Articles - The Insurance Technology Revolution: Leaving Legacy Behind

The insurance industry is in the throes of a fundamental recalibration of how it prices and interprets risk. This shift is being turbocharged by the rise of telematics, the internet of things and the ability to automate analysis of increasingly large and granular customer data sets.Technology plays a critical role in meeting this challenge by allowing underwriters, actuaries, marketing, and finance staff to electronically collaborate across disbursed locations.

 By J.P James, Head of Insurance at FIS
 Insurers globally are continuing to invest in IT infrastructure as a result, with one estimate by Celent putting the sum for 2016 at approximately $185 billion.This is investment that is intended to drive innovation in channel optimisation, claims fraud identification, digital marketing, product development and underwriting. The IT teams responsible, however, are also being asked to improve regulatory compliance, boost revenue growth and ensure operational efficiency.

 This is a formidable array of demands. And a recent survey of 500 senior insurance professionals, commissioned by FIS, found 99.6 percent of respondents admitting that they face obstacles to delivering innovation. They blamed inadequate planning, resourcing constraints, institutional constrictions and emerging challenges for management.

 Power, speed, availability
 The main driver of high IT spending is generally the co-existence of legacy and modern platforms and continued use of mainframe legacy systems to run core applications. This brings with it maintenance complexity and legacy technical debt, even as other sectors have migrated to mobile and cloud solutions.

 This comes against a challenging market backdrop which makes the need for clear solutions even more urgent.

 Regulatory demands ranging from Solvency II to Higher Loss Absorbency requirements are increasing compliance pressure, even as the industry goes through this paradigm shift. Staying ahead of the competition requires digital transformation.

 This means modern, flexible architecture is needed. For the risk business, a switch to cloud-based platforms is one that many are taking. The value to our clients is clear: they can leverage more powerful capacities on demand and at a manageable price point, even as more complex models are being built and more regulation coming on stream such as IFRS 17. Security diligence is class-leading and PII is closely managed before data goes to the cloud.

 The consolidation of operational systems on one platform (so-called ‘single platform’ solutions) is another area that can provide significant benefits, ranging from the reduction of core budgets to the streamlining of operational processes.

 An industry transformed by data
 The insurance industry is an information-driven one and the wealth of information available is rising at a staggering rate.

 To monetise this flow of information, insurers need to manage voluminous data from multiple sources – integrating policy prequalification data from new sources with that from traditional rating and underwriting methods.

 Auto insurance, for example, is not the only sector going through a transformation. The improved availability of GIS/geospatial data means insurers can assess risks by employing advanced modelling tools that overlay location-based data on models of buildings, roadways, and other physical features to visually analyse risk.

 Those seeking insurance for business at a given physical location – whether that is a factory or a mine – can provide location coordinates. The underwriter can then cross-reference these details with other location-based data, for example risks associated with disaster or land rights conflicts, to make an informed decision.

 Similarly, the rise in wearable devices that monitor individual health and fitness metrics can provide data that can be used to identify a customer’s behavior, health status, medical conditions, and overall well-being. While this has yet to have the impact on life insurance that telematics has had on auto insurance, this may soon change, with life insurance companies able to subscribe to that data to improve the cost of insurance; including discounts in premiums based on increased or decreased health risk for the individual, risk assessments and underwriting decisions.

 Infrastructure requirements
 To make this highly personalised insurance industry work, insurers need to apply sophisticated algorithms and machine learning techniques to the vast quantities of data generated. This requires advanced tools, and processes to perform core data management, modelling, and analysis functions as the average insurance company works to develop hundreds of prototypes of new products based on this rising data tide.

 To do so, carriers need a way of dramatically scaling up bench testing of product development projects by 50 to 100 prototypes simultaneously. As our survey shows, however, nearly three-quarters of firms believe that legacy technology is too complex to simply replace, with data security concerns and a lack of financial resources also standing in the way of installing cutting-edge technology.

 That’s one of the reasons that we are not just advocating cloud or single-platform leaps, but working with open APIs to make our architecture more open, more flexible and more powerful as it integrates with legacy platforms. What underscores the success stories that we see, ultimately, is a solid partnership between the carrier and provider of business solutions. Those who are serious about taking the next step towards legacy modernisation need confidence that any deployments will dramatically reduce cost overruns and delayed implementations, expedite their ability to develop products and ensure that customer interfaces can evolve in a manner that is fast, flexible and scalable.

 It’s an exciting time for the industry and we are proud to help our clients turn the challenges they face into opportunities to be more accurate, profitable and secure.

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