Technology Trends: The Case for Hybrid Architectures in Insurance
By Nimish Sankalia, Senior VP, Majesco
I was driving in heavy traffic the other day, mulling over a McKinsey article* on 2-speed architectures. At the same time I spotted the word “Hybrid” gleaming at me from the back of a car. It suddenly clicked. We have hybrid vehicles, hybrid music, hybrid power systems, and hybrid drives. Will hybrid architectures save insurers from today’s IT dilemmas?
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Today’s consumers are forcing insurers to think unconventionally. They hold the balance of power in the insurance relationship. They want quick quotes, fast approvals and omni-channel experiences. This poses a sticky core insurance system issue. Legacy systems won’t take insurers to their targeted digital destinations and they need to arrive faster than they can safely modernize legacy systems. A traditional approach to modernization will not work and keep insurers competitive.
How can operations and technology shift toward the consumer?
A two-speed architecture is a hybrid approach that acknowledges the real issues of modernization — most organizations are still dependent upon legacy systems while they strive to be consumer-centric. A two-speed architecture provides a more comfortable balance between meeting consumer needs and modernization efforts. It buys insurers transformation time; allowing them to digitally-adapt to consumer-focused practices while attempting to steadily migrate away from the legacy back-end.
To fully understand a two-speed architecture, it may be best to define it in practical terms. A two-speed architecture isn’t one solution. It is the idea that no matter what solutions are employed, the digital enterprise is going to move at a different speed than the back-end architecture. Forward momentum will have two separate, but non-competing engines.
For insurers, there are a number of common, but specific steps that can be taken to properly decouple the digital enterprise from the back-end. These are concepts that will lend success to the hybrid approach.
1. Think modular and micro. The set of front-end products that will be running your customer-facing services needs to be flexible and easily implemented. Think small. Keep integration simple. Deploy quickly and test in tiny segments before releasing to the whole population. Examples would include portals, e-apps and microsites.
2. Unify channels. It is common in insurance to have all channels or some channels transacting with the core system or interacting with a common service layer. Either way, the customer experience is a digital imperative, so channels must be seamless. It may help to extract channels, such as the agent channel, from the core system and route it through the same unified layer as the direct-to-consumer and mobile channels.
3. Don’t neglect back office investments. Just because you have made the decision to decouple and run a two-speed architecture, doesn’t mean the back end should stop being maintained or improved. Areas such as claims and billing should still garner attention, especially because they will be tied to service. The goal is total enterprise modernization. Keep a target architecture constantly in view so that everyone understands where the enterprise is headed.
4. Define ‘investments.’ At one time (and often still), IT investments came out of the IT budget. If any portion of IT were to be modernized, the IT budget would pay. Today’s modernization initiatives are difficult to work into the budget, in part because the idea of an annual budget doesn’t account for modern IT issues, and in part because they look too expensive when an investment payback hasn’t been defined. Decouple IT budgets and attempt to calculate ROI so that business can transfer modernization funding into budgets for growth initiatives.
5. Trade old for new. It is difficult to focus on back-end systems and front-end architecture at the same time. Consider offloading operation and maintenance of your legacy system for several years to a trusted IT partner, then using the savings to fund development of the consumer-facing systems that are your focus. The partner may be able to help you manage both sides of the hybrid transformation and hand you back a new core system in the process.
Insurance is poised to make excellent use of hybrid approaches like these to meet pressing IT issues. Do you agree?
**For an overview of two-speed architectures, I highly recommend the McKinsey & Company article, "A Two-Speed IT Architecture for the Digital Enterprise".