This post is part of a series sponsored by AgentSync.
The Cost of Legacy Technology
In 2023, financial services companies On average, 15 percent of revenue Not only is technology investment up from 10% in 2022, but it’s also nearing the top when looking at the percentage of IT spending by industry. The real tech industryCompanies such as software and managed services companies spend a larger percentage of their annual revenue on IT.
One could argue that this is because financial services companies, especially in the insurance industry, are increasingly embracing technology. On the other hand, one could argue that financial services companies are overspending on technology because they are spending too much on outdated, cost-ineffective technology.
While the private insurance industry is not the U.S. government, reliable data from the government provides clues about how much money other industries are spending to maintain existing systems, including what are considered “legacy technologies.” Government Accountability Office (GAO)“Each year, the federal government spends more than $100 billion on IT and cyber-related investments. Of this amount, agencies typically report spending about 80% on operating and maintaining existing IT, including legacy systems.”
Even a conservative estimate of how much the insurance industry is spending in total to maintain legacy technology could account for a significant portion of the 15% of revenue spent on IT across the industry.
So what exactly is that 15 percent? According to the Insurance Information Institute (III), the entire U.S. insurance industry is It generated $1.4 trillion in premium income in 2021So let’s think about it… 80 percent of 15 percent of about $1.5 trillion? Do the math! (But seriously, Google says it’s about $168 billion).
Given this staggering figure, we decided to present some of the best uses of your insurance company, agent, or MGA/MGU’s money if they’re not spending it supporting outdated technology.
But first…
Why is supporting legacy technology so expensive?
Outdated technology is more expensive to maintain, keep secure, and keep in good working order than modern technology.
Back in the day, the whole software business worked differently than it does today. You had one computer, it sat in one place (probably your living room), you bought a box of software, and you “owned” it forever. Let’s take a familiar example that we can all remember: Microsoft Word.
Side note: If you can’t remember the last time you bought a boxed copy of Microsoft Word from an office supply store, you A new generation of insurance professionals – welcome!
So, in the past, you paid a one-time purchase price for software and got the right to use it forever — but what you didn’t realize was that “forever” came with a price that was unforeseen at the time.
As technology advances, your version of Microsoft Word slowly stops working as well as it used to. It doesn’t get new features that make it better over time. Eventually, you need a new computer to keep up with rapidly evolving technology (like the Internet). But you bought a copy of Microsoft Word 1995, and in 2002 it no longer works on your new computer, so you have to buy another version. The new version will probably cost even more than it did when you first bought it.
It’s an unexpected cost — after all, when you first bought the software, it came with the promise that it was yours for life, not a disclaimer that you’d need to pay more every few years to keep using it.
Not only do I have to buy the same new software over and over again, but I also find that hackers are taking advantage of the age of the products to get in and steal data. The longer the software sits without being changed or updated, the more time bad guys have to find ways to exploit it. This means I have to buy Norton Antivirus to keep my computer safe, which is another added cost.
We could go on and on about this analogy, but it still doesn’t come anywhere close to the complexity and cost of enterprise-level legacy software, which is why it costs companies so much to simply maintain technology they purchased decades ago, even if they get no real return on their ongoing investment.
Why don’t insurers modernize their technology?
The short answer is that it’s not easy or cheap. Modernizing large, complex business systems, like those used to manage insurance companies, agents and MGAs/MGUs, can take months or even years to go live.
Such modernization may involve large-scale data cleanup and migration projects that may result in business disruptions and downtime, can be costly, difficult and time-consuming, and there is no guarantee that the project will ultimately be successful, either from a technical perspective or simply due to a lack of buy-in and adoption from the target users.
Supplementary Note: That is why our World-class implementation process It’s very important.
Yet the solution is not to turn a blind eye to reality and assume that decades-old legacy systems will continue to function for the next few years, or even longer. Right, Southwest Airlines?
Choosing to modernize your insurance technology stack is not something you can do on a whim: doing it right takes a lot of time and resources. Evaluate different solutions To Assert When choosing a partner, however, if you take the step to modernize, Cost reduction achievedAnd you might be wondering what else your business could do with that money.
10 things insurers can invest in instead of legacy technology
To make the case for modernization, here are 10 things your organization can definitely fund with the savings realized by moving away from legacy technology. Some of these are more practical than others, but we believe in dreaming big.
- Modern Insurance Infrastructure: This one is pretty obvious. You can spend money on modern insurance technology instead of traditional insurance technology (but for much less). You still need technology infrastructure to drive your business. There’s no point spending so much money on it if it’s not going to provide you with much value.
- Better customer experience: Whether it’s hiring more customer service representatives to improve response times or investing in a smartphone app that allows clients to contact you instantly with questions, investing the money you no longer spend on traditional technology can improve the customer experience.
- Green Office Upgrades: Go green by investing in eco-friendly office upgrades. Consider installing solar panels, a green roof, or even a company garden. You’ll be better for the planet and your employees will be happier.
- High Tech Training Programs: For your employees, it can be really beneficial to reallocate your old tech budget to training in cutting edge technologies. It could be data analytics, cybersecurity, the use of AI, or blockchain technology. Either way, your employees will gain valuable skills that will benefit their careers and they will be grateful for the opportunity.
- Home Office Upgrade: Many insurance industry workers Hybrid working arrangementsYou can improve your employees’ lives by giving them a budget to make working from home more comfortable and productive. Ergonomic chairs, standing desks, and noise-canceling headphones are just a few ideas you can provide each employee with the money you don’t spend on supporting traditional technology.
- Wellness Retreats and Mental Health Benefits: Happy employees are productive employees, so putting the money you save towards wellness perks like gym memberships, spa experiences, mindfulness classes, or even multi-day wellness retreats will show your team how much you care about their overall health.
- Charitable giving or matching donation programs: If you’re looking for ways to put your savings to use, consider giving back to your community. Employees love the idea of directing funds to causes they care about. You can even set up employer matching donations to double the impact when employees fundraise for the causes they’re most passionate about.
- The office zoo: Forget “Bring Your Dog to Work Day.” This idea is to bring some mayhem to the office. Nothing breaks the monotony of work like having an alpaca in the elevator or a rabbit on your desk. Even if you don’t have lions, tigers, or bears, you can still provide your employees with an unforgettable experience with some small farm animals, like goats, miniature horses, and other office-sized animals.
- On-site childcare centerThough it does cost, offering child care services to your employees is one of the biggest benefits for workers with minor dependents. It can be an investment worth the ROI, especially if you’ve recently found some extra space in your budget by cutting back on legacy technology spend.
- The ultimate team building experience: Go beyond happy hours and bowling to design the ultimate team building experiences, like company-wide escape room challenges and survival skills weekends, fostering cohesion and developing problem-solving skills in a fun, unusual environment.
Are you ready to modernize your insurance license compliance processes and save money?
Even if you don’t reallocate funds to any of our ideas, your firm likely wouldn’t be opposed to significantly reducing legacy technology expenses by switching to a modern insurance compliance solution that handles everything from producer and adjuster licensing to renewals, state appointments, continuing education, and even managing dual-licensed broker-dealers with real-time FINRA data.
To learn how insurance companies can turn compliance into cost savings, check out our guide, “Don’t let compliance compete with cost.” If you’re ready to explore how AgentSync can help you modernize your business and reduce costs, Contact our insurance compliance technology experts today.
topic
Insurtech
Technology
