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Tearing Down to Build Better: Insurers Understand They Need Next-Gen Business and Technology Foundation
One year ago tomorrow, Hurricane Helene hit the Big Bend portion of Florida, leaving a trail of flooding up and down the coast. When Hurricane Milton hit just 12 days later, many residents and business owners found themselves evacuating in the midst of their cleanup, leaving properties further unprotected. The result redefined “catastrophic “ for the region.
Some of those who were hardest hit were single-story coastal homes — ranch homes where 3-4 feet of water inside the home was not uncommon. A staggering number of these homes are yet to be rehabbed, even a year later. Many of those that were destroyed will be rebuilt as completely different properties, because it makes little sense to rebuild a property with its same susceptibility to damage. Furthering a trend that has been happening for decades, many new properties will be perched on higher (and deeper) foundations. They will add a second and third level. They will be constructed from stronger, more resilient materials, including heavier windows, roofs and shutters. Increasingly, coastal homes will be built to last — improving risk resilience, reducing insurance claims and helping people continue to live where they want to live.
Just as coastal hurricanes are changing the architecture of a region, growing core system risk and talent uncertainty are pushing insurers to the edge of their own architecture decisions. For some, they know that legacy core systems must change. Can they weather the next economic storm without building a better system foundation? Or, should they open themselves up to growth and operational optimization opportunities and build resilience into their core system foundation — resilience that may ultimately save them?
Legacy core systems increasingly make it difficult and expensive to bring new products to market, adapt to market changes or upgrade quickly and cost-effectively to take advantage of new innovations. Even worse, many transformations were never completed, keeping legacy systems running alongside the new ones, which added cost and operational complexity. And legacy solutions make it difficult to leverage the data to provide meaningful, actionable insights.
Majesco’s recent thought-leadership report, Strategic Priorities: A Modern Era of Insurance Technology examines insurance core systems and all that insurers can gain through insurance core system replacement, among their other technology considerations. In today’s blog, we look at insurers’ opinions and priorities as they consider the positive effects of system transformation.
Tearing down to build higher
In a survey by AND Digital, over a quarter (26%) of CEOs said they feel they are in a race against time to replace insurance legacy systems ahead of competitors, and they acknowledge that’s putting their organization at risk. In fact, 64% admit to investing in tech to feel like they are not being left behind, but with no clear understanding of how they will achieve ROI or real business value.[i]
Replacing legacy core technology has never been more important, but it won’t happen if executives don’t grasp all that they have to gain and how it is to be accomplished. This knowledge is foundational to achieving strategic business goals such as profitability, operational optimization, growth, and innovation.
First, we have to look at the pain points. The cost and impact of legacy debt is poisoning and pulling organizations down. With increasing retirements and loss of institutional knowledge and skills, the difficulty to leverage the data for insights, decreased operational productivity due to manual workarounds, lack of speed to market for new products, and the inability to use new technologies like GenAI and Agentic AI to drive operational optimization, legacy debt creates a significant operational risk.
Replacing legacy on-premise and modern on-premise core systems will provide greater agility, allow for the use of new technologies, greater access to data, and new capabilities that are only available in most vendor cloud solutions rather than the on-premise versions. As a result, we are seeing more insurers moving to the Cloud.
This is highlighted by Leaders in their view of legacy’s limitations as a top-of-mind issue and placing it as a strategic priority, as reflected in Figure 1. Unfortunately, Followers and Laggards trail in this view, putting them behind Leaders and increasing their operational and strategic risk.
Legacy core technology increasingly hinders business agility to meet market, risk and customer demands, contributes to increasing operational costs, and lacks the ability to leverage new innovations such as insurance GenAI and Agentic AI adoption and other advanced technologies. In contrast, next-gen native-cloud core solutions for insurers are extremely flexible and less expensive and time-consuming to upgrade and maintain than legacy. The technology that goes into these systems is, in many respects, timeless. Building it now secures their availability for an extensive future.
Figure 1: Insurers’ levels of concern and priority for addressing legacy core
Current priorities and Core solutions
The adage of “If it’s not broken, why fix it?” may sound logical, but it is deceiving, and it overlooks the slow degradation of legacy core systems that are placing so many insurers at risk.
The older the system, the greater the challenge to find technologists who can maintain it. Today’s technologists have no experience in Assembler or COBOL languages and no desire or compelling reason to learn them. A CIO article on the costs of not upgrading outlines how, every five years, companies end up spending more on maintenance than they did on the initial software purchase.[ii]
Old legacy core solutions and even new legacy core solutions (on-premise modern, likely customized) are an unstable foundation, negatively impacting operational efficiencies, expense ratios, cost ratios, and profitability, as well as constraining talent and limiting access to data. They are barriers to the adoption of new technologies like GenAI and Agentic AI. They are barriers to being competitive. They are barriers to growth.
In assessing the priority of the three options for addressing legacy – replacing legacy on-premise, replacing modern on-premise, and upgrading modern on-premise to Cloud – we found that more insurers are focused on replacing rather than upgrading, as reflected in Figure 2.
Replacing legacy on-premise policy, billing, and claims with cloud native has the highest priority and the highest activity levels, all near the Planning/Piloting phase. Replacing modern on-premise policy and billing with cloud, likewise, is a high priority, but shows misalignment with actual implementation activity.
Increasingly, a key reason for replacing rather than upgrading is the emergence of Intelligent Core systems that have embedded GenAI and Agentic AI that offer insurers a vision, strategy and operational solution that just moving to the cloud does not offer.
Closing this gap will require a stronger commitment to the priority with investment of people and capital, strong program and change management, and working with the right vendor partners that will not only move them to the cloud, but provide access to advanced technologies like AI, GenAI, Agentic AI and more.
Figure 2: Insurers’ priority and activity levels in replacing/upgrading core
In particular, moving to the cloud should embrace embedded AI, machine learning, generative AI, and Agentic AI that will drive both operational optimization and innovation at new levels unseen in the industry for decades. For those either replacing legacy or modern legacy, they should consider these intelligent core solutions to provide a level of differentiation beyond the standard solution capabilities.
Our research found that Leaders are moving aggressively toward cloud-native transformation, leveraging these advanced technologies to enhance operational efficiency, decision-making, innovation, and customer engagement, as shown in Figure 3. However, Followers and Laggards are progressing at a much slower pace, creating a growing divide within the industry that could have significant business and operational risk implications both short-term and long-term.
Figure 3: Insurers’ level of activity replacing and/or upgrading core systems
First movers respond by strengthening business fundamentals and foundations, while meeting the challenges of a changing market. They are reallocating resources to change how business is done, developing new business models, and replacing legacy core systems to create a new operational and technology foundation that can achieve real optimization and drive innovation.
Data & analytics on an intelligent core
Why are next-gen insurance core systems such a foundational requirement? The activities and functions enabled by an intelligent core are all facilitated by this next-gen foundation. Data and analytics were once set apart from the core as an add-on. Not anymore.
Today, next-gen intelligent solutions allow access to all operational data that can be used by the intelligence embedded into insurance business processes and workflows – the entire spectrum of analytics from BI to AI/ML, GenAI and Agentic AI. This is transforming every aspect of the insurance value chain and is a key part of empowering the “algorithm economy” which is defined as the increasing influence and economic value of algorithms in modern business and digital society.
The high level of focus on AI/ML, GenAI and Agentic AI is accelerating the development of new models that will enable a rethink of the business of insurance – changing how we do business, what business we do, and providing better risk assessments and insights than ever before.
In this year’s survey results, we see the shift in focus from foundational data initiatives such as business intelligence solutions to more advanced AI-driven analytics, including natural language processing (NLP) models, AI/ML models, GenAI and Agentic AI models, as shown in Figure 4. While they indicate high priority, they also have low activity levels of actual implementation, highlighting strong interest but limited execution.
Figure 4: Insurers’ priority and activity levels in developing data & analytics capabilities
The effectiveness of these advanced analytic capabilities is highly dependent on the accessibility of data. While data is a vital asset in our digital world and increasingly crucial across every part of the insurance value chain, access to data continues to be challenging and expensive.
The industry has a significant gap between those with access to data and those without, resulting in competitive and market opportunity differences. In fact, for some insurers, the cost of third-party data can be one of the largest operational expenses they have.
Figure 5 shows that accessibility remains a critical challenge for many insurers, particularly among Laggards who likely have legacy systems and siloed information. Organizations with limited access to operational data face significant hurdles in executing data-driven strategies, optimizing customer interactions, and responding to market changes.
Figure 5: Insurers’ level of access to their operational data
Leaders are advancing faster in developing and implementing both foundational and advanced data and analytics capabilities, as shown in Figure 6. In particular, they are developing AI/ML, NLP, Agentic AI, and GenAI, outpacing Followers (from 16% to 35%) and Laggards (from 27% to 42%), reflecting a sizeable gap of competitive and innovative differentiation.
Data’s Usability
Even more importantly, Leaders’ adoption is accelerating the democratization of data by making it accessible and understandable for both technical and non-technical users. AI, Agentic AI and GenAI capabilities can analyze vast datasets – both structured and unstructured – identify trends and patterns, and create scores and insights that are highly valuable and digestible.
Figure 6: Insurers’ activity levels in developing data & analytics capabilities
The adoption of AI and ML varies across insurance functions, as shown in Figure 7. Underwriting, claims, and servicing show the highest levels with Followers leading for the first two and Leaders the last.
Figure 7: Insurers’ activity levels in developing/implementing AI/ML models
AI-powered chatbots and voice assistants gained traction among leading insurers, with over 50% of Leaders using them to support customer service representatives, as shown in Figure 8. This approach enables a “human-in-the-loop” approach while improving consistency, accuracy, response times, and operational efficiency.
As AI capabilities continue to advance with Agentic AI, those actively using these capabilities will be in an enviable position to transition to them and extend to customer-facing interactions to enhance the customer experience while reducing operational costs.
Figure 8: Insurers’ activity levels in using AI chatbots/virtual assistants
Raising core systems that empower other vital solutions
Beyond Core Systems (Policy, Billing and Claims), other vital solutions surround and integrate with core to deliver other specialized capabilities aligned to business strategies and priorities, from underwriting to distribution management. These systems are optimized by intelligent core solutions and hindered by legacy core solutions.
Operational solutions must be a part of core system conversations because in many cases, they are also behind or in the early stages of legacy replacement and modernization. While upgrading these solutions is widely acknowledged, actual execution is lagging. In some cases, the lack of modern core in the cloud likely limits what insurers can do for these ancillary solutions – given they are highly dependent on data flowing between them. This highlights the strategic importance of getting core solutions in the cloud more rapidly to enable these other vital solutions to accelerate modernization.
In reviewing the specific operational solutions, we found Leaders are well ahead of Followers and Laggards – putting them at a significant competitive advantage. In particular, Leaders are over 50% higher than Laggards in two key business differentiating areas – product and distribution – represented in the product management, distribution management and agent onboarding and licensing solutions. Followers’ largest gaps to Leaders are for comparative rating (38%) and digital self-survey loss control system (28%).
Figure 9: Insurers’ activity levels in adding, upgrading, or replacing their operational systems
The disparity in investment and execution of these vital operational systems highlights a growing market and competitive challenge for Followers and Laggards in terms of offering new and innovative products that customers need, and empowering the channels necessary for buying. These investments are key growth plays that will significantly impact business outcomes for insurers.
The good news is…
It is clear that insurers grasp the logic of legacy core replacement. They see it as the key to protecting the business by unlocking all of those areas where business optimization can make an impact — underwriting, product management, rating, data and analytics-driven AI, Agentic AI and GenAI automations and insights. Insurers see a future where an intelligent core foundation matters to everything they do and plan.
And the best part, insurance core systems are more accessible than ever, with next-gen cloud solutions such as Majesco’s platform solutions for P&C and L&AH leading the way to business model and GenAI and Agentic AI utilization.
Are you at the point of decision? Is your organization ready to storm-proof its foundation and build stronger and better architecture for the future? Contact Majesco today to find out how you can get started in building your “higher and better” foundation for growth. And be sure to take advantage of Majesco resources for industry learning, such as our latest thought-leadership report, A Powerful Chain Reaction: The Financial and Operational Impact of GenAI and AgenticAI Across the Insurance Value Chain.
[i] “Legacy vs modern tech: CEO struggles and strategies,” AND Digital, April 19, 2024, https://www.and.digital/spotlight/legacy-vs-modern-ceo-struggles-and-strategies
[ii] Doig, Chris, “What not upgrading enterprise software could cost you,” CIO, June 2, 2016, https://www.cio.com/article/238218/what-not-upgrading-enterprise-software-could-cost-you.html