Living Legacy

Information technology (IT) systems used by insurers to rate, underwrite, process claims and bill are, in many cases, considered “legacy” and require a lot of maintenance.

That could be considered the positive side of some of the legacy systems still in wide use in Canada’s property and casualty insurance industry. Less positive is the fact that some systems still being relied on are so out of date that external partners cannot gain access to them or they are incapable of processing transactions quickly enough to satisfy today’s brokers and consumers.

REPLACEMENT PARTS

Most large Canadian insurers are in the process of replacing legacy IT — one carrier reports having spent approximately $300 million to date — something that is increasingly being seen as necessary going forward. “Legacy applications form the backbone of the IT systems of most insurance companies,” says Anupam Kumari, corporate communications manager at IT services firm Kellton Tech Solutions Ltd. However, an ongoing issue with legacy IT systems is they “also require a lot of maintenance and scaling,” Kumari adds.

A further issue is “these companies are facing multiple problems as the legacy applications are inflexible in creating new digital channels or user interfaces.”

Continued use of legacy systems can “stop insurance companies from innovating and offering more consumer-friendly options to the broker that we can then pass on to the customers, for things like self-service portals,” suggests Scott Heaman, vice president of Advocate Insurance Group in Kitchener, Ontario. “Legacy IT, certainly in the Canadian marketplace, prevents the consumers from having the ability to have their insurance transaction fulfilled in real time,” argues Jeff Purdy, senior vice president of international operations for Applied Systems, which makes software for brokers and agents.

Says Kumari, “With technology companies disrupting insurance with the help of digital platforms, machine learning and robo-advice, legacy applications are a threat” to insurers using them.

New entrants to the insurance industry, “or the disruptors that everyone says will come into insurance, won’t be hampered by the legacy systems,” Heaman cautions. “So, I think the concern there is the company will be able to deploy a new system without any of the upgrades and compatibility issues that an established insurance company would have,” he points out.

Sue Britton, founder and chief executive officer of Fin+Tech Growth Syndicate, echoes that concern. “You are seeing companies create stand-alone digital platforms and launching them as separate businesses,” observes Britton, citing as an example Sonnet, the direct writer launched by Economical Insurance last year.

DOUBLE TROUBLE

One consequence of a legacy IT system could be that a broker, when updating a policy, would have to enter it once into a broker management system (BMS) and then again into the carrier’s system. “We have to enter it into the BMS and then go into the portal and enter it again, so that causes inefficiency on our side,” Heaman notes.

“It would be highly unusual, unfortunately, in the marketplace today, for a consumer, through the broker distribution channel, to go to a broker’s website, price, have the documents and have that transaction fulfilled in real time,” Purdy reports.

The situation is only made worse by the fact that different companies are updating their systems at different times, leaving brokers to reconcile things.

“Companies are at various stages of replacing their legacy systems,” Heaman says. “Every time an insurance company chooses to use a different system, it creates one more system that our BMS has to integrate with,” he adds.

Consider, for example, the delays that result because many processes in p&c insurance require signatures. “Part of the need is to have automated signature capabilities online,” says Bob Smythe, a Toronto-based associate analyst for IT market research and consulting firm International Data Corporation (Canada) Ltd. Noting that there are a number of companies offering online signature capabilities, “if you have to rely on paper… that can delay the whole process.”

In the Canadian market, “insurers are migrating towards platforms that are well-proven because they are not willing to take the risk to try and adapt or modify a platform that they might like, but that doesn’t have the track record,” suggests Ted Harman, president of Montreal brokerage Accent Insurance Solutions.

A number of vendors are offering solutions. Harman, a former vice chair of the Centre for Study of Insurance Operations (CSIO), reports that the majority of carriers his brokerage represents have opted for the same vendor’s policy administration system. One such insurer is Aviva Canada, which is “starting the conversion process” to install software, in this case from Guidewire, for its policy administration, claims and billing, says Dennis Dalmas, vice president of business solutions for the insurer.

That conversion is the insurer’s “target state,” Dalmas notes. “We are starting that conversion process, but the ask from a broker is, ‘Give us connectivity to your systems. We don’t want to use this; we don’t want to use that.’ So, there is this demand, and our legacy systems don’t provide this functionality out of the box,” he explains.

“The benefit of the investments in legacy IT that insurers are making today — and, frankly, that brokers are making today — are the upgraded IT and infrastructure will enable a broker to add digitally and to provide a digital experience to their consumer,” suggests Purdy.

“We have to bridge the old and new world,” Dalmas contends. “I am extending our legacy systems until we roll into that target state, especially for our broker channel, which will be over the next two years,” he reports.

For its part, Wawanesa Mutual Insurance Company replaced its claims systems in 2012 for one that “allows real-time claims processing,” Carol Jardine, chief strategy officer for Wawanesa Insurance, points out. “In time of catastrophe or great need from our customers, if we put a claim in today, it is visible to our entire network immediately,” Jardine says.

Most “big-name” insurers in Canada are “replatforming,” Purdy says. “The insurers have these platforms that provide rating, underwriting, claims and billing capabilities, and when those capabilities are old, often the insurer can’t expose those systems to the outside world,” he observes. “When they put in new technology, they can expose it to the outside world through application programming interfaces,” he says.

Wawanesa Insurance, which Jardine reports has invested more than $300 million in transforming its legacy systems, is among the insurers implementing major IT upgrades. In the event of a catastrophe, such as wildfire, “you are able to look at your policy-in-force count live, put in the claims that are coming through from your brokers, and deploy your claims staff to the appropriate geography faster,” she explains.

In 2015, Wawanesa Insurance in the United States replaced its policy administration and billing system, Jardine says. Noting that the company’s “U.S. operations have been on Guidewire doing real-time processing now for two years,” she says, “we are going to be offering similar real-time processing solutions to our brokers and our customers in Canada in 2017, starting with Alberta. Our plan is that by the end of 2020, all of our business will be on our new systems.”

TEAR DOWN, BUILD UP

Should an insurer completely rip out and replace its legacy system? “That’s the $64 million question,” Harman quips. “I know people who have lost their jobs over that question.”

Kumari’s view is that replacing legacy systems with “new age” systems is the best approach when an insurance provider has legacy systems that are expensive to customize. “When complete replacement is not possible due to multiple dependencies within the system, then it makes sense to integrate new functionalities in the existing legacy system,” she says, adding that new functionalities could include things like a marketing site, customer sales portal, agent portal, mobile apps or customer analytics.

Some carriers will not have staff and skill resources to completely replace their legacy IT systems, suggests Bryan Bedford, manager of strategic projects and privacy officer for Peel Mutual Insurance Company in Brampton, Ontario. For mutual insurers, another stress point is that “what we are struggling with is our IT is in place, we are a smaller company and finding the resources to rip and replace is more difficult.”

Changes that ready systems for future conditions and demands, however, are needed regardless of the type of insurer.

DATA DILEMMA

The ability to take advantage of the increased amounts of data “becomes much harder with legacy platforms,” Purdy suggests. “The ability to enrich data for the consumer today is significantly greater than it was a few years ago,” he reports, citing as an example some third-party data services that are designed to insert risk information, on a specific property, into an insurer’s rating software once the customer or prospective client enters his or her address.

“You may not be able to store some of that third-party data because your legacy system is old and I think that becomes a business problem, frankly, because then your ability to (make decisions based on) that data is just compromised,” Purdy argues.

For underwriting, Wawanesa Insurance uses several data suppliers. “Any data that is available to us externally that we use, we integrate it into the system both from an underwriting perspective and from a claims perspective whenever we can,” Jardine points out, adding the insurer has its own data warehouse.

Its new team of data scientists are “looking at our data warehouse and ensuring that the data can be used in many different ways,” she says. “So, in the past, the data would fit into a particular field. Now, we have more freedom in how we look at data and how it can be used and how it can be analyzed,” she explains.

Data clearly has its benefits, but with there being so much of it, challenges arise. Some insurers, in fact, are struggling to process all this available data quickly enough.

Dalmas points out that most carriers running mainframes shut them down daily. In addition, with some legacy systems, transaction processing is done in batches and not in real time, he says.

“Batch versus real-time processing continues to be an ongoing challenge” for insurers, suggests Mike Rose, sector vice president of insurance for CGI Group Inc., a systems integrator and IT services firm based in Montreal.

“Batch is a form of asynchronous messaging, but we can reduce the cycle time,” explains Elaine Basque, CGI Group’s vice president of consulting services. “So instead of it being an overnight batch, without necessarily harming your performance in production, you can write data in a batch system, to a separate table, multiple times a day instead of once a day,” Basque notes.

For example, an insurer may have “a hard constraint” requiring its general ledger (GL) system gets a batch update nightly, she says. “However, that doesn’t mean I can’t write to the GL file multiple times a day and then other systems — that are interested in interrogating the data that’s flowing to the GL — could potentially get to that data in kind of a real-time way,” Basque adds.

If there are multiple changes on a policy and those changes have to be done “over a series of batch overnight processes, it could take a number of days for a set of changes to get processed appropriately,” explains Jardine.

GET REAL TIME

That said, work-arounds are available for some legacy systems. A company may not necessarily be able to get away from a batch or an asynchronous integration, but it could reduce the time between updates and make data available “so it can be interrogated by other systems that maybe can’t wait” for the nightly batch update, Basque explains.

“We want to start moving away from the batch processes,” Dalmas says, noting customers are demanding it. “It’s like, ‘Why can’t you guys do this in real time?’” he relays. “So, any of the services that we want to build, we would want to build in real time or near real time, knowing that there will be a real-time component very soon in the future.”

Real-time transaction processing is “something that our broker channel has been asking for for a while,” says Dalmas. ‘I think it is a great thing to do for the channel, as well as for the industry, in terms of leveraging standards for how brokers want to communicate with us,” he suggests.

Portals are another big “sticking point” for brokers because they need to use different portals for different insurance carriers, Dalmas says. The “road map” that Aviva Canada is trying to get to is to allow brokers to exchange data between their systems and the insurer’s back-end system, he points out.

“Between our legacy systems and what that target state is, we are trying to create some new services,” such as new business uploads, using application programming interfaces, Dalmas says. This will allow brokers to “start interacting with us digitally, so that when we get to our target state, our target platform, it’s a seamless migration.”

GET COMPETITIVE

Legacy IT “is a vexing problem that never ever goes away because you continually have new demands placed on you — new requirements for data, new requirements for service,” says Accent Insurance Solutions’ Ted Harman. “The only way you can respond to those things is to have a system that is plastic enough, that is dynamic enough to be able to be modified and re-jigged,” Harman adds.

“We are always just trying to build a better product or innovate it rather than disrupt or create a whole new way that insurance is transacted,” notes Scott Heaman of Advocate Insurance Group.

Still, “I think that advantage could fall to somebody who doesn’t have any history in the insurance industry and they are not hampered by a legacy system,” Heaman cautions.

Legacy systems are one of the biggest challenges for established insurers, suggests Sue Britton of Fin+Tech Growth Syndicate. “Ultimately, if you think about who they’re going to be competing with, they are folks who don’t have those legacy infrastructures and that don’t have those cost bases,” Britton says.

“It’s a long process to replace a legacy system, but the good news is we can face the current disruption of insurance head-on and actually find solutions that are going to work for our brokers today,” Jardine notes. “The new insuretechs and the new start-ups can embrace the new technology as they invent themselves. We, as insurers, have to reinvent ourselves in order to compete and ensure our viability as we too get disrupted.”