The big buzz in the insurance industry today is around Core Systems Modernization.

“Core Systems Modernization is the process of insurance companies adapting to the needs of customers by bringing their processes and technologies using the numerous possibilities available today,” says Vani Prasad, vice president of Insurance Technology for HTC Global Services.

There’s a big push toward modernization as companies continue expanding their web presence and establishing mobile solutions to make their products accessible to more customers. By using new technologies such as mobile, virtualization and cloud, companies are building bridges with their current core systems, creating new value from existing assets. Modernization is helping companies not just improve their bottom line but transform the way their core systems such as policy administration, underwriting, distribution, billing and receipts, and claims are functioning to enable businesses to grow. Some companies are going beyond operational or technology improvements and are reshaping their business models.

Many large and mid-sized insurance companies are in the process of executing modernization projects to keep up with technology and increase customer engagement through powerful analytics. The last two years have seen a big growth in modernization projects, and this wave is gaining intensity.

Smart Business spoke with Prasad about what insurance companies need to know when it comes to modernization and its effect on business.

What is driving modernization?

Modernization has come from many forces in the marketplace, such as innovation in new types of insurance products. Introduction of products poses new challenges to execute through the current operational and technology setup in an organization. This is one of the biggest drivers for core systems modernization.

From a technology standpoint, one of the prominent driving forces is popularizing the use of mobile technology for business purposes to improve customers’ ability to view and change products and their coverage. This also makes it easier to communicate with customers, for example, after an accident, getting them back on track faster. Customers today expect to get what they want, when and where they need it, making it critical for companies to connect smart devices to core insurance systems. CEOs want to address business growth and operational efficiency at the same time and are looking for smart ideas that fuse these two aspects.

Also driving modernization is analytics, the intelligent use of data stored by a company to target consumer-oriented marketing specific to customers’ needs and to develop new products. Previously, the agent was the key source of analytics. That person had contact with customers and could offer products as the need arose. But now, as customers are rarely present when deals are made, companies are using technology to do this.

What are the benefits of modernization?

Companies should modernize either to increase their top line through new sales that capture market share, or improve their bottom line through internal efficiencies. Those wanting to increase market share have to simplify processes and be able to adapt to changes and make improvements quickly. These days, customers relate to businesses differently, and the old ways of doing business aren’t as effective anymore. Businesses have to evolve and change to keep pace with the market to retain their market share. In today’s marketplace, it’s easy to take their foot off the gas pedal for just a brief moment and find themselves with lost sales or retention issues.

For example, customer inquiries need to be processed quickly. If a web page takes too long to load, the customer drifts off. If a phone call takes too long, the call is lost. If the number of pages, clicks or paths on the customer contact is too many, the customer moves away. By modernizing the technology systems, these seemingly simple adjustments are resolved. No one drops the ball on the customer and one can better capture those customers who are trying to engage and reach out to them a second time if the process was not finished quickly enough.

How does modernization differ from fixes or repairs?

Modernization goes beyond maintenance. Everybody feels they are contributing to improvements in their own way; every department has their own ‘quality circle.’ But going beyond semantics, look at modernizing from a leadership perspective and ask what will actually make a difference to the top and bottom lines. How does it help in reputation, reduce operating costs, enhance customer satisfaction, increase market share, increase earnings per share or maintain a healthy underwriting ratio? If the impacts are at that level, then that’s a modernization project.

Companies that perform maintenance work, such as keeping software up to date or fixing bugs, are still modernizing in that they use newer and better technology to better meet consumer needs. However, performing maintenance work on its own doesn’t allow companies to easily add new features or embrace new technologies. The main difference between maintenance work and the modernization described above is one of scale and adding business value: Rather than fixing and repairing smaller systems, everything is being fixed and repaired. This allows for future growth because the large-scale changes can be structured to make it easier to add features such as a mobile presence or a shift to cloud-based technology.

Some businesses put off modernization because it requires time, effort and new technology skills to execute. However, over time, the problems these companies face worsen. If a company is more than two or three generations behind in the use of technology, it is very difficult to fix even minor problems. While it is possible to sustain in the short-term, these companies are in danger of becoming obsolete in the long-term.

What are some tools used to modernize?

Insurance companies are struggling to deal with the massive amounts of information they collect. It is not enough to just add more hardware or network bandwidth if the processes are inefficient and are not yielding the desired outcomes. Sometimes, companies fear that it costs too much to modernize. However, there are numerous tools and approaches available in the market, depending on the scale of improvements intended, and the extent of modernization requirements can be taken up.

While everyone knows the power of mobile and cloud computing, companies are also looking into techniques such as crowd-sourcing to maximize their benefits. Cloud computing is not yet leveraged in many insurance companies, but it provides the ability for insurers to leverage large-scale technology with little or no investment up front. To insurers, this means easier storage of the huge amount of information coming to them, such as photographs, depositions and other documents. A lot of managers are being designated and groomed to help focus on using cloud technology and how it can reduce the bottom line. It also enables customers to access information anywhere, any time, with minimum fuss. Insurance companies can leverage the cloud to ease the transition to mobile devices, using them as vehicles for meeting the increasing amounts of data gathered and processed. It is not just technology tools alone that matter, it is the newer processes and approaches that make a big difference in modernizing.

It is also common for companies to wait for a silver bullet to remove inefficiencies. Is this the right time to modernize? Of course it is. Technology is never static, it is ever changing and driven by innovation. There are numerous options available, and these will only increase over time.

How can modernization be executed?

Strong leadership that focuses on building a solid approach to modernization is vital. Building a roadmap to modernizing with options and scenarios is a big step. Modernizing should bring a positive impact to everyone in the company for it to have lasting value.

Once an approach is chosen and an investment decided upon, it is important to dedicate specific people for the planning and implementation. Projects are initiated with the right scope based on the investment and professionally managed. Process engineers that have a broad understanding of company operational processes are vital ingredients to the modernizing journey. Sometimes, the changes to technology or a business process need to be tested on small groups to refine the approach, measure the benefits and then apply to the rest of the company.

Some companies have the aptitude and skill to modernize in house. There is a vast amount of information available online on how to approach and prioritize modernization projects. Consulting companies and third-party product and service providers can also help an organization reach its goals.

Vani Prasad is the vice president of Insurance Technology with HTC Global Services. Reach him at (309) 287-0229 or vani.prasad@htcinc.com.

Published in Chicago