Many insurers continue to rely on homegrown core systems, built during the 1990s or earlier, that once delivered competitive advantages through highly customized workflows but now represent some of their most significant liabilities.
What began as tailored solutions designed to support unique business processes is now constraining insurers’ ability to adapt in a market increasingly defined by digital transformation, evolving customer expectations, and emerging technologies like artificial intelligence. Homegrown system maintenance now consumes resources that could otherwise fuel customer experience improvements and product offerings. As experienced professionals retire, the shrinking pool of industry expertise makes technology-enabled efficiency more critical than ever.
For forward-thinking insurers, modernizing core systems represents far more than a technical upgrade; it’s a strategic investment in agility that positions organizations for sustained growth in an increasingly competitive market.
The hidden economics of homegrown insurance systems
The true cost of maintaining homegrown systems extends beyond line-item IT expenses, creating a web of hidden costs that compound over time.
- Technical expertise concentration creates organizational risk. Homegrown systems require a deep knowledge of custom business logic that only internal teams understand. When key personnel leave, they take institutional knowledge that is difficult to replace, creating bottlenecks for routine maintenance and upgrades.
- Integration complexity transforms routine business requirements into major undertakings. Regulatory compliance updates, third-party integrations, and system connections, which are often simple configurations in modern platforms, can become extensive custom development projects. A basic integration that requires days in modern systems can stretch into months-long initiatives for homegrown platforms, multiplying both the cost and risk.
- Data accessibility bottlenecks create perhaps the most frustrating limitations. While these systems excel at their original functions, they struggle with today’s analytical demands. Extracting customer lifetime value requires piecing together data from multiple disconnected databases. Real-time fraud detection becomes impossible when systems rely on batch processing, leaving organizations to make risk assessments based on outdated information.
These constraints generate significant opportunity costs. Competitors launch new products in months or even weeks, while legacy-bound insurers spend years merely evaluating feasibility. The disparity stems from missing capabilities that modern platforms provide as standard features.
The capabilities gap: What modern systems enable
With industry expertise becoming scarcer, modern platforms that amplify human capabilities are essential as they deliver critical capabilities that legacy systems cannot match:
- Real-time decision-making transforms customer interactions from delayed processes to immediate experiences. Simple risks receive instant underwriting decisions, eliminating traditional waiting periods that frustrate customers and create competitive disadvantages.
- Ecosystem connectivity accelerates partnership formation through standardized APIs. What once required 12-18 months of custom integration work can now be achieved in weeks, enabling insurers to rapidly expand their distribution channels and create embedded insurance offerings that meet customers where they make purchasing decisions.
- Embedded analytics replaces monthly reporting cycles with live insights. Underwriters observe risk patterns as they emerge rather than weeks after the fact. Claims managers identify fraud indicators immediately, enabling proactive intervention rather than reactive damage control.
- Scalable architecture through cloud-native SaaS platforms automatically adjusts infrastructure and application capacity based on demand. Unlike homegrown insurance systems requiring manual provisioning, modern cloud solutions expand seamlessly during peak periods while optimizing costs during normal operations, eliminating expensive over-provisioning.
- Business user empowerment through low-code and no-code tools reduces dependency on IT resources. Claims adjusters can create custom workflows, underwriters can modify risk criteria, and product managers can configure new offerings independently, accelerating business responsiveness while freeing IT teams for strategic initiatives.
Unlock more revenue with modern insurance systems
More importantly, modern insurance systems contribute to revenue acceleration by enabling business models that homegrown platforms cannot support:
- Product innovation speed compresses development cycles from years to months. Insurers can rapidly test market hypotheses, iterate based on customer feedback, and launch differentiated offerings before competitive windows close. Usage-based insurance (e.g., pay-as-you-go auto coverage), parametric coverage (e.g., automatic flight delay payouts), and embedded protection products (e.g., smartphone insurance at electronics checkout) become viable options rather than theoretical possibilities.
- Distribution channel expansion becomes economically feasible when systems support real-time operations. Embedded insurance requires immediate policy issuance and seamless integration capabilities. Homegrown batch-processing systems make these models technically impossible or economically prohibitive.
- Customer experience differentiation creates lasting competitive advantages. Digital insurers process simple claims in minutes rather than days, setting new market expectations. Traditional insurers with modern platforms can match these capabilities; those with homegrown systems cannot, creating an expanding experience gap that influences customer acquisition and retention.
The most valuable yet hardest-to-quantify benefit is strategic agility. Organizations with modern platforms respond quickly to market changes, capitalize on emerging opportunities, and deliver experiences that build lasting customer relationships. In an industry where customer switching costs continue to decline, this agility becomes essential for long-term viability.
The strategic choice is a simple one
Modernize now or get left behind. While your company deliberates timelines, competitors are capturing market share with capabilities that homegrown systems cannot match.
The cost of waiting now exceeds the cost of acting. And the modernization dividend is simply the difference between thriving with future-proof technology and struggling to maintain relevance with yesterday’s systems.
SAP Fioneer accelerates insurance companies’ platform modernization through Cloud for Insurance, an end-to-end solution that enables rapid product development and seamless ecosystem connectivity, supporting flexible delivery of new insurance offerings.