Cynthia Ezekwe 

In today’s fast-paced and competitive world, the insurance industry has been considered by some familiar with the industry as lagging behind in the digital age. They argue that the burden of legacy systems and outdated technologies, known as “technical debt,” is holding the industry back from making the necessary changes to keep up with the fast-paced and competitive world we live in. 

These technical debts  have been seen to come in many forms, including outdated claims processing systems, ageing policy administration systems, and legacy data architectures, preventing insurers from innovating and modernising their operations, which is leading to missed opportunities and frustrated customers.

Simply put, technical debt refers to the accumulation of old technologies, systems, and processes that become a burden to a company’s operations. In the case of the insurance industry, technical debt is often a result of outdated and inefficient systems that are unable to keep up with the ever-changing demands of the modern digital world. This can include legacy systems like mainframe computers, obsolete programming languages, or even outdated processes like manual data entry. In addition, a lack of investment in new technologies, such as artificial intelligence, big data, and the Internet of Things (IoT), can also contribute to technical debt.

Hyperexponential (hx), a leading insurance tech company, recently published a report titled, “Tackling Technical Debt in the Insurance Industry,” which provides insights into the technical debt that is holding back the insurance industry and actionable steps to transform it. The report identifies the key causes of technical debt in the insurance industry, including legacy systems, lack of standardised data models, and lack of automation. It also provides a detailed framework for tackling technical debt, which involves assessing the current state of technical debt, prioritising initiatives, and implementing changes to improve the situation.

According to Hyperexponential, technical debt  refers to  IT infrastructure, and cumulative consequences of choosing shortcuts to meet immediate goals rather than implementing robust and sustainable practices.

According to hx, one of the major reasons behind technical debt in the insurance industry is the sprawling legacy system which many insurers grapple with. These systems, though vital for the  smooth running of the industry, often lack effectiveness due to their outdated nature, which is the crux of the issue for insurers struggling with technical debt.

A lack of in-house technical expertise is another challenge that insurers face, according to the report. This is due to the fact that the insurance industry has traditionally relied on traditional practices and systems. As the industry has begun to adopt modern coding languages and powerful software, it has become clear that many insurers lack the expertise needed to fully utilise these new technologies. In order to address this issue, the report recommends a shift in approach, as well as investment in advanced technical skills and collaboration with third-party experts.

“This demands a shift in approach, and there is now an increased focus on both hiring and training for advanced technical skills. Insurers may also reach out to third parties who can bridge the gap between traditional industry knowledge and contemporary demands,’’ hx pointed out.

A third factor contributing to technical debt in the insurance industry is cultural resistance to change, as the report suggests that many employees are resistant to change and prefer the status quo. This can be due to a variety of reasons, such as the fear of job loss, lack of training, or the perception that new technologies are difficult to use. This resistance to change can make it difficult for insurers to modernise their systems and processes, leading to a buildup of technical debt. The report highlights the importance of aligning culture with innovation in order to overcome this resistance and effectively address technical debt.

The report highlights several ways in which the technical debt facing insurers can have a significant impact on their businesses. One of these is data inefficiencies, as legacy systems often struggle to manage large amounts of data and make it difficult to find and use relevant information. This, it said, can also lead to compliance issues, as insurers may not be able to meet regulatory requirements for data management. It also mentioned that the inability to effectively manage data can impact the ability to recruit and retain talent, as prospective employees may be put off by outdated systems. The  report emphasises that the decision-making process can also be negatively impacted, as legacy systems make it difficult to access  and analyse data in a timely and accurate manner. It noted that this can lead to suboptimal decision-making, which can ultimately impact an insurer’s bottom line.

To begin tackling technical debt, the report recommends that insurers take the following actions:

-More informed decisions on resource allocation  

-The development of processes conducive to effective project execution 

-Strategic planning to mitigate risks effectively 

-A cross-functional approach to updating and transforming workflows   

The report also noted the need for insurers to take immediate action to tackle technical debt, noting that actionable strategies to reduce accumulated technical debt  include:

-Defining clear goals for addressing technical debt, and aligning them with broader organisational objectives. 

-Developing a prioritised backlog of technical debt items, to  serve as a roadmap for tackling technical debt systematically. 

-Modifying development processes to integrate considerations for technical debt.  

-Scheduling regular reviews of infrastructure strategy to adapt to evolving organisational needs and industry trends.

In addition to the above measures, the report stresses the importance of taking a two-pronged approach to tackling technical debt. The first approach, known as incremental change, involves tackling technical debt bit by bit, with each project contributing to the overall reduction of technical debt. The second approach, known as transformational change, involves taking a larger-scale approach to addressing technical debt, through initiatives like digital transformation or core system replacement.

In conclusion, the report emphasises that the longer technical debt is left unaddressed, the more difficult and expensive it becomes to resolve. It noted that as legacy systems age, they become more complex and interdependent, making it harder to make changes without causing disruptions. On the other hand, it suggested that taking proactive steps to address technical debt can have a significant positive impact, both in terms of cost savings and increased efficiency. 

The report therefore stressed the importance of taking action on technical debt now, rather than waiting until it becomes too difficult to resolve.