11 minute read 15 June 2023

Life and annuity insurers consider the path less traveled

Core-system modernization is becoming table stakes

Santosh Kutty

Santosh Kutty

United States

Dan McCoach

Dan McCoach

United States

Ralph Bradley

Ralph Bradley

United States

Michelle Canaan

Michelle Canaan

United States

Dishank Jain

Dishank Jain


Key messages

  • Despite COVID-19-accelerated upgrades, the digital experience and competitive bar is continuously rising, fueling some life and annuity (L&A) insurers to seek a path to modernizing their outdated systems.
  • While core-system modernization progress lags other industries, many L&A insurers are putting some stakes in the ground—although strategies may differ based on company size.1
  • A convergence of barriers encumbers L&A insurer core-system transformation, the most fundamental of which is that many in the sector still work from legacy core systems and platforms and intend to continue to use them going forward due to legacy-conversion risks.
  • Amid underwhelming success with past core-system transformation efforts, L&A insurers will likely need to alter traditional mindsets and company culture to remain competitive in a continuously evolving landscape.


“If we fail to adapt, we fail to move forward” John Wooden2

Considerable technology advancements and increasing availability of consumer data present many opportunities for L&A insurers. One of the foundational elements of the sector’s ability to react to these emerging developments are the back-office applications that support the primary business functions of an L&A carrier.

These systems could potentially be either the market differentiator that supports their success or the restriction that prevents them from capitalizing on emerging opportunities. For many L&A carriers, it’s the latter, as many are still operating mainframe-based legacy core applications, which lack capabilities necessary to operate more effectively in the modern environment.

Many in the sector demonstrated an ability to withstand disruption during the pandemic, even though many carriers were still functioning on these legacy systems and outdated applications. However, as the environment becomes increasingly digitized and customer expectations for more relevant and holistic products and ease of doing business continue to escalate, many life insurers have reached a crossroad. Core-system modernization has become table stakes and now it’s no longer about deciding whether to continue to advance technology upgrades, it’s about which path to take.

To understand how far L&A insurers should go to achieve core-system modernization, it’s important to look at where they currently stand, where they plan to go, and how they intend to get there. In December 2022, Deloitte surveyed 100 L&A chief information officers (CIOs) or their equivalents around the state of the industry related to core-system modernization to gather more insight and provide innovative strategies that may help move the needle forward.

Low levels of progress may continue to impede new opportunities

Most respondents said they have begun their modernization journey. However, fewer than one-third have completed some (20%) or all (12%) of their initiatives. Just over two-thirds have projects currently underway or in the planning stage (figure 1).

There also appears to be a distinction in progress based on the revenue size of the respondents’ company, with larger players landing ahead in the journey compared to their smaller peers.

Respondent segmentation by company revenue

Less than US$1 billion = smaller companies

Between US$1 billion and US$10 billion = mid-sized companies

More than US$10 billion = larger companies

Respondents from smaller companies said no core-system modernization initiatives have been completed in their organizations. However, 52% said their initiatives are currently in the planning stage (stage 3) and 37% said some are underway (stage 4). In larger companies, 53% of the respondents said most initiatives have been completed (stage 6), 26% have completed some (stage 5), and none have any in the planning stage currently. Mid-sized company respondents land somewhere between their smaller and larger peers.

Overcoming obstacles to stay relevant in an environment that demands change

Respondents’ top incentive to undertake modernization initiatives within the next year is to remain competitive. They worry that if systems remain disparate, intermediaries and end customers could go elsewhere looking for more efficient and streamlined solutions (figure 2).

Until recently, many insurers perceived their systems to be able to support their traditional business models, especially when faced with the levels of disruption wholesale core-system transformation may entail.3

This mindset has often resulted in a network of legacy core systems cobbled together to support a gamut of products and processes. These disparate systems result in point-to-point integration complexity and an inability to effectively expose data for internal and external consumers. For example, two-thirds of respondents said their company uses more than one policy administration system (PAS), while 23% have more than four (figure 3). Some carriers have in excess of 10 PAS to support their inforce book of business.

Prior attempts to consolidate core legacy systems have frequently proven to be complex, burdensome, and costly, and in many cases, either failed or did not meet expectations. Moreover, technology solutions available for L&A insurers to implement a wholesale conversion of their myriad of core systems remain underwhelming.

With grudging acceptance across the sector that converting all core platforms down to one is unrealistic, respondents are less concerned about replacing disparate legacy systems (16%) than they are over the high project costs (53%) and the impact to their talent (47%). Difficulty aligning stakeholders on the approach to take or which solutions to use also remains one of the top three impediments to successful planning and implementation.

These, and a slew of other challenges could make capitalizing on emerging opportunities a disconcerting prospect for many L&A companies. However, a confluence of internal and external drivers is unfolding, which may be motivating L&A insurers to find ways over or around obstacles and fully commit to core- system modernization.

Internally, legacy mainframe technology resources may be retired or retiring, while the next generation of employees are often only being trained on modern technologies and could struggle to assimilate into work environments with outdated systems and platforms. Overlaying the succession challenges may be helpful in making the industry a more appealing career choice for younger applicants, as old-fashioned technology may be off-putting to many in this tech-savvy segment.

Drivers for change can come from the external environment as well. Consumer and intermediary expectations over the pace, efficiency, and transparency of purchase interactions, as well as for new product speed to market continue to escalate, especially as other industries exemplify the ability to offer real-time, seamless client service. Respondents ranked enhancing customer-experience capabilities, such as new-client onboarding and new-business processing, as their highest priority for core-system modernization, followed by underwriting/risk selection, and product development and maintenance.

For L&A insurers, modernization does not necessarily mean eliminating legacy core systems

With the advancement of technologies and ecosystems that are technically and architecturally different than legacy platforms, insurers may now need to examine and redefine their strategies around core-system platforms.

Various core-system-modernization paths are available for L&A insurers that are actively participating in some stage of core-system transformation. Respondents were prompted to respond to each of the strategies presented to reveal which they selected, considered but did not choose to implement, or did not consider at all for past, current, and future initiatives (figure 4).

Strategies that were chosen differed by company revenue size, but one thing most respondents agreed on is that legacy systems were not going away any time soon. In fact, over the last five years, the percentage of carriers intending to upgrade or enhance existing core systems has doubled from 36%4 in 2017 to 73% (figure 4) in 2022.

Additionally, most respondents in the highest-revenue segments (95%) are also choosing to port to newer technologies (migrating applications to the cloud or updating underlying languages, databases, file structures, communications, etc.) as a top solution (figure 5). In the mid-range revenue segment, just over half of the respondents chose this route.

The mid-revenue segment showed the most interest in replacing and retiring legacy systems to achieve modernization compared to the smaller and larger cohorts (figure 5).

Over and above, for decisions regarding which path to take for core-system modernization, L&A insurers may have to decide whether to buy a solution or stay in-house for transformation development and implementation.

For initiatives undertaken over the past two years, 72% of respondents opted to purchase solutions completely or mostly from vendors. For current and future projects, the trend seems to point toward a growing preference for building in-house (figure 6).

It’s important to consider how this trend may shift, as the in-flight or upcoming initiatives may be intended to be built in-house, however, once past the planning stage, insurers may consider purchasing the solution from a vendor as a more feasible option.

One likely reason is that in-house skills may not be proving sufficient. In fact, availability of sufficient technology skills to execute the solution was the most important factor that influenced the build versus buy decision according to those surveyed. This can often be over or underestimated in the planning stages of a project, which could potentially drive shifts midway through the process.

Many of those surveyed (89%) also intend to employ InsurTechs as a primary solution for at least one or more points in the L&A value chain. InsurTech alignment may not be a panacea for broad core-modernization requirements, but it could be necessary for aspects of the initiatives that require capabilities that are not widely available in the market and/or are difficult to build in-house (figure 7).

The three top capabilities respondents look to collaborate with InsurTechs on are data analytics (76%), fraud detection (60%), and underwriting data sets (60%). While the survey reflects a lower priority (29%) for InsurTech usage involving artificial intelligence and machine learning capabilities as of December 2022, since Q2 2023, there has been growth in interest in Generative AI and its potential use cases. For example, L&A insurers can consider using the technology for automation of repetitive, reasonably knowledge-predictable tasks for innovative digital experiences, as well as for data pattern recognition and prediction often required for data transformation or for deductive insights as might be required in underwriting. Of those surveyed, 59% agreed that the emergence of such specialized solutions from InsurTechs have accelerated the pace of modernization over the past two years.

Respondents are also considering migrating some or all existing applications that are being updated to cloud-native platforms. Most say they will use cloud capabilities for new solutions related to core modernization as well (figure 8).

Lessons from pioneers to help shift failures to successes

Those who have already attempted to move the needle realize that at least part of their strategic processes used in core modernization may need to be refreshed to overcome perceived obstacles and improve success rates.

Minimize internal conflicts with an operating model redesign

The importance of aligning stakeholders to approaches and solutions has been highlighted as one of the biggest lessons learned from prior transformation execution. More than three-quarters of respondents believe better integration between business and IT is the most crucial element to the success of future modernization efforts. Ambitions often don’t translate into achievements due to function misalignment between the two groups—both business and IT know they need to minimize the friction, but often each strongly believes the fault lies with the other party.

Many carriers still work in functional and business unit silos. To achieve better cohesion, they can consider developing a value-stream structure that cuts across products and functional units. A value stream is a cross-functional team and body of work designed to deliver a specific set of business objectives; it is a sequence of steps used to deliver value, from the trigger of an important event to the delivery of value. It contains the people who do the work, the systems, the flow of information, and the alignment of business capabilities.

This construct can help pioneer a broader enterprise mindset and brings together a diversity of skills, knowledge, and experience. Given budget and authority as well as a multiyear time horizon to implement a solution or solve a business problem, this paradigm endeavors to alter company culture by dispersing siloed thinking and foster truly customer-oriented thinking.

Better alignment around modernization initiatives may also help enhance change management efforts, which could alleviate some of the concerns over the impact to talent, including challenges that may arise with training on new tools and processes, shifting long-standing mindsets, and minimizing difficulties in using new technology.

Core modernization business case design

Another significant barrier respondents said they need to overcome in core modernization initiatives is the dogma of high cost with insufficient RoI, as many carriers tend to assess payback on purely monetary terms—modernization spend versus incremental revenue or profits in a predefined time frame.

Instead, carriers should consider adopting an economic-evaluation perspective. This notion encapsulates elements such as improvement in speed to market, greater business agility, enhanced customer experience, and the ability to tackle legacy debt. Such benefits can be difficult to quantify in purely financial terms. However, the competitive advantages that come with accommodating personalization, flexibility, and rapid new product rollout could potentially in turn boost revenue over the medium-to-long term.

An enterprisewide Agile operating model

Given underwhelming success in implementing large-scale solutions in the past, 61% of respondents also believe smaller, incremental upgrades or replacements are a more pragmatic approach to modernization than overhauling everything at once.

Many insurers already use Agile methodologies in project delivery and various processes but may now consider scaling Agile across the enterprise.5 This approach could include taking incremental steps, having small autonomous teams, and fundamentally redesigning the organization in a non-hierarchical, outcome-oriented manner.

Derisk with independent due diligence

The process involved in deciding on a modernization approach and potential solution may also need to be reimagined to help derisk the renovations. One step that should be thoroughly addressed prior to undertaking a modernization project, or approaching vendors if third parties are required, is the due diligence to help ensure the full breadth of existing products and systems that will be impacted are fully considered and understood.

Carriers may believe they understand their books of business and legacy systems, but to be certain, they can consider using specialized solutions to perform independent, unbiased, and in-depth due diligence before selecting a particular platform or solution. Several InsurTechs have developed such specialized solutions that allow for validation of the data and an assessment of the underlying complexity of various blocks of business to help carriers assess the requirement needs for potential solutions and the feasibility of conversion while minimizing any bias prior to selecting a solution.

Industry cloud solutions can potentially improve integration patterns

Many carriers have also come to realize that the Band-Aids they have been applying to their legacy systems over time may have created more challenges than solutions. The complexity from multiple layers of core systems and numerous point-to-point integration connections can be expensive to maintain and may impede flexibility, speed to market, and innovation. The situation does not appear to be getting better soon, as 43% of respondents said they do not intend to retire any of their legacy core systems or applications at the conclusion of their modernization initiatives; the number is even greater (77%) in the smallest revenue segment.

The merits of decluttering should not be minimized. However, for carriers that intend to preserve legacy technology but still want to improve the integration patterns and data extraction from monolithic back-end core systems, one path to consider is a prepackaged, cloud-based data extraction and integration layer that comes with common prebuilt application programming interface (API) and near real-time data-extraction processes from common legacy core applications. This solution doesn’t compromise business continuity and potentially offers easier scalability, greater agility, lower IT operating costs, and increased security.

Penetrating uncharted territory

“If you want something you have never had, you must be willing to do something you have never done.” Thomas Jefferson6

Capabilities for digital-first, digital-native, ease of doing business, seamless processing, rapid product rollout, and omnichannel presence are moving from consumer and producer aspirations to expectations from L&A insurers. With new and more effective systems and platforms for core-process capabilities now at their disposal, insurers can benefit from fast, predictable, and transparent application and underwriting processes, as well as the ability to nimbly and swiftly launch and cross-sell products in response to rapidly evolving needs and expectations.

However, the existence of such solutions is likely only the tip of the iceberg. Having experienced largely lukewarm success from previous initiatives, it may also be necessary for L&A insurers to transform traditional mindsets, culture, and business models to reimagine an effective and impactful path to modernization and forge forward to participate in the future of financial services.

  1. In this report, the term “core systems” refer to any back-office applications supporting the insurance life cycle in areas such as product development, producer management and compensation, quoting, application, underwriting, in-force administration, billing, and claims. 

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  2. Quotefancy, “Top 400 John Wooden quotes (2023 update),” accessed June 1, 2023.

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  3. Angela Davis, “The many benefits of insurance legacy system transformation,” Openlegacy, August 19, 2022.

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  4. Deloitte and Limra, Legacy systems modernization: Core systems strategy for policy administration systems, accessed June 1, 2023.

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  5. Originally a software development methodology, Agile aims to reduce costs and time to delivery while improving quality. Key characteristics of Agile include delivering tested products in short iterations and involving internal customers during each iteration to refine requirements; Deloitte, “Becoming Agile: Elevating internal audit performance and value,” accessed June 1, 2023. 

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  6. Quotefancy, “Top 500 Thomas Jefferson quotes (2023 update),” accessed June 1, 2023.

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The Center would like to thank the Deloitte professionals who provided additional insights and perspectives in the development of this article: Dan McCoach, Kevin Sharps, Puneet Kakar, Charles Spencer and Abhilasha Srivastava.

Cover image by: Jaime Austin

Deloitte Insurance Services

Deloitte’s insurance group brings together specialists from actuarial, risk, operations, technology, tax, and audit. These skill sets, combined with deep industry knowledge, allow us to provide a breadth of services to life, property and casualty, reinsurers, and insurance broker clients.

Santosh Kutty

Santosh Kutty

Principal, US L&A/Group Technology Practice Leader, Deloitte Consulting LLP
Dan McCoach

Dan McCoach

Managing director, Deloitte Consulting LLP


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