Why many insurance IT modernisation projects don’t live up to their potential, and how to change that
In this time of rapid change and market volatility, modernising technology to gain competitive advantage has never been more important. According to this research by McKinsey, however, most organisations achieve less than one-third of the impact they expected from digital investment – and this is just as true in the insurance industry as elsewhere.
So where are IT-led modernisation projects going wrong, and what can we do about it?
We will present here the kind of challenge GFT faces over many years serving insurance companies and our proven approach to avoid those risks.
Purely IT-driven projects risk bias
These kinds of projects could involve upgrading a Line of Business away from a legacy system or digitizing a Line of Business that’s still using manual processes. In both cases, it’s easy to end up with a project that’s largely driven by the IT team – but this approach risks a great deal of bias.
The common biases we see are the perception that:
- The new system should have the same features as the old one
- The market context and business needs are still the same as they were when the old system was implemented
- The IT team knows the business well enough to make decisions on behalf of users like salespeople, accountants or claims processors
- That existing processes can stay the same and don’t need updating
- The IT team sees the replacement project as a way to quickly replaces risky or aging technologies, blinding the IT team from other objectives.
Lack of stakeholder involvement presents risks
It’s extremely difficult to realise the full value of an upgrade without involvement from the wider business. Not getting the right stakeholders involved, or not getting them involved early enough in the project, poses a number of potential risks.
This means that business benefits, efficiencies and ROI can be compromised, and the organisation may not make full use of new features and capabilities.
New opportunities and new ways of working could be missed, such as:
- Business process optimization: Insurance companies are highly process-driven organizations. In the past, processes may have been designed around the limitations of legacy systems, so upgrades offer an opportunity to review and optimize these.
- Boosting market agility: An IT-driven project may not explore improving the organisation’s ability to adapt faster to changing market conditions once the limitations of a legacy system are removed.
- Improving rather than replicating legacy systems: The assumption that the legacy system can be replaced with the same features as the old one leads to a failure to examine the real user needs or business needs that the new system could now meet.
The project may also be compromised
There are also significant risks for the project itself when stakeholders are not involved early enough in the project.
Scope creep is a common issue when the project doesn’t capture all the business requirements, or the IT team doesn’t understand that requirements have changed since the legacy system was implemented. This can lead to unnecessary functionality being implemented, poorer operational performance, and the need for extensive rework later in the project.
Poor communication and misalignment or misunderstanding of project goals can also be a problem when the needs of the wider business are not represented.
IT upgrades can have a variety of objectives. From IT’s perspective, this could be to reduce the risks of aging technology, or to cut operational costs. From the business perspective, it could be to increase sales, add new distribution channels, increase the efficiency of the underwriting process, boost agility or enter new markets.
Sometimes, these objectives may conflict with one another. For example, one stakeholder might want to sell insurance policies faster, while another may want to capture more information to provide more accurate pricing. Another example is when the IT team is on urge to replace a risky legacy, where the approach could be a pure tech upgrade on first release to be in position to deliver business value added features in subsequent release. These goals are in competition with each other, and it must be agreed by all stakeholders where the priorities are before the project kicks off.
How can we reconcile conflicting IT and Business challenges?
At GFT, we make sure that enterprise-wide business stakeholders and the IT team are fully aligned and have a common understanding of the project and its objectives from the beginning with a series of workshops. These workshops take place before the project begins – sometimes even before the inception phase.
This allows members of the business to share the goals they’d like to achieve with the upgrade, and for IT to discuss their own objectives and the constraints they’re working with. It also provides an opportunity for any competing objectives, technical difficulties or budget constraints to be discussed.
Once a vision for the project has been agreed by all stakeholders, we represent it using a Product Vision Board.
This is a simple but powerful tool that allows insurers to summarise the common vision, goals and expectations that have been agreed for the project. It should be short and concise – if it can’t fit on a single slide, then it’s likely that the project objectives are too wide-ranging or conflicting and need to be reconsidered.
The Product Vision Board can then be presented to senior management for approval, before it goes on to become the foundation of the project.
Communicating the Product Vision Board to all members of the project, and making sure it remains highly visible throughout, is critical here. The Product Vision Board helps to guide the IT team through the project, making sure that all participants are clear on what needs to be achieved, and that project decisions are informed by clear goals and have a defined focus.
It also makes sure that any potential conflicts in the project vision have been identified and resolved. This is easier and less costly to achieve at this early stage, as opposed to after the project has kicked off.
Involve the correct stakeholders for maximum project value
Finding the right stakeholders is another vital part of the process. As well as the IT team, many parts of the business could be affected by the upgrade system and may have expectations of it, such as sales, marketing, underwriting, actuarial and claims.
Within these departments, the right stakeholders need to be found to share their department’s challenges and requirements, and communicate back the results of the Product Vision Board. They must be able to give approval for project decisions, or have direct access to decision-makers.
Maximize value for competitive advantage
Using a workshop-based approach to produce a Product Vision Board helps to make sure that IT upgrade projects are designed for the needs of the entire business, have widespread buy-in, go to plan and stay within budget. The approach we’ve outlined here is just as relevant for a small project as for a large one – it’s simply good practice. And when a project is fully aligned with the needs of the business, that’s when it achieves genuine, lasting impact.
If you’d like to discuss how GFT could help you increase the value of your modernization projects, contact us today.