This article was originally published on Insurance-Edge.Net on June 11, 2020.
With global Insurtech revenue expected to top $10 billion by 2025, traditional insurers must start examining ways of modernising their systems to remain relevant for today’s digital-savvy customers. This is no small feat given the complexity of the technology environments of financial services companies, and the reliance of incumbents on monolithic architecture that have primarily remained on-premises despite the appeal of cloud-based solutions.
Complicating a potential migration to more digital-centric environments is the fact that many on-site services integrate into third-party offerings. For example, the public vehicle register of a government. Any development or change to the environment, no matter how small, requires significant effort. Insurers are also limited in scaling their solutions horizontally (by adding more machines) or vertically (by adding more computational power or memory to existing machines).
Any additional load will, therefore, require significant investment in more physical and people resources to support it. To continue operating effectively, an organisation’s resources must be allocated around the clock. But this is where the challenge lies; by having to dedicate so much attention to maintenance due to the rigidity and size of existing legacy architecture, an insurer is left with precious few spare resources to focus on and drive innovation.
Typical disadvantages of such a traditionally focused environment include the following:
As engagement with customers increases across insurance touchpoints – think websites, call centres, chatbots, and the like – traditional systems cannot provide the performance improvements required to operate effectively making the systems difficult to scale.
The inability to fully embrace a multi-channel environment inadvertently places existing systems under strain and requires significant implementation efforts to review these monolithic architectures. As the systems are inflexible, there is limited possibility of allowing for a hybrid approach that connects on-premises sources with cloud-native ones.
Traditional environments have no native support for containers, a standard unit of software that packages code and its dependencies, therefore, their benefits that include speed of application delivery and reliability as well as dynamic scaling functionality, won’t be achieved.
With no native support for the practice of DevOps that advocates an agile relationship between development and IT operations, teams aren’t able to act or perform cohesively. There is no possibility of fast prototyping, resulting in a low or slow time-to-market.
Making the Move
However, by moving to a cloud-native architecture, an insurer opens itself up to a myriad of new possibilities. These born in the cloud architectures are designed to maximise the benefits of a distributed platform. This means that an insurer can focus more on its strategic business objectives and less on maintaining legacy systems.By moving to a cloud-native architecture, an insurer opens itself up to a myriad of new possibilities. The insurer can focus more on its strategic business objectives and less on maintaining legacy systems. Click To Tweet
However, it is not recommended to “rip and replace” an entire legacy system or applications either. When it comes to cloud adoption, insurers should focus on quick wins, using quick sprints. Typically, this approach is more successful than one that seeks to drive massive change over a more extended period with a big-bang approach.
Fortunately, the capabilities of Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), and Software-as-a-Service (SaaS) providers mean that it is possible for an insurer to incrementally move new business services to the cloud and still keep its on-premises services running. It also opens the possibility of creating hybrid architectures that enable innovation to be introduced without disrupting the current business environment.
An insurer can, therefore, reinvent itself at its own pace while still being able to deliver an improved customer experience. This is critical when aiming to create differentiation over competitor Insurtechs, who already service customers using the channels they prefer. However, an insurer must leverage its reputation and experience in the industry and then couple it to this enhanced customer experience so as to create a stronger position for itself in the market.
An insurer should consider commencing a cloud journey by integrating its internal services with an API-led approach. This provides the foundation to develop applications that can be customised more effectively to deliver a faster return than more traditional ones.
New developments should be moved into the cloud by creating microservices that can easily scale with the new load it is expected to handle. For example, a Web-based Integration Platform-as-a-Service (iPaaS) development tool speeds up the integration of on-premises services and third-party cloud-native services. Since SaaS providers require extensive integration with a cloud-native integration (iPaaS), the much-needed agility is improved.
Some of the advantages this provides include a simplified development approach, unlimited scalability through microservices, a higher resource utilisation thanks to IaaS and PaaS optimisation, and the availability of more dynamic reporting.
A hybrid architecture can also deliver several benefits to the insurer:
–Overall performance increase
–Agile, better-performing front ends
–Unlimited horizontal load dependant scaling
–Multi-channel API-first and API-led integration environment
–Frictionless mobile device support
-Integration with legacy databases
-Integration with a PaaS data warehouse
–On-premises or in-cloud service integration
–Support of containers (Kubernetes or Openshift)
–Fast prototyping and time-to-market
The Future is Now
By overhauling their core systems and infrastructure, insurers become better equipped for the requirements and expectations of a digital world. For instance, implementing personal voice assistant capabilities like Amazon Alexa or Google Home, and even leveraging artificial intelligence capabilities to deliver more customised customer solutions, all become not just a possibility, but a reality too.
The digitalisation journey will only accelerate as more businesses and industries wake up to the potential of the cloud. It is happening right now due to the surge of remote workers and the inability of salespeople to pop out and walk customers through their insurance portfolio changes. Even though insurers do face challenges in migrating to such a dynamic new environment, it is critical to begin as quickly as possible. The significant cost savings, customer advantages, and flexibility to scale according to business requirements make for too compelling an argument to ignore.