The past decade saw widespread adoption of off-the-shelf core systems in insurance as the industry looked to free itself from the limitations of their legacy environment. These modern on-premise solutions offer a way out of the costs and complexities of operating multiple parallel systems, and provide a clean, configurable, and seamlessly integrated platform that puts speed at the heart of modern insurance companies. But as insurers deliver their expensive years-long implementations, the market has shifted once again, and new demands—for convenience and speed, mature ecosystems of services, and the digital experiences offered by InsurTechs—are redefining the capabilities essential for success in the digital era. With their modern core systems in place, insurers are now facing the challenge of making their investments count in new ways—greater flexibility and agility to scale, accommodation of leading-edge tools, ease of expanding into new segments and markets, and reduced operational costs.
This blog will discuss some major ways insurers are leveraging their modern core systems, and how they are adapting the capabilities of their core to meet customer demands and compete in the digital era.
New approaches to core systems for the digital era
Automation with AI/ML
With the advantages of digitization, modern core systems are ripe for optimization and enhancement using AI and machine learning. On the efficiency side, machine learning algorithms are capable of automating basic but time-consuming tasks, like form intake and entry using document capture technology, which is central to claims processing. As for enhancement, AI can add functionality like Tractable’s automated repair-cost estimator, which provides real-time cost assessments from a customer’s images of an accident. Less flashy iterations of AI, such as RPA, can simply streamline core operations, cutting costs, eliminating manual errors, and keeping teams’ attention focused on higher value tasks.
Business Expansion to new markets or segments
Modern core systems are adept at adding new coverages and expanding existing products into new markets, segments, and states. Their support for configurable and reusable product development makes it easier to quickly deploy new policies to serve emerging needs, build new packages for changing customer profiles, or break them down to offer microinsurance options. In a competitive digital landscape, expanding into new markets is slowly becoming a necessity for many. For example, personal lines insurers—like NJM Insurance Group—are building out commercial coverages in their modern core systems to enter into the commercial lines market. Leveraging their modern core’s capabilities allow insurers to speed up the development, testing, and rollout process, entering the market with their products quickly to capture the emerging opportunities.
Integration with ecosystem partners
Legacy systems are notoriously difficult to integrate with other applications—one of the major problems driving the transition to modern core systems. Unlike legacy systems, these modern systems can be extended to incorporate third-party software and services via APIs. Whether as hub or citizen of a digital ecosystem, leveraging core systems’ ability to integrate data and services with partners will grant entry to the fore of the modern consumer marketplace: seamless digital experiences. PWC reports 79% of insurance executives agreed that by 2025, “insurers will increasingly engage in ecosystems that serve broad needs of customers, where insurance is only part of the customer value chain.” The example was set in 2017 by Lemonade when they made their API public and allowed any app, service, or platform to sell their policies.
Foundation for agility with Microservices
As opposed to treating these modern core as monolithic systems, these platforms can be decoupled from a strictly end-to-end model to capture emerging opportunities. What this means is cutting away the technological infrastructure surrounding core systems and promoting a stronger focus on the organization’s core competencies, reducing the overhead needed to build and deploy new products or services. Instead of owning several monolithic, complex, and static systems, insurers can lean toward running smaller, discrete cloud-enabled and API-connected services that can pair between partners and across industries, with the overall goal of emphasizing speed and flexibility. These are independent services that serve a specific business goal—like processing payments—and can be managed as a single business-technology unit, enabling fast, efficient decision-making that can quickly adapt and respond to opportunities for growth.
Uber, the canonical example, comprises 2,200 microservices that can be switched out, modified, or exported to other businesses without affecting the rest of the system. In June of 2020 Novarica reported that already 80% of insurers had followed suit with some or widespread adoption of cloud-native microservices architecture.
Migration to Cloud/ leveraging SaaS solutions
Migrating to cloud is becoming more widely viable as a prospect for modern core systems, with providers like Guidewire even facilitating the upgrade. Cloud-based core provides for automatic scalability, giving insurers the flexibility to experiment and act quickly on the results, without incurring major IT costs. This translates into leading-edge applications with AI and machine learning, which are becoming more widely applied in every area of insurance. This is in addition to the benefits in cost, complexity, and reliability that have made Cloud so popular. For the insurance intermediary Towergate Underwriting Group Ltd, for instance, one of the biggest in Europe, transforming its operations with cloud has cut annual IT costs by 30%, eliminated two thirds of local servers and hence radically improved reliability, and streamlined its applications from over 2,500 to just 222.
The future of core
The world of today is different from when the first modern core implementations got underway, and now that insurers have largely delivered on digital software solutions, it’s time to stretch their capabilities into the future. Taking full advantage of their configurability means integrating third party software to enrich and automate business processes, while seizing opportunities for expansion wherever they arise with speedy product development and deployment. Bringing modern core onto cloud is a great way to ensure reliability at scale, and become part of the growing digital ecosystems that have surged to the forefront of the industry.
New relationships with customers, agents, and third-party partners have built an environment suited to dynamic service-based insurers; discovering and fulfilling these market opportunities will become the next frontier of competition for modern insurers.
ValueMomentum understands the capabilities of modern core systems and have helped many insurers leverage their core to drive growth in the digital era. Visit our Core services page to see how we can drive momentum to your core implementation or core transformation initiatives.