Small and medium-sized insurers are a vital part of the insurance ecosystem. Yet, they often face very different challenges to the big household brands – not least when it comes to keeping pace with technology. This doesn’t just slow innovation; it also constrains growth.
While the largest players can plough resources into the latest software, many smaller insurers continue to rely on legacy systems that lack the functionality, flexibility and efficiency they need to scale without adding more people, processes, cost and complexity. This puts a ceiling on profitable expansion.
But with fewer resources to play with, updating legacy systems can be a daunting prospect for smaller insurers. As the Bank of England’s Laura Wallis put it in a speech last December, “smaller scale operations can face difficulties in absorbing increasing costs related to IT infrastructure, as customer expectations for digital services continue to grow.”
But despite the benefits of upgrading to newer systems, the reluctance to change among smaller businesses often stems from perceived challenges and costs that don’t match reality. In fact, implementing new technology across policy administration, underwriting, claims and beyond can be easier, and more achievable, than it might seem.
Here are three myths stopping SME insurers from replacing legacy systems – and why they don’t necessarily match today’s reality.
It will take years and disrupt the business
Small and medium-sized insurers are often painfully aware that their legacy platforms are holding them back, but are put off by transformation horror stories. Past projects may have run over time, over budget, and had a hugely disruptive impact on the business. Understandably, they want to avoid the same experience.
The truth is that, in the past, implementation timelines could run into years, as end-to-end systems were either built from scratch or generic off-the-shelf systems were forced to fit complex insurance processes. That meant thousands of lines of code needed to be written to build something that would fit the needs of the business – all in one go.
Thankfully, that’s no longer the case.
With modern platforms, insurance workflows are built in, with the ability to flex to individual insurers without lengthy development processes. With automation as the default, automation is switched off when needed, rather than being built from scratch, streamlining implementation significantly. Plus, modern platforms are modular, enabling phased or incremental implementation, rather than trying to do everything in one huge project. This makes the change process significantly easier to manage.
It will cost millions
For most smaller insurers, the first objection to replacing legacy systems is usually cost. Modernising insurance software has traditionally meant major upfront investment, unpredictable budgets, and ongoing maintenance spend. But with new systems, that doesn’t have to be the case.
Modern platforms are designed for the exact needs of insurance companies, so they come with much lower implementation costs and SaaS subscription models that are often linked to growth, rather than a fixed monthly cost.
But cost is just one side of the equation. The other is ROI. By eliminating inefficiencies, reducing manual work, and improving the customer experience, modern systems enable leaner organisations, which can scale without headcount and operational costs increasing at the same time. s More efficient systems can also help insurers win and retain lucrative embedded insurance and partnership deals. So any upfront cost is quickly recouped through increased productivity and profitability.
It’s safer to stick with what we’ve got
Insurance is a conservative industry, and for many small and medium-sized insurers, the risk of change is simply seen as larger than embracing the status quo. There’s the threat of spiralling budgets, business disruption, compliance risk- and beyond. Nobody wants to back a doomed IT transformation, so it’s often seen as safer to do nothing.
But doing nothing is also risky. Legacy systems can make it harder to adapt to changing regulations, launch new products, automate processes, or respond quickly to customer expectations. They can also create growing operational and security risks, particularly as systems become harder and more expensive to maintain.
In contrast, modern platforms can significantly reduce the risk involved. Leaps forward in technology mean they can handle end-to-end workflows out of the box and with simple configuration, making projects much easier to control.
With modular software, smaller insurers can also take a gradual approach to implementation, prioritising based on their needs, and scaling as and when they’re ready. Rather than replacing everything at once, or heavily customising a new core system, they can retain what works and modernise around it over time. And once implemented, modern platforms reduce ongoing risk through ease of maintenance, compliance, and responding to the market quickly and effectively.
IT transformation isn’t just for the biggest players
For smaller insurers, replacing legacy systems can seem like a major undertaking, without the financial and human resources the bigger players take for granted. But in today’s technology landscape, that no longer needs to be a barrier, as the latest platforms eliminate many of the IT transformation challenges they used to fear.
That means small and medium-sized insurers can now access the same insurance systems and automation as the bigger players, to drive efficiency, improve customer experience, and give them the foundations to scale. It could be time to reevaluate the software market and give it a try.
