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March 04 2015 | Karen Furtado

Core transformation is more than simply replacing legacy systems with modern core systems and more than just replicating today’s business capabilities and processes in a new system. Insurers that are on the path to becoming a Next-Gen Insurer are making significant progress by tackling the modernization of the organization as well as their products and services while adapting to changing distribution channels. Core transformation is the necessary foundation for successful modernization. 

There are three areas that must be addressed to achieve true core transformation:

  • Technical Capabilities - The first area is one that many would identify as the entire focus of the transformation effort. It encompasses the technical capabilities supporting core – the implementation of a modern architecture with modern core systems. These applications leverage SOA principles, use standard APIs to facilitate integration with other systems, enable scalability, and have dynamic configuration functionality. A modern architecture delivers the flexibility, agility, and scalability to integrate with both the current and emerging technologies and platforms that many older systems could not accommodate. Modern systems are also designed to make sense of the flood of both real-time and historical data now available to insurers, either through built-in advanced analytics or easy integration to a robust stand-alone business intelligence application.
  • Business Capabilities - Equally important are the business capabilities that competitively position insurers for today and the future; the specific capabilities that must be developed vary based on each company’s unique strategy. There will be areas where even a “mainstream” company will require industry-leading capabilities – areas like distribution, underwriting, policy processing, billing, and claims services. Today’s insurers require improved business capabilities that can support the current market’s fundamental shifts in how data is utilized, business models are refined, and new products are developed. Insurers are looking to leverage the available data to generate insights and guide decisions to create competitive products and enhanced services. The goal is to become an agile, adaptable, and information-driven organization that can respond rapidly to threats from both external forces and the traditional insurance ecosystem.
  • Organizational Capabilities - These capabilities may be the most overlooked in core transformation, but insurers cannot achieve the full benefits of modernization without making broad changes to their organization. Resources, skills, and organizational structure must all be assessed, adapted, and improved to help companies break out of their current organizational silos. Insurers able – and willing – to address these fundamental issues can most effectively capitalize on the mission-critical investments of modernization. They can develop the flexibility to adapt to changing market conditions and cement their ability to compete, both now and in the future.

core transformation blogAs the diagram demonstrates, core transformation is a dynamic process that depends equally on changes at the business, technology, and organizational levels. No matter which aspect drives insurers toward core transformation, all three capabilities must be addressed to assure success.

The core transformation journey requires companies to shift from reactive to proactive business models, incorporating maturing and emerging technologies, customizing and personalizing products, and accelerating speed to market while providing improved customer service. Core transformation strengthens an insurer’s capacity to anticipate and adapt to change. Companies that can make that fundamental ability part of their operations and value proposition will flourish. Core transformation opens the door to true competitive differentiation as a Next-Gen Insurer through optimization and ultimately innovation.

Think of the balance needed in the core transformation journey as that of a three-legged stool. Imagine trying to stand on that stool if one leg is shorter than the others. You would feel very unstable, always trying to keep your balance and avoid falling. Core systems and capabilities are just that – the core of an insurer! If you think of that stool as core transformation and if the legs are disproportionate, they will create an imbalance that will constantly disrupt the business. You will always be trying to make up for the shortcomings in the problem modernization area, and the entire modernization process will ultimately be unable to deliver the necessary results.

In the coming weeks, SMA will be focusing on core system transformation by investigating the capabilities that help insurers achieve the full benefits of core modernization. Check back throughout the month of March for more strategies and insights.


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To learn more, please contact:
Karen Furtado
Strategy Meets Action