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Modernising legacies: The continuing challenge of legacy systems

Many established insurers pride themselves on longevity, tradition and security for their customers. That is why many of them still use so-called legacy systems. Such systems have been fine-tuned over years or even decades, enriched with more and more know-how, and therefore have great economic potential. Due to their longevity, however, updating them often involves major expense. So the question of how to properly deal with legacy systems remains a difficult one for many insurance managers. ERGO Germany CIO Mario Krause analyses these challenges for our industry here on //next. 

A love-hate relationship

In addition to its positive meaning, the word “legacy” can also have negative connotations, in the sense of an ongoing problem or inherited burden. Legacy systems can be challenging for three reasons: 

  1. Over the years, they have been injected with more and more know-how and complexity. Replacing them one-to-one does not initially create any added efficiency or growth value, but rather merely maintains the status quo.
  2. The existing volume of code in earlier languages such as PL/1, Fortran, COBOL and Natural cannot simply be erased overnight. In fact, for many, the question even arises as to which old code is still required at all and actually needs to be run through. Even such a simple question often cannot be immediately answered. Maintenance costs due to “dead” code are increasing .
  3. Legacy systems are written in programming languages that are no longer used today. Moreover, there are hardly any system instructions and the programming code is often poorly documented. This makes it difficult to find staff with the corresponding know-how. Most candidates are more interested in new technologies that promise better career opportunities. It is therefore becoming increasingly expensive to conduct the necessary maintenance work (for example due to regulatory changes).
     

Legacy systems remain strategically important for insurers

Let’s be honest: given the challenges, every insurance manager would rather get rid of legacy systems sooner than later, since they are hindrances on the path towards a digital transformation.

The reality, however, is that legacy environments will continue to provide key back-end technology – and thus keep many insurers busy – for years to come. So insurers need a strategic perspective in dealing with them, in order to avoid serious maintenance and further development problems.

Like any other IT platform, the issue also requires active management depending on the situation and day-to-day business, in particular budgeting and resource utilisation in the context of the workload for upcoming projects.

At the same time, the systems still have to be kept up-to-date on a regular basis, because they will neither improve nor grow per se.


Modernisation as a continuous, evolutionary development process

The most effective way to revamp a legacy environment is to prepare a new system or systems and replace the old ones after the data migration. Though that is of course not as simple as it sounds. The work involved extends from choosing among the options, deciding whether to “make-or-buy”, all the way to planning and implementing a modernisation project that can last years. The result is often a parallel environment that enables both systems to be checked. Two kinds of mistakes must be avoided in the overall process: functional errors and data losses. The project has to be conceived and set up as an evolutionary process. 

The solutions of today become the problems of tomorrow

Today’s managers have to ensure that the current situation with legacy systems is not repeated in the future. Though no one can say with certainty which of today’s technologies will become legacies tomorrow. New problems can certainly not be 100% avoided, but they need to be managed as well as possible.

Text: Mario Krause, CIO ERGO Deutschland

More on that topic

Part 1 of the series by ERGO Germany CIO Mario Krause on the technological challenges facing the insurance industry is available here: 

https://next.ergo.com/en/next-best-things/2022/technology-core-challenges-legacy-modernisation-IT-insurance-industry-Mario-Krause.html