Upgrading Insurers’ Technology Systems Needn’t Be a Nightmare. These Slight Shifts in Perspective Can Help

Replacing outdated insurance software systems is a major undertaking, but with the right incremental approach, the return on investment can become apparent immediately.

By: Alex Wright | March 19, 2023

Topics: Future of Insurance

AI brain converting traditional wires to circuitry

For the past 40 years, insurance companies have been running off traditional legacy systems.

To a point, these systems have served a purpose for underwriters and claims managers, enabling them to write risks and handle claims more effectively than by hand.

However, over time, these systems have become cumbersome and outdated; data is held in silos and the relevant data pertaining to the risk is not being captured.

Given the vast amount of data they have to contend with on a daily basis and the push for digital transformation accelerated by the COVID-19 pandemic, carriers and brokers are increasingly compelled to overhaul their systems and software just to keep pace with the latest technological advances.

Yet there are still many barriers to adoption, not least that the new platform may not be compatible or interact effectively with other systems used, or that it may have been superseded by a newer version by the time it’s up and running. Then there are the time, resources and large investment costs attached, which can run to tens of millions of dollars, not to mention the inevitable resistance to change among employees.

“Many of the carrier systems date back to the 1980s or ’90s, when mainframes were first introduced,” said Sandeep Deva, vice president of product development and technology at Exdion. “The cost of changing them can be huge, particularly the cost of moving the legacy data to the new system.”

Global Issues

A further issue for global businesses is that they often have to change different systems in multiple regions so they are all aligned, even while continuing to meet the needs of customers in those countries. As businesses grow faster and further than before, this is becoming an ever-larger problem.

William Porter, head of international programs, Americas, Swiss Re

In addition to the up-front cost of the equipment and software, there’s the associated expense of training on how to use it and upskilling. Another large cost is the impact on workflows and productivity as a result of migrating the data to a new system. Any significant disruption or downtime can have dire consequences for a firm’s profitability and reputation.

Rather than viewing their outlay on new technology as an expense, companies need to look at it as an investment in their business that they will get a return on over the long term. This technology debt that is paid off over time can be measured not only in financial results and efficiency gains but also in terms of customer satisfaction and retention.

To make the move to a new technology or system, firms must have in place a clear strategy that’s focused on the critical business needs they’re seeking to fulfill, such as boosting customer service, revenues and staff morale. This plan is also shaped by customer needs and requires a timescale to achieve it and a measurement of the final outcome.

Technology Partners

To ensure that they have the right systems and software in place, firms need to engage with technology providers that specialize in the risk management industry. By evaluating their existing technology and requirements, they can deliver the solution that will continue to perform best as it evolves and is upgraded. This also means that they incur fewer costs because they don’t have to make wholesale changes and are nimbler when they do have to make changes.

“Many companies have merely upgraded or patched their legacy system to keep going for another year or two,” said William Porter, head of international programs for the Americas at Swiss Re Corporate Solutions. “But when they have to bite the bullet and integrate it with a new system, there’s so much they have to do in order to modernize it, in both time and money and resources.”

Ketan Pandit, chief information officer, QBE North America

Ketan Pandit, CIO of QBE North America, added, “Businesses need to prioritize their critical systems, such as policy administration, billing and claims management. Once they have fixed those and ensured they are kept up to date, then they need to focus on the more peripheral ones; that way, they can get the right balance between cost and risk.”

Collaborating with other insurance partners is also beneficial. That applies both on the carrier side and the broker side.

“If you are a carrier working with a network of agents, or, on the flip side, if you’re an agent that does business with numerous carriers, you should open up a dialogue with them to see what they are doing and how their technology is performing,” said Prateek Sangal, vice president of digital distribution strategy at AmTrust. “They should also be able to share what they are seeing in terms of technology challenges and changes that you need to be aware of.”

Companies must also make sure that their new technology is compliant — not only with their own internal data privacy and security requirements but also with any federal, state or international rules or regulations. Only then can they move to the implementation phase.

“The implementation stage is critical,” said Gary Session, vice president, client success management at Exdion. “You don’t just simply flip a switch and start working on the new system — first of all, you have to ensure that the existing and new systems are compatible, and then you have to coordinate the migration of data between the two.”

Small Changes

Rather than make a wholesale transformation at the start, firms should carry out proof of concept and incremental changes to ensure that the technology works. That will save any unnecessary expense or time wasted.

“With all the modern technology and connectivity now available, companies don’t have to go the whole hog and replace their entire system,” said Guillaume Bonnissent, CEO of Quotech. “It also meets the requirements of the regulators, who want businesses to continue to use proven systems.”

To keep costs down, companies need to look at their existing capabilities and see if they can be repurposed to perform other tasks. Similarly, they should also consider what current systems and software can be decommissioned to free up some budget.

Tim Hardcastle, CEO, Instanda

“Companies no longer have to rip and replace entire systems,” said Tim Hardcastle, CEO of Instanda. “There are many more vendors available now that can provide modern platforms that can be implemented quickly and cost-effectively in the part of the business where they are needed and provide a strong return on investment.”

In addition to the technology, firms need to ensure that their data is readily accessible in an easy-to-use format that can be seamlessly integrated with the relevant platforms. Once that data has been digitized in this manner, then new technology can be adopted that will integrate with it.

Without the right data, companies won’t be able to use technology to model for risks such as climate change and pandemics. By having it, they can gain a better view of their current portfolio and the impact such risks can have on it.

Moving forward, firms should also keep abreast of the latest trends and developments in technology. That ranges from reading reports by independent research firms and in the press to attending Insurtech and broker conferences. &

Alex Wright is a UK-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.