It’s safe to say that you won’t find any punch card readers in use at insurance companies anymore, and you’d probably be hard-pressed to even find a typewriter. Those two machines were instrumental to record keeping and data processing at insurers for decades but, ultimately, they made way for a new generation of business technology.
Every technology in place at insurers today will be obsolete some day; however, many companies aren’t willing to give up on their legacy systems just yet.
“The truth is, there are many companies that have been chugging along for decades with back-room systems written in RPG or COBOL. You don’t talk about it at conferences because it’s not ‘cool,’ but it’s the reality of the industry,” says Gregory M. Lawler, vice president of information technology at Government Personnel Mutual Life Insurance (GPM Life).
“Especially at smaller to medium insurers, sometimes it is just a practical to retain legacy technology. Given the market they are in, the business they want, and the fact that a current system represents sunk cost and does what they want and they know how to support it, the decision makes sense,” says Frank Petersmark, CIO advocate at architectural consultancy X by 2.
Surprisingly, cost is not the main inhibitor to technology modernization. “We find the most commonly stated reason why insurers are not migrating to a new platform is that they feel the risk of replacement outweighs the benefits,” says Martina Conlon, principal in Novarica’s insurance practice.
The risk lies in trading the known for the unknown. Systems, particularly core platforms, contain business rules that reflect decades of company history, records of products and customers, data that can be mined and other valuable assets.
“Companies worry that new solutions on the market won’t meet what they need, won’t meet their needs quickly enough, or will come with new problems of their own,” Conlon says. “In some cases, organizations also have a sense of the risk involved with the transformation because they’ve had failed projects, problems with vendor management, or other problems that have derailed previous replacement projects.”
A solid core
When Lawler was CIO at his previous employer, SWBC, he annually assessed whether to replace the company’s insurance tracking system, which was the core support for SWBC’s collateral protection insurance business.
“Every year we evaluated the system, and every year we came to the same conclusion — the code was working fine,” says Lawler. “It would have cost between $10 and $15 million to replace that system, and we would not have sold one more policy if we did. Therefore, we were going to ride it as long as we possibly could.”
In business for more than 130 years and writing a full array of personal and commercial lines products, Michigan Millers has accumulated a collection core processing and ancillary systems. “We have deployed modern technology wherever we can, although we have a few dinosaurs,” says Maria Jasinski, vice president of IT at Michigan Millers.
One of those dinosaurs is its AS400-based commercial policy administration system. Although the company replaced its personal lines system in 2009, Michigan Millers is retaining the commercial platform for now.
“The two lines are different in that automation is a much more important part of personal lines than commercial, and we needed to modernize personal lines to achieve that automation,” Jasinski says. “Our strategy in all lines of insurance is built on leveraging strength of relationships with agencies, and our current commercial lines system can support that based on the changes we’ve made.”
Those changes include a new web front end for commercial lines, which Michigan Millers deployed in 2010 for use by both agents and internal staff. “Having drop-down lists, automated class code lookups, underwriter-agent communication, and other features increased the usability of the system,” Jasinski says. “From our agents’ perspective, they are getting responses faster and reducing the manual work they or their staff needs to do.”
Michigan Millers is also in the process of adding an underwriting rules engine, scheduled for completion in July of this year, to target straight-through processing of smaller commercial accounts. Their initial goal is for 50 percent of accounts to pass through without underwriting intervention.
A legacy of challenges
Keeping legacy technology does have its share of challenges. “On the negative side, they’re not making any more RPG or COBOL programmers. That is the hardest challenge to solve,” Lawler says.
The technology industry is trying. IBM has partnered with dozens of colleges, proving COBOL curricula and donating hardware for training. However, even with those efforts, there is likely to be a growing shortage of COBOL programmers.
“We do have a greying of the workforce,” Conlon says. “Insurers need to address talent management to be sure they have the people on staff they need, whether it’s training people internally or partnering with third party technology resources. Also, insurers need to address the fact that if they are maintaining older code, they may have a challenge attracting workers who want to work with newer technology.”