A guide to making smarter modernization for insurers 

Insurance modernization efforts frequently stall, exceed budgets, or fall short of expectations — not due to lack of intent, but because there’s often misalignment with business priorities.

Modernizing with greater clarity and control begins by focusing on business value, modular design, and long-term adaptability. That means understanding where hidden costs creep in, asking the right questions beyond the Request for Proposal (RFP), and choosing solutions that reduce risk without slowing down innovation.

For many insurers, the real challenge isn’t whether to transform. It’s about doing so in a way that drives more tangible and relevant outcomes while keeping the business running.

Is the organization truly ready to modernize?

One of the biggest risks in modernization isn’t choosing the wrong technology or implementation approach. It’s moving forward before an organization is truly ready.

Many insurers overcommit too early. They invest in new platforms while underestimating the complexity of changing the way people work, think, and collaborate. Managing any resistance to change is vital to achieving organizational buy-in and facilitating a smooth transition to adopting new processes and technologies.

That’s why technical readiness is only part of the picture. Cultural and operational readiness matter just as much.

One of the clearest signs that an organization is ready is a willingness to adopt proven solutions instead of insisting on a fully custom-built system – consume rather than define and build This means moving away from trying to design and control every process in-house, and instead trusting established platforms, pre-configured processes, and agile delivery models.

The value of having a modernization readiness checklist

Before committing to any modernization program, insurers should ask the following questions:

• Is data integrity in place?
  • Poor-quality data can introduce serious risks, from migrating inconsistent information or incomplete records into a new system to inaccurate decision-making. Cleansing, enriching and validating data before migration is essential.
• Are the right internal capabilities available?
  • Readiness requires more than IT expertise. Business analysts, change leaders and cross-functional teams are needed not only to bridge technology with day-to-day operations, but they must also have the time and availability to commit to the modernization effort.
• Can the business absorb operational change?
  • Frontline teams need sufficient time, support and training to adopt new tools and workflows. Phased adoption strategies can help minimize disruption while increasing success rates.
• Is there committed executive sponsorship that can lead organizational change?
  • Effective leadership goes beyond budget approvals to actively champion change. Insurers do this with clear communication of strategic goals and visible, hands-on involvement to motivate, foster engagement and adapatability and achieve buy-in. This includes continuously monitoring progress, gathering employee feedback and addressing obstacles to smooth adoption.

Modernization delivers value only if the entire organization — people, processes and leadership — is ready to work in a new way.

Uncovering the hidden costs of insurance modernization

Even if an organization appears ready to modernize, many insurers fail to account for the full cost of doing it well.

The consequences of underestimating modernization challenges aren’t just budget overruns. They’re solutions that are difficult to scale, expensive to maintain, and fragile in real-world conditions.

Here are four of the most overlooked costs that, if detected early, can reduce risk, improve planning, and ensure a smoother path to long-term value:

1. Integrating with given systems can be more complex than expected

Integration with given systems can derail modernization if not planned for. Connecting new tools to existing core systems, homegrown tools, or point solutions may reveal hidden incompatibilities. These integrations can consume far more time and budget than expected.

Addressing these risks early through architectural planning, API-first design – overcoming point-to-point integration, phased approach and modular rollouts help prevent delays and ensures smoother modernization.

2. New systems need to be able to support evolving compliance needs

Legacy platforms often fall short on auditability, data transparency, and reporting capabilities required to meet today’s regulatory and business demands. But modernization isn’t automatically a fix. Without flexible architecture, even new systems may struggle to keep up with evolving regulations, especially across diverse jurisdictions.

3. Poor scoping leads to increased technical debt

Modernization projects that are rushed, under-scoped, or poorly aligned with business priorities often create new technical debt instead of resolving the old. This risk is especially high in “Big Bang” transformations when delivery timelines, organizational readiness, or stakeholder alignment are unclear.

Whether rolling out in phases or all at once, success depends on clear prioritization, defined ownership, and the ability to adapt as conditions evolve. Without that, systems become over-engineered, under-used, or outdated by the time they go live.

4. Disconnected strategy weakens even good technology

Even the best technology will fail if stakeholders don’t know how to operate it. A lack of clarity around ownership, workflows, or success metrics can erode value quickly.

What makes a modernization strategy successful and scalable?

Modernization in core insurance systems is a high-stakes, high-impact transformation. With large budgets, long timelines, and business-critical systems on the table, it’s closer to open-heart surgery than surface-level change.

The major challenge is modernizing core systems that power underwriting, claims, policy admin, and customer experience without risking operational downtime or customer disruption.

Unlike tech peers in other sectors, insurance leaders operate in a high-compliance, low-margin-of-error environment where mistakes could be expensive and highly visible. They must weigh innovation choices not only against strict regulatory demands and the need for operational continuity, but also against competing strategic goals. Should they focus on delivering the best product, the most efficient operations, or the most personalized customer experience?

Successful modernization strategies balance these pressures rather than chasing just one at the expense of others by:

1. Driving measurable business impact

To be effective, every modernization effort must be anchored in a specific, cross-functional outcome—whether that’s reducing product launch times, cutting maintenance costs, or improving customer retention. That means aligning IT investment with priorities from strategic business KPIs and objectives.

For example, replacing hard-coded product configurations with a flexible product engine enables faster launches across different lines of business.

2. Being technically feasible within the existing ecosystem

Digital transformation efforts often fail because they underestimate how tightly existing systems are intertwined. Scalable strategies account for the current architecture and build toward a future-ready one by using modular platforms, API-first solutions, and cloud services that can evolve alongside your business.

Instead of replacing core systems, a more effective approach is to layer in a cloud-first policy administration system that integrates with legacy billing or claims systems, avoiding a full replacement from day one.

3. Preparing the organization for change now and in the future

Insurance tech leaders must modernize amid ongoing operations, regulatory reporting and the departure of institutional knowledge as long-serving experts retire. But successful modernization must also position the organization to thrive in the years ahead.

That means making systems intuitive for new talent, reducing reliance on bespoke knowledge and creating an environment where future employees can build, adapt and innovate.

One way to reduce risk is to start with a single line of business or customer segment. This allows teams to gradually adopt new ways of working while reducing their reliance on aging systems that are hard to maintain.

How to choose the right path to modernization

The risks that come with modernization — rising costs, rigid systems and misaligned strategies — often stem from poor prioritization. Instead of trying to fix everything at once, successful insurance tech leaders categorize their systems and initiatives to focus their efforts where they deliver most value.

1. Use a framework to prioritize modular and phased modernization

The framework below helps categorize modernization initiatives based on their relative effort and impact. Effort refers to the complexity and time required to deploy a solution; not how technically difficult it is to build. Quick wins typically affect isolated systems or workflows, while foundational investments involve core platforms and cross-functional change.

	Examples	Effort to deploy	Impact	Action
Quick wins	Modernizing customer portals, automating manual policy workflows	Lower effort, limited disruption	High	If usage spikes or net promoter score (NPS) improves, double down by layering in new features or cross-selling opportunities
Foundational investments	Upgrading core policy administration or data infrastructure	Higher effort broad system impact	High	Plan for phased rollouts that reduce disruption and support long-term scalability
Low-value initiatives to avoid	Custom rebuilds of niche legacy tools	High effort, low return	Low	De-prioritize or sunset where possible to free up resources

A framework also reflects how modular transformation can scale, whether insurers start with a targeted quick win or plan a core system upgrade over time.

By mapping each initiative to its impact and effort, insurers can focus on what delivers value fastest and avoids unnecessary complexity.

For example, an insurer might begin by automating document handling for claims—a lower-effort, high-impact quick win. With early success and team buy-in, they could then move on to a phased rollout of a new claims management system, starting with a single line of business to minimize disruption.

2. Start where the business feels the pain

Instead of starting where the tech is oldest, successful insurers start where the business feels pressure. That might be high maintenance costs, slow product launches, compliance risk or low efficiency in processing.

Internal KPIs like time to market, operational cost, or customer satisfaction guide where to begin.

Imagine an insurer struggling with rising costs and slow processing times in its claims department. Despite having older systems in other areas, the business impact of claims delays (e.g., customer complaints, manual workloads and reputational risk) was more urgent. By targeting claims first for modernization, the company automated routine tasks, improved turnaround times and freed up staff for higher-value activities.

3. Use agile delivery to accelerate learning

Even with a clear roadmap, modernization rarely goes exactly as planned. Agile delivery methods reduce risk by breaking initiatives into smaller, testable increments that can be brought to production. This enables teams to gather feedback early, adjust based on results and build confidence before scaling further.

This approach aligns with how SAP Fioneer supports modernization, enabling insurers to start with one line of business or a certain capability, deliver value quickly and expand based on proven outcomes rather than assumptions.

For example, one of our insurance clients launched a new core insurance system — from quote to claims — for a select group of property and casualty (P&C) products in just a few months. By starting with a defined scope and iterating based on user feedback, they validated their modernization strategy early and used it as a blueprint for broader transformation.

4. Reassess each initiative continuously

Priorities may shift as adoption grows, business scales and markets change. An adaptive approach allows insurers to double down where results improve, pivot when friction emerges and pause if business value stalls.

Consider a scenario where a new underwriting system is rolled out in one market with strong adoption. When expanded to another region, however, the team encounters unexpected integration challenges due to different regulatory workflows. Rather than pushing forward, the rollout is paused, adjustments are made to address local needs and the program resumes with better alignment—avoiding wasted effort and improving long-term success.

What to consider when picking a technical solution

After identifying the right areas for modernization, the next challenge is choosing the right technical solution. Leading insurers look beyond product demonstrations to assess how effectively they support their strategic, operational and technical goals.

Four key assessment criteria are:

1. Modularity and scalability

Modernization isn’t a one-time project. Platforms need to support phased rollouts, which allow insurers to upgrade individual capabilities or lines of business without disruption. Flexible, cloud-first architecture makes this possible, enabling teams to evolve at their own pace.

2. Ecosystem integration

The ability to connect with legacy systems, external data sources and partner ecosystems is critical, especially in an embedded insurance context. An API-first, event-driven design helps ensure smoother integration across the insurance value chain.

3. Insurance-specific breadth and depth

Generic platforms often fall short in areas like localization, regulatory compliance and product complexity. Industry-specific solutions that come pre-configured with insurance content can reduce time to value, support compliance out of the box and adapt more easily to regional requirements.

4. Long-term efficiency

Licensing is only one part of the equation. Long-term value depends on maintenance effort, implementation complexity, training needs and adaptability. Platforms that reduce reliance on custom code and support ongoing automation can lower operational costs and minimize lock-in risks.

Together, these four capabilities help insurers avoid the hidden traps of overspend, complexity and rigidity while laying the foundations for modernization.

Smart modernization involves strategy, cost clarity and the right technical partner

Modernizing core insurance systems is no longer optional — but how insurers approach that transformation will define whether it becomes a long-term asset or a costly misstep.

This guide has shown that smarter modernization isn’t about bold bets or wholesale system replacements. It’s about ensuring organizational readiness, aligning transformation with business priorities, uncovering hidden costs early and choosing solutions that support agility, scalability and continuity.

Insurers that succeed take a phased, modular approach and start with urgent pain points. They don’t aim for perfection on day one. They prioritize outcomes, empower cross-functional teams and invest in platforms built to evolve.

Ultimately, smarter modernization delivers more than new systems: it enables faster innovation, better customer experiences and a foundation insurers can build on for years to come.

SAP Fioneer supports this journey through Cloud for Insurance, an end-to-end platform that enables faster product launches, lowers implementation risk, ensures compliance and supports continuous evolution across the enterprise.