The real-life impact of complex operating environments
Different departments within an insurance company often operate in silos, creating process breakpoints that require manual intervention. Given that many core systems do not “speak the same language,” introducing extra tech only further compounds this efficiency issue.
If they do not integrate with every relevant system, ostensibly handy new tools can create even more work in core processes by adding another manual step to cross-system workflows.
For example, if a claim disbursement solution is connected to an insurer’s claims system but not their billing system, it can create latency in system synchronization and add extra steps to financial reporting processes.
By adding new front-office tools in a bid to improve customer experience, insurers may ultimately create more process bottlenecks by ignoring the related back-office inefficiencies.
Although the abundance of modern applications can certainly contribute to environment complexity, it bears repeating that this issue of poor interoperability isn’t only due to the proliferation of new tools. Due to years of growth, organizational changes from mergers and acquisitions (M&A), and other factors, most insurers are now left with a “Jenga tower” of legacy systems where removing one could mean risking major consequences.
Still, with a talent shortage looming and IT costs on a long-trending upward trajectory, insurance companies can’t afford to hire skilled staff to manage so many disparate tools. Given the time and effort required to do this, it’s little wonder that a survey of nine leading insurance companies found that the more complex the IT system, the higher overall operations and IT spending.
Insurance companies’ complex environments aren’t only a drain on efficiency but also on ROI. Despite their investments in new tech, an overwhelming majority of insurance CIOs say they haven’t achieved the expected benefits of modernization—the complexity of their environments is a key culprit.
In fact, McKinsey notes that IT costs per policy for players with modernized IT can be 41% lower than for players with legacy systems, but many insurance companies who modernize core systems still struggle to realize potential savings, partly because of a lack of decommissioning old systems and partly because of overly complex configurations.
So, despite the best of intentions, many insurers who have invested in new tech are now saddled with overly complex operating environments that drive IT costs higher and sink efficiency—but it doesn’t have to be that way.