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Legacy Modernization’s Unanticipated Cost

 
April 19, 2016

Its unlikely anyone needs convincing about the importance of legacy modernization. After all, modern core systems are the foundation for everything digital, customer focused and innovative you must do to compete and grow in an increasingly hyper-connected world. Yet many insurers continue to avoid modernization.

The reasons may surprise you. New research developed by analyst firm Novarica, in partnership with TCS, reveals its not a lack of effective new core systems or the cost of the software that discourages insurers from modernization. Rather, the fear of business disruption and expense of data migration are the biggest inhibitors, according to Novaricas The Hidden Costs and Challenges of Insurance Legacy Systems Modernization study.

Even worse, theres a hidden inhibitor that is usually not recognized until after a modernization effort is underway: The cost of migrating business logic (product, process, forms, authoring/management) from poorly documented and diverse legacy systems. This can run into more than $10 million, not to mention adding years to already-complex projects.

How can you address these challenges and still gain the benefits of modern core systems? I asked Novarica president and CEO Matthew Josefowicz to explain when I spoke with him about the study.

Novaricas research revealed that insurers usually dont anticipate the difficulty and costs related to the business logic and rules extraction procedures involved in legacy modernization. What are the implications of this misunderstanding?

Matthew Josefowicz: The cost of rules and logic extraction is not typically one of the first things you think of when youre looking at a core systems replacement project. The purpose of this report is to help carriers be aware of the issue and help them plan for it, so its not a surprise when they are finalizing their business cases — or worse, when they are in the early stages of an implementation and then are forced to reckon with an additional cost they didnt count on.

Matt-New

The worst thing is to go through all the needs analysis, put a project plan together, form a relationship with a partner, and then you start looking at the actual complexity of the migration especially the business logic and rules migration. All of a sudden your project cost balloons by 20%, and now youve got C-level executives asking a lot of uncomfortable questions. Then the project gets put on hold because you have the CFO and CEO saying, Wait a minute, these guys clearly didnt know what they were getting into. Lets just pause everything while we figure it out.

Thats the risk were trying to help carriers avoid. Its not just planning for data migration. Legacy systems have a lot of business rules embedded in them. In many cases theyre poorly documented, theyre not easily accessible, theyre handwritten into COBOL code in unexpected places. Once carriers look at that they ask, How are we going to do the actual discovery of what our business rules actually are? The cost of that, and the cost of migration, can be very significant. We found that the fear of the cost of the product rules configuration and the forms rules configuration is actually a more important inhibitor to doing a core transformation than the cost of any software package.

What can insurers do to address the potential disruptions and also to avoid the surprises related to the complexity and costs of rules and logic extraction?

Josefowicz: Insurers really need to think about what it is going to take to migrate all their logic as part of a new implementation. Thats often overlooked. Or they looked at it five years ago, got an estimate that was massively expensive and concluded, Thats going to sink any business case so why bother? It needs to be incorporated into the business case up front so its not a surprise.

Carriers also need to talk to potential partners about the migration issue. This means talking to services partners that have the expertise in doing this migration, and getting a high-confidence estimate they can put in their overall business cases when they first propose modernization.

What else is critical to accomplish a successful legacy modernization effort?

Josefowicz: Think of legacy modernization initiatives as organizational transformation programs, not IT transformational programs. Youre not buying a new IT system youre changing the way you operate and enabling that with new technology. There has to be organizational buy-in and enthusiasm, and it has to be led from the business executive side, not by IT. There has to be a commitment to changing operations. Just buying new technology for the sake of new technology is not worthwhile.

Hear more from Matthew Josefowicz on Novaricas legacy modernization research at this on-demand webinar The Hidden Costs and Challenges of Insurance Legacy Systems Modernization, and obtain a copy of the report here.

Katherine Burger is a Practice Lead with the Insurance and Healthcare unit at Tata Consultancy Services. She is a thought leader and communicator in the area of business technology, with a particular focus on analyzing the ways technology enables financial services organizations to be more productive, competitive and profitable. She served as Editorial Director of Insurance & Technology from 1991-2015 and Bank Systems & Technology from 2003-2015. At I&T and BS&T, in addition to directing the editorial strategy of both brands, Kathy handled both digital- and print-medium publications, spanning from new products and editorial supplements to live and online events, including summits, forums, webinars and roundtables. Kathy has been a frequent speaker and/or moderator at financial services industry conferences, and also has presented at a number of technology company user group and sales force events. She is a graduate of Carleton College.