IT Systems follow a lifecycle. This lifecycle spans from the first “go-live”, over a few modernisation releases, to the decline of the systems and finally their decommissioning. Every organisation is continuously adjusting their IT systems to cope with the increasing business and supervisory needs in between go-live and decommissioning. (Comella-Dorda , et al., 2000, p. 2) are depicting the business need as a linear increase, but especially in the more regulated sectors, we should even go one step further and accept the fact, that the business needs are not only increasing steadily but spike at certain times due to external “reasons for change”[1]:
Figure 1 - IT System Lifecycle, Introducing Standard System - based on (Comella-Dorda , et al., 2000, p. 2)
The increasing business needs are responsible for the fact, that at some point the legacy IT systems can no longer keep up and have to be replaced. The business and supervisory requirements for insurance systems have been constantly increasing in the past and this trend seems to be continuing in the future. Due to the continuous increase of requirements, the implementation effort necessary for implementing a new core insurance platform will always be bigger than at any given time in the past. Knowing that introducing the new systems will require more effort than for the predecessor systems (see Figure 1 - IT System Lifecycle, Introducing Standard System) is an important factor to note for the later stages and to avoid underestimating the effort that will go into implementing the new IT systems.
Next to the grown number of requirements, we can also derive effort from the number of previous system modernisations. A historically grown patchwork of IT systems will always require attention to straightening out the grown processes and transforming them to fit a modern system architecture. The more modernisations have taken place, the bigger the patchwork we have at hand.
The usage of standard systems can help reduce the effort of implementing a new insurance platform. With standard software, there is no need to develop the whole insurance platform from scratch, but we only need to bridge the GAP between the standard systems functionalities and the additional business needs not covered by the system[2]. Having less implementation effort is one of the biggest factors for the popularity of standard software.
[1] E.g., Insurance Sector: supervisory measures like Solvency ii, or IFRS17 have to be implemented within a certain horizon set by the legislator. [2] Custom vs. standard software is big topic, with lots of props and cons. This lengthy analysis won’t be covered in this publication.
References:
Comella-Dorda , S., Wallnau, K., Seacord , R. C. & Robert , J., 2000. A Survey of Legacy System Modernization Approaches. Pittsburgh: Carnegie Mellon - Software Engineering Institute.