The Cost of Legacy Insurance Software Systems: Impact on Insurers

A report by INTX Insurance Software, titled "The Cost of Legacy Insurance Software Systems: Wasted Time & Money," highlights the significant financial impact legacy systems impose on insurers, with potential annual hidden costs reaching up to $5 million. The research, conducted by RSM and surveying more than 250 insurance professionals, revealed that maintaining these outdated platforms can require up to 900 hours of internal IT support each year, leading to around $450,000 in lost productivity.

Lara Colestock, RSM’s director of human-centered design, explained that legacy systems introduce inefficiencies contributing to increased operational costs and reduced productivity. She emphasized the need for modernizing these core systems to improve efficiency and long-term competitiveness.

The study found that data latency issues, particularly due to manual policy workflow interventions, could cost insurers over $1 million. About 72% of organizations are still relying on tools like Excel for managing critical workflows, with 52% of policy administration processes requiring manual handling. The report identifies quoting, policy issuance, and claims processing as areas most affected by manual interventions.

Insurance companies are incurring costs of $475,000 to over $1 million on manual work annually. Rob Lewis, CEO of INTX Insurance Software, noted that past acceptance of operational inefficiencies due to legacy systems has resulted in substantial hidden costs. He called for a shift in how the industry approaches core system modernization to address these inefficiencies effectively.

While the report indicates fragmented systems hinder the integration of advanced analytics and AI, high implementation costs present a challenge. One-third of surveyed insurers spent over $500,000 to implement a single system, often running multiple systems with total costs reaching $3 million. About 45% of implementations extend beyond 18 months.

Lewis suggested that emerging insurance platforms can offer solutions by creating a unified operational foundation that incorporates AI directly into core workflows. This approach promotes faster deployment and lower risk, potentially enhancing operational efficiency and improving Combined Operating Ratios.

In addressing implementation challenges, Lewis clarified that difficulties arise from adapting modern capabilities onto legacy infrastructures. He advocated for integrating AI into core insurance functions to optimize performance promptly and cost-effectively. By adopting these new platforms, insurers could experience tangible improvements in both expense management and performance outcomes.