Large, global insurers are taking on the processes of core system replacement, portfolio rationalization, and infrastructure consolidation. Simplification of the application landscape has forced many insurers to come to terms with the challenges posed by their core legacy systems, according to a new report, “Simplifying the Insurance Application Landscape” from Celent, a Boston-based financial research and consulting firm.
Key findings of the report include:
• There is a general trend of application portfolio rationalization among large Tier 1 insurers. There are two approaches to portfolio rationalization. The first option is to make the process of rationalization a project in its own right. The alternative approach, and by far the more common, is to plan a gradual evolution towards a consolidated landscape.
• Most insurers have a guiding principle of reusing internal assets before buying new. In the US, buy before build is the primary principle. However, European insurers are more likely to consider building a solution, usually in partnership with a vendor. This build approach typically starts with the vendors’ framework, which is then significantly enhanced for that insurer.
• Unhampered by long tail business, general insurers are more likely to rationalize to a single core solution for each region. If the insurer has a speciality line of business, such as excess and surplus lines, this business would be on a separate system.
• Life insurers are converging to two to three core systems, supporting individual and group insurance products. These are duplicated by regions. There is an acceptance that a single “super-application” is not possible or advisable.
• While flexibility is a core requirement for the future IT, cost is the most common quantifiable justification for simplifying and consolidating application portfolios. Insurers spend between 50% and 70% of their IT budgets on maintenance alone. Insurers that consolidated reported double-digit reductions in IT costs.