Cost concerns are a common culprit when it comes to choosing business as usual over making changes or improvements to outdated technology and processes. Thinking that the cost of implementing modern solutions will be far greater than the cost of maintaining their current legacy technology can put insurance organizations in technical debt and negatively impact their opportunity for growth.
What is technical debt?
technical debt refers to the time, money, and resources an organization should spend on software development compared to the cost of running its legacy solutions. Simply put, technical debt accumulates when an organization prioritizes “business as usual” over innovation.
Businesses often end up technically in debt for the same reasons that people with medical needs put off getting help: to put off doing something they don’t want to do. Like a person suffering from a toothache for months to avoid going to the dentist, organizations go into technical debt to avoid the required research, time and money needed to upgrade their outdated technology.
However, like putting off a visit to the doctor or dentist, taking on technical debt is only a short-term fix to a problem. While the consequences are more immediate for the person dealing with a toothache—probably only lasting a few weeks of avoiding the dentist until the pain becomes too excruciating—a company’s technical debt may take longer to catch up.
That’s no reason to put off upgrading your legacy technology. While it may not be in the next five months or even five years, eventually technical debt will come back to haunt those who choose to ignore it, and when it does, it’s likely to be a much bigger problem. Just take the end of 2022 Southwest Airlines Catastrophe For example.
Technical debt in the insurance industry
Insurance experts have long used the “if it ain’t broke, don’t fix it” line of thinking to avoid investing in modern solutions. And while the technological revolution has inspired a host of agencies, carriers, and MGA/MGUs to rethink the way they approach insurtech, not all have been convinced.
We get it, overhauling a complete system is not an easy task. That’s why some organizations still rely on legacy technology, spreadsheets, and manual processes to get work done.
The sunk cost fallacy can stop innovation
What stops people from upgrading their old technology? You know, plus the hassle of trying to move a decades-old system with massive amounts of data. Unfortunately, the sunk cost fallacy tends to stop technological innovation in its tracks.
Human nature tells us that it makes more sense to keep investing money in legacy technology because it will surely cost less than overhauling everything in favor of new solutions. A serious and valid concern for large-scale operators: moving to a new system can mean taking other systems offline and potentially impacting millions of data points for hundreds of thousands of growers. We get it, the technology you have now gets the job done.
However, sunk cost is called a fallacy for a reason. While the costs and risks of restructuring their technology suite for a modern insurance infrastructure are real, many organizations don’t even realize the exposures that are already built into their current way of doing business.
How does technical debt increase the cost of doing business in insurance?
Allocating funds for legacy technology maintenance and upgrades can give the appearance of cost savings, heck! in fact save an organization money in the short term, but it probably won’t stay that way. Sure, technical debt can save your insurance business money you’d spend on new solutions, but it’s also costing you a lot in the long run. Let’s explore some of the ways that outdated insurtechs can affect your bottom line.
1. It wastes employee time.
Your people keep things running in your organization; don’t slow them down with repetitive manual processes that could be accomplished by an automated system. Carry production licenses, For example. If business as usual at your carrier means your onboarding team is bogged down with redundant data entry and reams of paperwork just to validate existing licenses or secure appointments for each new distribution partner, it’s safe to say you’re not maximizing time or nobody’s talent
2. It opens you up to compliance risk
Processes that involve a significant amount of human contact (i.e. spreadsheets and manual data entry) are also more likely to human error. While the manual method may work for some, agencies that manage a large number of producers (each working in multiple states and with multiple operators) know how complex compliance management can quickly become.
Just think of all the extra costs a carrier working with a manually coded system had to pay to adapt when states like Massachusetts and Kansas they completely overhauled their state dating systems. Without upgrading to an automated compliance management solution, an agency could expose itself to a greater risk of compliance violations.
3. It makes recruiting new talent much more difficult
We have already established that the insurance industry is currently facing a talent crisis. Competing for the best talent from a dwindling pool of applicants means delivering an exceptional employee experience – something that is much more difficult to do when outdated technology makes the job more tedious and less efficient. Without new talent, growing your client list and securing a future place in the market can be challenging.
These are just a few of the ways that technical debt is costing your agency, operator, or
MGA/MGU. Download our guide on the cost of doing nothing for a deeper look at how business as usual can undermine your bottom line.
The cost of outdated technology is more than the sum of its parts
We’re not trying to sugarcoat the difficulty of upgrading your legacy systems. It’s a time-consuming task that most organizations have the best intentions of eventually completing. But how many manual errors and missing records go unaccounted for in the meantime?
The impacts of technical debt are direct in the way it eats up your budget and indirect in the way it inhibits growth by making your agency, operator, or MGA/MGU a less desirable partner, employer, and M&A candidate. . In general, the cost of relying on outdated technology will probably cost you much more than it would cost to replace it.
AgentSync can show you how affordable investing in a new solution can be. If you’re ready to trade as usual for greater efficiency and reduced risk, see what AgentSync can do for you today.
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