New Markets, Old Technology: A Strategic Mismatch. (End Analysis)

By Johnson, William Julius; Andrews, Michael | Risk Management, July 2003 | Go to article overview

New Markets, Old Technology: A Strategic Mismatch. (End Analysis)


Johnson, William Julius, Andrews, Michael, Risk Management


In the 1970s and 1980s, when legacy insurance applications were built, hardware platforms were expensive and software was cheap. This led to difficulties years later, including the year 2000 fix and the maintenance burden for technology companies struggling to understand, repair and expand applications.

Research indicates two core insurance systems--policy administration and claims--are the oldest, with one-third over ten years old and many more much older. One-third of insurers consider modernizing or replacing these systems to be their top information technology challenge. While the inflexibility of aging processing platforms is understood, the risks posed by retaining or migrating away from these legacy assets and the downstream impacts on customers, distributors and third parties are more obscure. This is because most IT departments tend to mitigate risks on a project-by-project basis.

The Legacy: An Automation Time Bomb?

Legacy applications are described as "systems that work." They have provided reliable, daily processing and a repository for business knowledge and corporate policies. As computer and human assets age and knowledge is lost through attrition or restructuring, these applications have come to embody the most complete history of market, regulatory and company policy changes--a grassroots corporate memory.

Embedded memory keeps many insurers from replacing aging applications. And when specific business relationship requirements (e.g., channel communications) are also embedded, successive changes over years have added rich function but also layers of logical patches. The systems are undecipherable and difficult to change or extend.

Multiple applications, which may overlap in function and associated processes, have added an operational burden to the maintenance headaches. These applications often run standalone with batch feeds of financial results periodically compiled.

For the insurers using these systems, this represents an enormous daily operational challenge. For their IT departments, this often means a fragile infrastructure with many possible points of failure. …

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