Cost concerns are a common reason when it comes to choosing business as usual rather than making changes or improvements to outdated technologies and processes. Thinking that the cost of implementing modern solutions will be much greater than the cost of maintaining their existing legacy technology can put insurers into technology debt and negatively affect their opportunities for growth.
What is technical debt?
Technical debt refers to the time, money, and resources that an organization must spend on software development compared to the cost of keeping legacy solutions running. Simply put, technical debt accumulates when an organization prioritizes “business as usual” over innovation.
Businesses often end up in technical debt for the same reasons people with medical needs put off getting help — to put off doing something they don’t want to do. Like an individual dealing with a toothache for months to avoid going to the dentist, organizations go into technical debt to avoid the research required and the time spent and money needed to update outdated technology.
However, similar to putting off a visit to the doctor or dentist, going into technical debt is only a short-term solution to a problem. While the consequences are most immediate for the individual dealing with a toothache, who will likely last a few weeks just to avoid the dentist until the pain becomes unbearable, it may take longer to catch up to the company’s technical debt.
This is no reason to put off updating your old technology. While it may not be in the next five months or even five years, technical debt will eventually come back to haunt those who choose to ignore it, and when it does, it will likely be a much bigger problem. Take the end of the 2022 Southwest Airlines disaster, 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 reasoning to avoid investing in modern solutions. And while the technological revolution has inspired a slew of agencies, carriers, and MGA/MGUs to rethink the way they handle in-house technology, not everyone is convinced.
We get it, fixing the entire system is no small task. This is why some organizations still rely on outdated technology, spreadsheets, and manual processes to get the job done.
The sunk cost fallacy can stop innovation
What’s stopping people from upgrading their outdated technology? You know, plus the hassle of trying to animate 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 sense to keep investing money in old technology because it will definitely cost less than fixing everything in favor of new solutions. One serious and valid concern for large carriers: moving to a new system could mean untethering other systems and potentially affect millions of data points for hundreds of thousands of producers. We get it, the technology you have right now gets the job done.
However, sunk cost is called a fallacy for a reason. While the costs and risks in your Techstack restructuring of the modern insurance infrastructure are real, many organizations don’t even realize what exposures are already built into their current way of doing business.
How does technical debt increase the cost of doing business in insurance?
Allocating money to maintain and upgrade older technology may result in cost savings appearing, perhaps it is In reality Saving the organization money in the short term, but it probably won’t last that way. Sure, technical debt can save your insurance company money to spend on new solutions, but it also costs you a lot in the long run. Let’s explore some of the ways outdated insurance technology can affect your bottom line.
1. It wastes employee time
Your employees keep things running in your organization; Don’t be slowed down by repetitive manual processes that an automated system can accomplish. Take product licensing, for example. If business as usual at your carrier means your outsourcing team is bogged down with redundant data entry and piles of paperwork just to validate existing licenses or secure appointments for each new distribution partner, it’s safe to say you’re not overextending anyone’s time or talent.
2. It opens the door to compliance risks
Operations that involve a great deal of human touch (such as spreadsheets and manual data entry) also have a higher chance of human error. While the manual method may work for some, agencies that manage a large number of producers (each operating across multiple states and with different carriers) know how complex compliance management can quickly become.
Just think of all the extra costs a carrier operating through a hand-coded system has to pay to adapt when states like Massachusetts and Kansas completely overhaul their mapping systems. Without updating to an automated compliance management solution, the agency could put itself at greater risk for compliance violations.
3. It makes recruiting new talent more difficult
We have already established that the insurance industry is currently facing a talent crisis. Competing for the best talent from a shrinking pool of applicants means delivering an exceptional employee experience — something that’s all the more difficult to do when outdated technology makes the job more boring and less efficient. Without fresh talent, it can be difficult to grow your client list and secure a place in the future market.
These are just a few of the ways technical debt is charged to your agency, carrier, or carrier
MGA / MGU. Download our guide on the cost of doing nothing for a more in-depth analysis of how business as usual can cut into your bottom line.
Old technology costs more than the sum of its parts
We’re not trying to beat the difficulty of updating your outdated systems. It is a time consuming task and most organizations have the best intentions to complete it at the end. But how many more manual errors and dropped records will you lose fate in the meantime?
The effects of technical debt are both direct in the way it eats up your budget and indirect in the way it inhibits growth by making your agency, carrier, or MGA/MGU a less desirable partner, business owner, and M&A candidate. In general, the cost of relying on older technology will likely cost you much more than the cost of replacing it.
AgentSync can show you how affordable it can be to invest in a new solution. If you’re ready to go about business as usual to increase efficiency and reduce risk, see what AgentSync can do for you today.
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