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The Evolution of Digital Ecosystems
Insurance companies are continuously striving to enhance operational capabilities, support new products and services, and improve the customer experience. To do this, more insurers have been focused on developing digital ecosystems that leverage their existing technical infrastructure and integrate with best-in-class point solutions, insurtechs and other service providers. In this process of developing digital ecosystems, insurance companies often find that they are constrained by their legacy technology due to its inflexibility to support new products and services and the high costs required for maintenance, making the business case for modernization stronger than ever.
Legacy modernization has been on insurance companies’ radar for years as they look for solutions to move away from their costly mainframe environments. Legacy transformation focuses on retaining and extending the value of the legacy investment by migrating to new platforms. The pursuit of cost savings and best-in-class solutions has led some enterprises to build their own "monsters comprised of many moving parts" that, like it or not, just don’t fit together. Many organizations have spent several years of careful planning and execution trying to reach that ideal future state. Even with the best intentions, this will continue to happen until insurers understand their current platforms, and how the mainframe and its ecosystem can not only save the organization money, but can also reduce the overall complexity of enterprise business solutions.
Why the Change – and Why Now?
Insurers are seeking relevance in a changing business dynamic, which has been set by consumers whose needs and expectations are influenced by digital natives – like Amazon and Uber – that offer ease of use, effectiveness and positive emotional experiences. The traditional monolithic insurance products built and maintained in legacy mainframes have served the industry well for decades, but must now compete with new, personalized and focused insurance product offerings and services.
One great example of this evolution is the proliferation of usage-based insurance (UBI) within the auto insurance sector, where the incorporation of real-time monitoring of driving patterns via a mobile application allows carriers to dynamically price insurance for a policyholder month-over-month based on driver behavior — a feature that traditional monolithic insurance policies are unable to support in legacy applications. While this proliferation is beginning in the personal lines market, the shift to small and medium-sized enterprises is seen as a logical next step. Technologies, such as IoT and telematics, allow features like automated first notice loss, real-time traffic monitoring, route optimization applications for fleets, fire and safety monitoring services to enable insurers to support their customers’ growing need for risk advisement.
Moving Towards Digital Ecosystems
Modernization efforts have varied in recent years, including everything from implementing new core systems to exposing the mainframe code through APIs, microservices, cloud migration and other alternatives. Single-solution or shiny software objects that address an individual problem or portion of the business will soon become too confusing and difficult to manage, creating a gridlock in carrier movement to true transformation. The fact is that no single solution can bring about transformation on its own and will instead require a sum-of-the-parts approach managed in a smart ecosystem.
By building a digital ecosystem, insurers can access and orchestrate a myriad of technology and data assets within the organization and benefit from a connected technology ecosystem that is agile enough to evolve and adapt over time. Eventually, this ecosystem will allow insurers to stay up-to-date with information that is relevant to the policyholder’s risk profile. Capitalizing on opportunities for improved pricing, risk evaluation and proactive risk advisement will transform their ability to manage data sources in real-time, and eventually, in a continuous fashion. The time to act is now – insurers and insurtech organizations must work together to respond to changes and disruption in the insurance marketplace.
As traditional insurance products struggle to keep up with outdated technology stacks and rising customer expectations, it is vital for insurers to adapt accordingly to ensure both relevance and accessibility so they can enhance their operational capabilities, support new products and services, and deliver the experience users want. The move to digital ecosystems is making this possible, allowing companies to leverage existing technology assets and enhance them by orchestrating best-in-class solutions, varied data sources, and new techniques around machine learning, artificial intelligence and data science. The first step in this journey must be legacy modernization.