful change. The traditional divide between IT and business leadership is increasingly unsustainable. Successful transformation demands shared responsibility and collaborative prioritization, where both domains actively drive the agenda together.

Navigating Platform Transformation: Build or Buy?

The decision to develop custom solutions, acquire commercial off-the-shelf (COTS) platforms, or upgrade existing systems encompasses complex considerations. The industry trend indicates a gradual shift away from fully custom builds, with many carriers opting for modern wrappers around legacy systems or SaaS solutions. In the U.S., approximately 50% of leading P&C carriers prefer building, while the other half choose to buy and configure. In contrast, established European carriers often heavily customize COTS systems and now face decisions on upgrading.

Evaluating the Options

Each approach to modernization has its advantages and disadvantages:

• Custom Builds: Allow for tailored capabilities and alignment with specific business needs but often incur extended timelines and rising costs.
• COTS Platforms: Enable quicker implementations and ongoing vendor-driven innovation, yet may lead to complexity requiring extensive configurations.
• Upgrades: They offer a middle ground but necessitate assessing their impact on business flexibility and automation.

Key Dimensions for Decision-Making

Carriers should evaluate their strategies through six crucial dimensions:

1. Functionality and Capabilities: Assess whether specialized functions or complex integrations necessitate building versus the strengths of COTS for fast deployment.
2. Workflow Customization: Determine the requirement for specialized workflows and automated processes against the features offered by COTS systems.
3. Data Governance: Weigh the benefits of full control seen in custom builds against the scalable, prebuilt solutions provided by vendors.
4. Time to Market and Cost: Consider the long-term implications of initial investments, including ongoing maintenance and operational scalability.
5. Organizational Capabilities: Evaluate internal strengths to manage either a custom build or vendor-driven innovation effectively.
6. Migration Risks: Analyze the benefits of vendor reliability against the control offered by in-house systems during the transition.

Strategic Vendor Selection

Choosing the right vendor for modern core systems is a strategic challenge due to the plethora of options available. Key criteria should include:

• Scalability: Ensure the vendor can support future growth and has a solid operational track record.
• Integration Flexibility: Look for seamless integration capabilities with existing systems.
• Market Presence: Prioritize vendors with a proven history of industry innovation and operational reliability.
• Collaboration: Engage with vendors who demonstrate a commitment to developing products in partnership with their clients.
• Feature Adaptability: Choose platforms with the ability to evolve with future requirements.
• Third-party Network: Evaluate the vendor’s ecosystem for implementation and operational support.

Implementing a Structured Modernization Approach

For successful modernization, consider the following steps:

1. Align business and technology objectives early in the process.
2. Conduct thorough build versus buy assessments using a structured framework.
3. Evaluate internal capabilities and readiness for transformation.
4. Adopt a disciplined vendor evaluation process.
5. Prioritize initiatives based on business value to derive early successes.
6. Establish rigorous governance to ensure focused project execution.
7. Implement change management strategies to facilitate adoption.