As an insurance company with legacy systems, you spend a whopping 41% more of your IT budget only to keep your monolithic legacy systems alive. That money could be invested in innovation rather than maintenance.
Worse, these outdated systems cost $15.5 million per annum in customer churn because your insurance systems lack an intuitive user interface, real-time transactions, and prompt responses.
Since customization, seamless digital experiences, and agility are a bare minimum requirement, avoiding legacy system modernization is no longer an option.
This blog will make your jaw drop by mentioning the money you are draining and the modernizing benefits you miss out on. So, let’s understand everything in detail.
Here is an in-depth cost comparison between a legacy-based insurance core system and modern insurance software, highlighting monetary, operational, and competitive disadvantages.
| Cost Area | Outdated System | Modern Insurance Software |
|---|---|---|
| Annual Maintenance | $1.2M to $2.5M (mid to large insurers) | $300k – $700k (cloud-based SaaS or hybrid) |
| Hardware/Server Cost | $500k – $1M per annum | Negligible (subscription model and cloud-hosted) |
| Upgrade Cost | $100K – $500K/upgrade cycle | Included in the Subscription or low incremental costs |
| Downtime & Break-Fix | Often, Costly, and Unpredictable | Minimal, due to real-time updates and support |
Legacy systems cost twice to five times more than modernized software without offering value.
| Factor | Legacy System | Custom Insurance Solution |
|---|---|---|
| IT Staff Requirement | 10-20 full-time developers for support and patching | 2-5 software developers |
| Training Costs | High due to outdated software | Low |
| Manual Processes | Dependent | Largely Automated |
| Process Time | Claims take days to weeks | Resolve in hours |
The insurers using legacy systems spend somewhere around $500K more per year only on IT personnel to maintain internal systems.
| Metrics | Legacy System | Modernized Software |
|---|---|---|
| New Software Launch Time | 6-12 months | 3-5 months |
| Market Response Agility | Frequent changes require | Updates in real time |
| Manual Processes | Dependent | Largely Automated |
| Innovation Investment ROI | Low due to maintenance costs | Can innovate considering customer expectations |
Insurtech modernization only requires half the cost of outdated systems to stay competitive and win customers.
| Customer Experience Area | Legacy System | Insurance Modernization |
|---|---|---|
| Claim Processing Speed | Sluggish and require manual intervention | AI/ML-backed with self-service features |
| Customer Churn Rate | 20-25% due to delays and frustrations | 3-5% |
| Omnichannel Experience | Fragmented | Seamless |
| NPS/Satisfaction Score | Low | High |
Legacy systems often lose many customers due to poor customer experiences. While retaining only 5%, customers can boost profits by 25-85%.
| Areas | Legacy System | Modern Insurance Software |
|---|---|---|
| Annual IT Spending | $4 Million | $1.5 Million |
| Claims Cycle Time | 7 days | 2 days |
| Customer Churn | 18% | 6% |
| New Product/Year | 1 | 5-7 |
| Satisfaction Score | 45 out of 100 | 89 out of 100 |
Now that you know how much and at what levels you spend and drain, let’s explore how much you are staying behind in the competitive market with outdated insurance software.
The growing digital market doesn’t have space for sluggish, limited, and liability-causing software. Those who don’t evolve or neglect to evolve with customers’ expectations often fail to make space in the market or beat the competition.
Like every other industry, insurance has also started leveraging cutting-edge technologies to innovate and stand out differently. The newly built insurance companies have:
Real-Life Example: Tower Insurance undertook a digital transformation by launching a self-service platform and an online tool called Quick Quote. It helped elevate customer interactions, enabling policy management, claims lodging, and premium payment online.
The platform reported a $83.5 million profit after tax in FY2024, all due to an upgraded user experience that resulted in high customer satisfaction and retention.
Those insurance companies that are tech-enabled gain market share in the following ways:
Real-Life Example: Zurich UK adapted digital transformation in the insurance business and started helping customers over chat, SMS, and WhatsApp. As a result, customers started to engage with the company more frequently, which resulted in a jump of 143% in chat interactions in 2023 alone. The adoption of digital communication made the company the talk of the town.
You might fail to launch new insurance products for your customers due to traditional, sluggish systems. It requires quick system reconfigurations, real-time analytics, dynamic pricing models, and fast compliance.
Legacy systems would never be able to cope with fast and convenient digital opportunities. Even if you do it with an outdated system’s hardcoded logic, manual workflows, and siloed data, it would still take a year to roll out the new feature, which would become obsolete for customers.
On the other hand, those with insurance software modernization could easily launch products within 3 months, test and modify using data-driven feedback loops, and swiftly integrate with third-party systems.
Technology modernization is necessary in this digitally transformed world. Outdated systems drain resources, don’t innovate rapidly, and often result in insurance businesses losing customers. With modernized insurance industry solutions, you can upgrade your customer experience, accelerate growth, and reduce costs. Explore the benefits of replacing legacy systems now.
You can expect unparalleled flexibility, scalability, and agility regarding insurance legacy system transformation. With cloud-based infrastructure, insurers can roll out new features, alter their pricing models, and promptly comply with regulatory requirements. Besides, the system would easily handle the surge in data or customers without impacting performance. Lastly, insurers can even opt for a pay-as-you-go model, reducing operational costs and avoiding on-premises server management.
If you modernize an outdated system or build one from scratch, you get a unified ecosystem that handles all the policies, claims, underwriting, and customer data. Also, as an insurer, you can make strategic decisions using data for policy pricing, claims evaluation, fraud detection, and customer preferences. Lastly, with artificial intelligence integration services, you can easily predict customer churn, claim probability, and everything.
Customers of today’s age expect to experience prompt and self-service, which insurance legacy systems do not fulfill. With insurance software development, you can integrate chatbots and AI assistants to automate routine queries, claims filing, and respond to questions around the clock. Besides, you can instantly notify your customers with policy management, renewal reminders, and claims monitoring. Lastly, you can make your customers feel they are always in touch with you through email, web app, and social media interactions.
With a custom insurance solution, insurers are building new products at lightning speed, which outdated software wouldn’t. You can reap the benefits of modular architecture and APIs, allowing seamless integration and third-party services. It enables rapid prototyping, multiple iterations, and A/B testing.
Maintaining legacy systems is costly, not just in terms of infrastructure but also in terms of hiring specialized personnel, installing fixes, and controlling system outages. These environments provide little return on investment and demand disproportionate IT funds. Modern technologies streamline workflows, automate routine operations, and consolidate infrastructure to save operational overhead.
Outdated systems, weak encryption, and no real-time tracking make legacy systems vulnerable to breaches. Additionally, they find it challenging to stay on top of changing compliance requirements like GDPR, HIPAA, or NAIC rules. Modern systems are fundamentally constructed with a secure environment with features like role-based access, encryption, automated audits, and real-time alerts. As a result, it minimizes risk exposure by guaranteeing the protection of sensitive client data while upholding complete compliance with legal regulations.
Despite the sure-shot benefits, several insurance companies are still not convinced to modernize their legacy systems due to several challenges. We are here to clear up all the dilemmas and give you a defined roadmap:
Since modernization involves technological upgradation, it is believed to drain all your resources. Insurance businesses see it as a significant business disruption, with integration problems, and the development timeline tends to be lengthy. A full-scale transformation will undoubtedly demand time and capital, but sticking to legacy systems will also cost you more.
How can you overcome it?
You can adopt a phased modernization strategy, meaning upgrading components slowly and gradually. Begin with impactful and revenue-generating areas; modernize them, transform customer engagement, or process claims. You can also use cloud platforms and low-code tools that reduce development time and project complexity. As a result, your modernization becomes manageable and cost-effective.
Since the legacy system has existed for more than a decade or so, people who have worked on it since the beginning would not be comfortable with switching or modernization.
How can you overcome it?
You must address the benefits of modernization to your team. Tell them how much time they will save by not spending time on monotonous tasks. Share the customer satisfaction rate with them to let them know about the impact of modernization.
Those insurance businesses that have achieved notable results have followed these best practices:
Modernize single components without impacting overall performance, eventually transforming the legacy-based insurance system into customer software solutions.
You can use this approach wherein you can keep the legacy system and integrate modern components like microservices, analytics layers, and digital frontends
Partner with a legacy modernization specialist who can help you build insurance software from scratch or modernize your existing system.
The insurance industry is evolving with the latest technological upgrades. Legacy systems holding you back will be a thing of the past. Not upgrading or sticking to outdated systems is a threat to your business growth. The price you would never want to pay with outdated systems is losing customers, operational bottlenecks chewing away whatever minimal profit you earn, and maintenance costs increasing debt.
With modernization, you tend to entice your customers, hook them on new products/services for life, and increase your market dominance. Insurers can modernize completely without disrupting their ongoing digital platform. Connect with the leading software development company and get expert insights, idea validations, and a smart and rapid development-to-deployment roadmap.
SPEC INDIA, as your single stop IT partner has been successfully implementing a bouquet of diverse solutions and services all over the globe, proving its mettle as an ISO 9001:2015 certified IT solutions organization. With efficient project management practices, international standards to comply, flexible engagement models and superior infrastructure, SPEC INDIA is a customer’s delight. Our skilled technical resources are apt at putting thoughts in a perspective by offering value-added reads for all.
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