Deceiving To the Core

A recent review of trends for strategic initiatives in the insurance-industry showed core transformations remaining relatively flat over the period between 2015 and 2020. At first, we wondered why: Is it because the need is constant and is being addressed relative slowly and, perhaps, consistently? Especially in light of the fact that so much marketing communication and trade advertising seems devoted to legacy-system replacements and core transformation, we would have expected that particular initiative to be trending upward more steeply. We would have been wrong. Here’s why:

A Closer Look

On further review, we discovered that roughly 85 percent of all insurance companies are in the process of replacing their core systems. They’re all at different stages, of course. But since core-system replacements typically take so long, the fact that the trend line stays relatively flat become less surprising. And in more than a few cases, the replacement systems take so long to implement they’re obsolete before the transitions are complete.

Given those realities, it’s much more constructive, much less frustrating, and much less expensive in the long term to treat modernization as an ongoing process of continuous improvement. That’s why we don’t recommend standard buy-and-license models to our customers: Core transformation isn’t— and shouldn’t be considered — a once-and-done thing.

One More Thing

There may be some confusion between initiatives typically characterized as digital transformation or as core transformation. From the perspective of modernization, though, those terms may be red herrings. Everything today is digital. If it’s not, it’s quickly on its way to obsolescence. What that means is that insurance companies, particularly insurance companies that run multiple core systems, have to prioritize the value they’ll derive from modernizing each of them. (What are the chances any core transformation won’t be digital?) It’s entirely possible that their usage of or dependence on some of those core systems is so small they don’t warrant updating or modernizing. So, the companies continue to run them, as is, until a better option comes along.

While core-transformation trends may be appear to be flat, they’re flat at a very high level. And they’re flat at a very high level because, in most instances, modernization is and should be ongoing.

Don’t be deceived.