Why smart insurers are modernizing their mainframe now | Insurance Blog

In a market that calls on insurers to be agile and digitize at scale, an insurer’s mainframe can either catalyze or inhibit progress. While the mainframe was once a valuable core technological function, many legacy mainframes lack the agility to meet the demands of customer expectations and rapid digital progress.

The call for mainframe modernization

Insurers want to reach a digital end-state and embed the enabling functions they need to perform in the cloud using a route that is faster, better, and cheaper. Modernizing the mainframe is the last mile towards enabling business capabilities, reimagining the business and driving a cloud operating model.

If we look at the market forces shaping the wider industry, insurers are being called upon to be more agile so as to keep pace with rapidly changing demands. This is due to a range of factors, from higher inflationary environment expenses for insurance operations and increasing claims, to the impact of the global pandemic and predicted recession. With a high-interest rate environment and future predicted volatility, costs need to come down, and one of the costs that is increasing year over year is maintenance of the mainframe.

Zooming in on sectors within insurance, this need for agility is manifested in different ways. Property and Casualty (P&C) insurers not only need to be more agile, but need to focus on marketing points of differentiation while commoditizing non-differentiators. The Life & Annuity (L&A) and Retirement industry will benefit from unlocking distribution, a feat which is currently not possible because a lot of that logic is embedded in the mainframe. Therefore, the focus is on modernizing the mainframe to enable digital channels. Group and Retirement insurers are undergoing a compressed transformation – meaning that the sector requires reimagined operations from the ground up in order to improve customer relationships and gain a competitive advantage – with Group hurting on margins, and Retirement hurting on margins and scale. Finally, Group and Health insurers are being challenged to drive down the cost basis, and drive growth, for example, by adding a wellness layer to their offering.

From a cost perspective, the case for mainframe modernization is clear.  The demand placed on the insurance infrastructure is increasing, with business capability needs driving up Million-Instructions-Per-Second (MIPS) usage and cost. A legacy mainframe also has an impact on talent, as dedicated staff will be required to provide maintenance and upkeep – a diminishing skillset as more and more senior employees retire from the workforce. Down the line, this manifests as a considerable business risk.

Modernizing the mainframe is not just about overall agility, but securing a foundation for important technological transformation. In a recent report on Transforming Claims and Underwriting with AI, Accenture illustrates with widespread industry research that AI has emerged as the transformative technology and critical differentiator in the insurance industry when applied in tandem with humans. However, AI transformation is not possible if an insurer has not dismantled and updated mainframe platforms first.

Modernizing the mainframe offers some compelling benefits. By running in a less expensive environment, operating costs are drastically lowered, and the use of a more modern platform dramatically reduces platform resource costs. Together, this can result in a 40 percent reduction in operating expenses. While this savings is significant, it is not the only benefit. Most importantly, mainframe modernization – through agility, flexibility and access to critical mainframe data – has a powerful impact on business value. As a recent Accenture blog, Mainframes: The last frontier of cloud migration emphasizes, customers are able to leverage their mainframe data, which can contain decades of business transactions, and use that data to feed analytics or machine learning initiatives that can deliver competitive advantage. The blog post also illustrates the important role the modernization of the mainframe plays in closing the skills gap – it can counter the problem many companies are facing as their mainframe experts reach retirement age and can also attract new talent interested in modernizing core business workloads.

Modernization also offers the ability to deploy new features, products and capabilities much quicker and in conjunction with interoperable applications, promises up to five times deployment speeds. New business capabilities such as the ability to incorporate AI and ML, real-time decision-making and data processing efficiency are also unlocked. These benefits can be brought about by conservative adjustments, or a complete system transformation. It all depends on the strategic and growth priorities of the insurance business.

New platforms and migration technologies allow for compressed transformations

Mainframe modernization is not a one-size-fits-all proposition. It is driven by the unique market needs of the insurer and the strategic intent of the business. There is a wide spectrum of choices available to modernize at a pace that is comfortable and necessary for the insurer. Today’s mainframe migration technology supports this, allowing for automated, fast, and low-cost migration to the cloud. This technology includes SaaS solutions, Cloud maturity and advances in migration technologies.

In terms of approaches, insurers can roll out the following interventions, which all vary in scale and intensity:

• Re-platform: Migrating an application without changing the programming language to another platform / Operating System
• Re-factor: Harnessing Accenture’s language migration toolkit to transform from legacy to modern programming language code, using (semi) automated tooling to mitigate risk relating to legacy skills, increase agility and reduce costs
• Replace: Identifying a managed service/application that can provide required functionality, including extracting and migrating data to a new system to reduce complexity and costs
• Reimagine: Reimagining the business entirely with rewritten and rationalized applications

How insurance companies can begin their mainframe modernization journey

There are nuances to how mainframe modernization is applied within insurance. These solutions differ in intensity from business benefits to the technology used. The application depends on whether the insurer specializes in life and annuities, group and health, retirement, personal lines/small commercial and large commercial. However, there are three key steps that determine the direction of every mainframe modernization journey:

1. Defining business priorities
   1. a. What are the highest priorities for the business?
   2. b. How do those align to the key problems caused by running on the mainframe?

2. Identifying budget constraints
   1. a. What is the budget available today?
   2. b. What is the duration available to realize ROI?

3. Determining capacity for transformation
   1. a. What is the IT team’s capacity for transformation?
   2. b. Are there resources available?
   3. c. Is there a lot of other change happening?

Following this process results in a unique mainframe modernization plan.

Accenture’s insurance mainframe modernization methodology will help you develop a journey aligned with your goals. Contact us to get started.

Fuel the future of insurance: Technology modernization, such as AI and cloud-fueled data analytics, helps insurers deliver profitable growth both through growing revenues and cutting costs.

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Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors.

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