As Insurers Navigate Turbulent Times, Modernization of Experience and Technology Becomes Table Stakes

Insurers prepare for a difficult 2023.

Most observers agree that economic headwinds lie in front of us- whether or not we are technically in recession as you read this. In addition to a challenging economy, insurers must also deal with nontraditional competition from insurtechs, fueled by the demand for a better experience.

The changing nature of consumer interaction (with examples ranging from the workplace of the future to even Telematics 2.0) drives a digital and interactive ecosystem that represents a meaningful change from the organic relationships we have known for decades.

So, despite the economy, demands for change in the experience – and the business transformation to enable it – continue unabated.

As technology teams feel pressure, recent achievements raise the bar for the future.

Insurance technology teams have accomplished a great deal under the pressure of the early 2020s. Industry observers encourage carriers to build upon the momentum that enabled sweeping transitions to a remote workforce and virtual client engagement nearly overnight. 

As noted, the economy looking forward will not necessarily reward this hard work. At the very least, IT operating budgets are likely to be stressed through at least 2023- with budget increases barely keeping pace with inflation- or perhaps not even.

Whatever the obstacles, it remains IT’s job to deliver outcomes.

Despite funding constraints, IT organizations remain on the hook, as so much of the change before us is technology driven. Customer and employee experience, insights from customer data, adaptability, and resilience are all top priorities. 

The industry-wide IT skills shortage continues. So, with inflation up, returns to investors down, and the cost of resources going up, we remain under pressure to optimize costs. Many will face the oldest project of them all:

• the need to get more from less,
• to cut costs while sacrificing none of today’s performance characteristics, and
• modernizing to meet the customer experience demands that have become table stakes very rapidly.

Modernization is risky and a long-term proposition

Long experience has now established that incremental modernization is the route to success, rather than long planning cycles around “big bang” or “rip and replace” upgrades which carry an unacceptably high risk of failure. But while this approach is safer and more likely to yield results, it creates complexity over a longer duration.

Claims from modernization providers are frequently exaggerated- in capability, timeline, and total cost.

We must maintain performance and availability

Whatever customer or user experience shortcomings, legacy systems feature the attributes of reliability hardened over (in many cases) decades.

Wholesale change over many years, especially with constrained resources, requires the right kind of plan

A realistic view of modernization planning

At one client, we found disagreement among senior executives, specifically between

• those who saw the value of the mainframe-based legacy system and would therefore transition cautiously to more adaptable platforms over time, and
• those who would move from the platform quickly, risking potentially severe operational issues during the transition.

In addition:

• a highly competent technical team had no interest in migrating away from what they do so well. Indeed, they “protected” the platform with modernization estimates so high as to present such investment as impractical
• the high percentage of analog, paper-based input into the system provides an additional impediment to change
• the data model did not lend itself to being segmented without a complex bidirectional replication.

For any scenario, the client would not permit hybrid complexity to compromise current levels of performance, availability, and recoverability (i.e., housing both data and function on-premises and in the cloud).

In another scenario, the client described its effort as a “mainframe decommission study.” Our analysis revealed that despite the client’s hard work, they had not found a targeted destination for approximately 20% of the workload.

In a third scenario, the client was determined to replace longstanding functionality with a more adaptable platform. Yet organic growth on the legacy platform was such that even if all of the modernization initiatives currently underway were successful- the demands on the legacy system would be the same in 2025 as they had been in 2015.

The value GTSG brought in each of these scenarios was

• to understand at least at a “shirt-size” level the effort in front of the client,
• provide objective evaluation of the likelihood and timing of success of each potential initiative,
• and then get to the arduous work of optimizing the environment for the long haul, including the mitigation of transition risk in performance and resilience,

Sometimes, we help clients prepare for difficult negotiations with providers who know their technologies will be sunset.

Evolving decision inputs require a living strategy

The right kind of decision framework maximizes the benefit to the business from finite available resources. 

Whether modernization efforts, workload migration, or the selection of automation priorities, the job is to bring the best return to the business. GTSG begins our strategy work by building guiding principles, which our clients discuss and debate widely before adoption. These guiding principles must account for any adjacent initiatives that impact the same priorities or compete for the same financial or human resources. We then convert these principles to a set of technical design points, which translate the principles to an executable (and testable) level.

For example, “we’re going to be sustainable” is aspirational until we measure quantitative progress against a concrete plan. And it is probably not practical without an economic metric to ensure that we’ve provided for it financially.

Change is continuous: Gartner tells us that a staggering 50% of workload placement decisions will need to be revisited between 2022 and 2027. ^[i]

This fluid situation calls for a truly “living” workload placement strategy. Insurers will continually make decisions on where to move from today. They must do so without losing sight of strategic priorities and without exacerbating operational performance or resilience risks.

A quote attributed to Dwight Eisenhower is that “plans are useless, but planning is indispensable.”  Good consultants do not “hang around” forever. They build a structured framework to enable downstream decisions based on what we have learned.

We apply this belief in an agile fashion –’ the ability to create and respond to change…a way of dealing with, and ultimately succeeding in, an uncertain and turbulent environment. ^[ii]

Managing the complexity of hybrid IT

Performance and resiliency considerations are at the forefront of modernization and workload placement decisions.

As students of the Insurance Industry and as Gartner-recognized subject matter experts, GTSG understands that we must only move workload with a complete and detailed understanding of the interrelationships among applications, databases, and services. We require this thorough knowledge to construct least-risk move groups. But it is even more important to be confident that workloads will deliver a positive customer or employee experience.

Even as on-premises data centers become smaller, infrastructure & operations management disciplines become more critical.

Even in the simpler days of the on-prem data center, many organizations struggle with some components of the [hybrid] cloud management function. We all know shops for whom DR has been an issue forever, cost management is a struggle, service catalogs are inadequate, or for whom problem determination is overly labor intensive. The hybrid environment only elevates the degree of complexity.

Getting the business case right

As macroeconomic headwinds and competitive pressures continue, financial considerations are paramount for planning this “sea change” in workload delivery.

Vital to the insurer- and career make-or-break to the executive – is a business case considering all the transition costs. It is a long-term transition, and funding does not come at once: realistic financials are essential and can be complex. Appearances can be deceptive.

There are duplicate infrastructures, migration, refactoring, and other costs for a season, along with training and skills requirements associated with new tooling. Organizational change management needs to be a primary consideration.

Unfortunately, we have also seen promises of rapid payback on legacy systems replacement – without considering contract, lease, or facilities terms, let alone refactoring requirements.

The answer is always, always in the details. 

Automation is table stakes: to meet the skills challenges and to drive productivity to help fund the change

GTSG built a straightforward, practical workshop-based approach that

• examines and evaluates the opportunities for automation,
• sets the context of
  • what is most important to the organization,
  • what resources will be required, and
  • places each potential initiative into a “high/low pain/gain” matrix. This is critical: one organization reported success in automating 37% of a process – while realizing 64% of the potential benefits from automating that process. We must avoid the trap of automating as an “end” – rather than a means toward business objectives.

We do this while concurrently working through an initial implementation target – a pilot – which focuses the organization on getting the initiative underway while learning valuable lessons applicable to a 6-12 month roadmap. [Anything longer-term tends to add more complexity to the decision-making process and dilutes focus.]

Resources may be constrained, but the demands of the business are not.

Our charge is to respond to competitive pressures and macroeconomic headwinds

• with a modernized technology footprint,
• combined with a modernized, intelligent version of “doing the same or more with less.”

For over 30 years, we have focused solely on excellence in technology service delivery

Our clients find the advantage in collaborating with a firm committed to your success- and not trying to sell you anything else. GTSG does not accept one dollar of commission from providers of any technology we recommend. We focus solely on helping you get from here to your end state with the right technology in place:

• strategy supported by
  • an effective operational model,
  • an executable roadmap and
  • a business case that stands up to reality,
• tactical help with migration and transition
• assistance in building an executable approach to automation.

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[i] https://www.nutanix.com/blog/why-customers-value-application-mobility-in-hybrid-multiclouds, retrieved 11.13.22 

[ii] https://www.agilealliance.org/agile101/, retrieved 10.24.22