Modernization Challenges in the Property and Casualty Insurance Industry
Modernization is one of the most pressing challenges facing the property and casualty (P&C) insurance industry. In the past decade, core systems built for a slower, paper-driven insurance model have evidently become no longer fit for purpose. They leave carriers struggling with operational inefficiencies, rising IT maintenance costs, and growing pressure to meet customer expectations for real-time responsiveness, such as instant quotes and faster claims payouts. Staying competitive demands adopting cloud-based, scalable solutions to enable automation, real-time data analytics, and greater connectivity with other players in the ecosystem.
Emerging Trends in Modernization
Today’s modernization decisions are taking place in a fundamentally new environment. First, large-scale software-as-a-service (SaaS) platforms—built on modern architectures designed for cloud operations, continuous updates, and deep integration with carrier ecosystems—are now viable at scale. Second, the convergence of data, gen AI, and cloud compute has created a foundation for insurers to adopt emerging technology more aggressively than ever before, provided the platform is stable and scalable. These shifts mark a clear break from the landscape of a decade ago.
Challenges and Strategies in Different Regions
This all makes modernization challenging. While some carriers in the United States have begun heavily investing into transforming existing systems, results have been mixed, with many carriers not fully realizing expected returns. That has left most US insurers at a crossroads—still investing in legacy systems, still evaluating whether to buy or build new ones, and still figuring out how to best select a vendor or effectively build an in-house system. In Europe, most carriers choose systems from vendors because carriers tend to operate at a smaller scale, yet many struggle to make a strong business case for modernization because large-scale replacements are often seen as too costly and complex. That leaves many insurers pursuing incremental strategies such as progressively modernizing, hollowing out legacy systems, and upgrading select components to manage risk and maximize value. And in Japan, leading carriers still using mainframe systems are considering moving toward cloud-based vendor solutions. But aside from the cost and integration implications, insurers are concerned about fulfilling the heavily regulated process requirements of the Japanese market.
Collaboration Between Business and IT Leadership
Technology modernization is often viewed as an IT-led effort requiring limited involvement from business stakeholders. Yet a willingness to reimagine and redesign business processes is critical to achieving the business cases from successfully transforming core systems. The traditional divide between insurance business and IT leadership is no longer tenable. Success requires shared ownership, joint prioritization, and an operating model in which business and technology leaders propel transformation together.
Build or Buy? Six Dimensions of Core Platform Transformation
Deciding whether to build custom solutions in-house, purchase commercial off-the-shelf (COTS) platforms, or upgrade existing systems is a complex choice. While once a balanced debate, the center of gravity is shifting on this issue—fewer carriers are pursuing full custom builds, and more are exploring ways to extend legacy systems with modern wrappers or to leverage SaaS platforms.
Vendor Selection: Finding the Right Strategic Partner
Buying a modern core system can be faster and more cost-effective than other options. However, with dozens of vendors in the market, selecting the right one becomes a strategic challenge. Common pitfalls include picking vendors without proven scalability, underestimating integration challenges and complexity, and having only limited visibility into external platform product road maps or relying on weak support networks.
Practical Steps to Get Started
System modernization is often approached as a technology initiative, but its success hinges just as much on business leadership. At its core, modernization is a business transformation, requiring process reimagination to realize the system’s full strategic and operational value. We are now at a demarcation point where business and IT leadership can no longer operate on parallel tracks—modern transformation demands an integrated, agile operating model in which business and technology jointly own outcomes.
FAQs
1. What are the key challenges faced by P&C insurers in modernizing their core systems?
2. How can business and IT leadership collaborate effectively to drive successful modernization?
3. What criteria should carriers consider when deciding whether to build, buy, or upgrade core platforms?
Conclusion
System modernization in the property and casualty insurance industry is a complex yet crucial process for staying competitive in today’s digital landscape. By adopting cloud-based solutions, leveraging data analytics, and enhancing connectivity, insurers can improve operational efficiency, reduce costs, and enhance customer experiences. Strategic vendor selection, collaboration between business and IT leaders, and structured approaches to modernization are key to maximizing the value of core system transformations. With the right strategies in place, insurers can navigate the challenges of modernization and position themselves for long-term success in the evolving insurance ecosystem.
