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Property/casualty insurers show progress in updating core systems

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Property/casualty insurers show progress in updating core systems

Property/casualty insurers are making significant headway modernizing the core policy administration, underwriting and claims systems that enable their operations, according to a new report released Thursday by insurance advisory firm Celent L.L.C.

The report, “Ensuring Success In Core Systems Replacement: Operational Considerations and Emerging Strategies,” is based on a fall 2012 survey of 141 property/casualty insurers across the globe. Roughly 50% of respondents of the survey reported making significant inroads into their legacy modernization programs, double the percentage of a similar survey conducted in 2008.

The move to replace core systems is due to the realization that companies that fail to update legacy information technology may well be at a competitive disadvantage when it comes to areas such as business agility, according to the report.

“The drag effect of legacy systems on the P&C insurer is a reality,” states the report authored by Catherine Stagg-Macey, senior vice president in Celent's European insurance practice. “As the market shifts to modern platforms that offer greater flexibility to respond to market requirements, the requirement to undertake the replacement programs become more pressing.”

When it comes time to modernize their core systems, insurers have a variety of options, including replacing the system outright, keeping the systems in place but wrapping them in a modern interface, outsourcing the system to a third party, and consolidating several core systems.

Insurers should weigh all options before embarking on a modernization initiative, Celent advises.

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“There are several viable approaches to addressing legacy IT within the insurer,” the report states. “Each approach has its strengths and weaknesses and should be considered in the context of the specific problem. How insurers respond to this challenge will vary and depends on risk appetite, specificities of the existing applications, vendor offerings at the time of review, costs and the business appetite for change.”

Above all, the report states that insurers need to realize that core system replacement is not just another IT project, and that insurers that treat it as such may well miss a chance to transform their business operations.

“Programs that address core system modernization are by their very nature programs of change that touch several areas of the business,” the report states. “Seeing this as merely another IT program is a surefire way of getting old legacy products and processes on a new modern platform.”

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