Insurance has obtained a reputation for being stuck in its ways. For 50-odd years, the way insurance has worked has remained the same. But in the last few years, catalysed by the pandemic, the rise of digital solutions and insurtech looks to break down historical insurance preconceptions have emerged.
This month at The Fintech Times, we’ve identified what challenges insurtechs may face in abandoning legacy systems. But today, we will hear about the perks – if any – of legacy systems that are perhaps not as easy to leave behind.
‘You have better control’
Legacy systems bring a level of comfort, suggests Jay Chitnis, senior business consultant at software provider Endava.
“Legacy is usually bug-free as they have been squashed and routed out through years of deployment and interrogation of code. Of course, the opposite is also true where you will have code over code over code leading to over engineered processes. The trick is to pick the smooth parts to leave and extract the infected parts.
“There is an argument that from a virus perspective, legacy is relatively safe as people are not writing virus for old code anymore. This might be true in some circumstances but absolutely does not mean that databases are safer if older – in fact – quite the opposite.
“A key element of legacy is that there is an experienced team behind the system. This experience is invaluable and it is important to harness it during the migration period and within the new system – particularly during building and maintenance.
“Control over the platform is also an important element of legacy where newer SaaS-based products don’t offer the same amount of control. This extends to the licensing costs vs maintenance costs which is a balance that stakeholders need to determine.”
‘They offer the best of both worlds’
Modernising a legacy system is often a large and expensive project with high risk, so companies have little appetite to take such an extensive infrastructural overhaul, says Teodor Blidarus, CEO & co-founder at bank and insurance fintech enabler FintechOS.
“The greatest perk relates to the ‘if it ain’t broke, don’t fix it’ mentality held by many organisations. Spending years on an expensive, high-risk, and disruptive project, only to end up with the same functionality that exists today is not viewed as worthwhile by many organisations. Instead, they are looking for alternatives that deliver new value sooner and at a lower risk and cost.
“There are many organisations which see the benefits of retaining legacy systems because they are proven to work but reducing their scope to just what they do best – for example, processing financial transactions at high speed.
“This notion of reducing legacy to the fundamentals is described in the industry by a variety of terms, such as ‘hollowing out the core’ or creating a ‘lean core’. In practical terms this means applying a ‘zero modification’ policy to core processing capabilities. This avoids the issues associated with heavy customisation of legacy systems.
“It is common to put a layer around legacy platforms so that they can continue to be used by other systems. By making these APIs available, organisations can retain just the basic functionality of the legacy systems while focusing on driving innovation with other platforms that surround them. This gives them the best of both worlds – lower disruption but the ability to innovate.”
‘There’s not many perks at all’
Joe Emison, co-founder and CTO off full-stack insurer Branch is less misty-eyed when it comes to legacy systems.
“Quite frankly, legacy systems don’t have many perks,” he says. “It’s my belief that legacy systems enforce limitations of the past and prevent organisations from delivering the experiences that they wish they could.
“Legacy systems are hard to use and are incapable of doing things that should be simple, like bundling home and auto insurance in a single transaction.
“Legacy systems also weren’t built to process automatic claims, despite the fact that 87 per cent of claims holders say that their claims experience directly impacts whether they’ll look to switch insurers.
Some companies will defend their legacy systems as a place where great past knowledge is stored, but the truth is that when those systems were built, buying and using insurance was extremely difficult and frustrating.
“We would all be happier if the processes and knowledge built into those systems were lost forever.”
His views are echoed by Paul Moss, founder of car insurance provider Hey Driver, who says legacy systems are antiquated compared to the systems and technology available today.
“There really aren’t any perks that wouldn’t be available with the new technologies. In the last 10 years, technology has led the way in business for systems/methodologies and 360 best practices.
“I actually look at the efficiencies, communication, accountability, and comprehensive viewpoints of the technology team and try to figure out ways to integrate those into other aspects or departments within my company.”
‘We need to move on with the best bits’
For Nicky Peterse, principal customer success manager at pure-play customer data platform BlueConic, replacing a system is the easy part – the harder part is adapting to the new system to ensure you’re working in the most efficient and effective way possible.
“When you approach any modernisation of technology, it’s always important to consider what features and functionality you really need from the legacy system in your new system.
“It’s not worth investing in two systems, so you need to ensure you’re replacing your existing technology with something that’s more efficient, powerful, scalable, and useable.
“You may want to shadow run or trial a new system along with the old technology before you phase it out to make absolutely sure it doesn’t create any gaps in your process or data.
“If you end up keeping a legacy system just for its perks, then you may not have chosen the right technology to replace it with after all.”