Concerns about cost are a common reason for moving forward rather than making changes or improvements to outdated technology and processes. Assuming that the cost of implementing modern solutions will be far greater than the cost of maintaining their current, legacy technology, insurance companies can incur technical debt and negatively impact their growth opportunities.
What is technical debt?
Technical debt refers to the time, money, and resources a company should devote to software development compared to the cost of maintaining its legacy solutions. Put simply, technical debt arises when a company prioritizes business as usual over innovation.
Businesses often get into technical debt for the same reasons people with medical needs refrain from seeking help — to procrastinate on something they don’t want to do. Like someone struggling with a toothache for months to avoid going to the dentist, companies go into technical debt to avoid the research, time and money required to update their outdated technology.
However, much like putting off a visit to the doctor or dentist, technical debt is only a short-term solution to a problem. While the consequences for the person struggling with a toothache are more immediate and they will likely only avoid the dentist for a few weeks until the pain becomes too unbearable, a company’s technical debt can take longer to catch up.
That’s no reason to put off upgrading your old technology. While that may not be the case for the next five months, or even five years, eventually tech debt will come back to haunt those who ignore it, and when it does, it will likely be a much bigger problem . Just take the late 2022 Southwest Airlines disaster for example.
Technical debt in the insurance industry
The “if it ain’t broke don’t fix it” mindset has long been used by insurance professionals to avoid investing in modern solutions. And while the technological revolution has inspired many agencies, network operators and MGA/MGUs to reconsider their approach to insurtech, not all have been convinced.
We understand: Overhauling an entire system is not an easy task. Because of this, some companies still rely on outdated technology, spreadsheets, and manual processes to get their jobs done.
The misconception about sunk costs can stop innovation
What’s stopping people from upgrading their old technology? You know, apart from the hassle of moving a decades-old system with massive amounts of data. Unfortunately, the sunk cost fallacy causes technological innovation to stall.
Human nature tells us that it makes more sense to keep investing money in outdated technology because it will certainly cost less than overhauling the whole thing for new solutions. A serious, legitimate concern for large network operators: moving to a new system can mean disconnecting other systems and potentially affecting 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 costs are called a fallacy for a reason. While the costs and risks of restructuring your tech stack for a modern insurance infrastructure are real, many companies are not even aware of the risks already built into their current business operations.
How does technical debt increase the cost of doing business in insurance?
Allocating funds to maintain and update legacy technology can appear to be cost savings. In fact , they save an organization money in the short term, but it probably won’t stay that way. Sure, technical debt can save your insurance company the money you would spend on new solutions, but it also costs you big bucks in the long run. Let’s explore a few ways legacy insurtech can impact your bottom line.
1. It wastes employees’ time
Your employees keep things running smoothly in your organization. Don’t slow them down with repetitive, manual processes that could be handled by an automated system. Take manufacturer licensing , for example. When normal operations at your wireless carrier means your onboarding team is overwhelmed with redundant data entry and heaps of paperwork just to validate existing licenses or secure appointments for each new distributor, it’s safe to say you don’t have the time or… maximize someone’s talent.
2. It exposes you to compliance risks
Processes that require a lot of human intervention (such as spreadsheets and manual data entry) are also more likely to involve human error . While the manual method might work for some, agencies that manage large numbers of producers (each working in multiple states and with different carriers) know how complex compliance management can quickly become.
Just think of all the extra costs a trucker operating on a manually coded system had to pay to conform when states so wish Massachusetts and Kansas have completely overhauled their state appointment systems. Without moving to an automated compliance management solution, an agency could be at greater risk of compliance violations.
3. It makes recruiting new talent much more difficult
We have already noted that the insurance industry is currently facing a talent crisis. Competing for top talent from a shrinking pool of applicants means we’re delivering an exceptional employee experience – something that’s much more difficult to accomplish when outdated technology is making the job more tedious and less efficient. Without new talent, it could be difficult to grow your client list and secure a future spot in the market.
These are just some of the costs that technical debt causes your agency, your carrier or your company
MGA/MGU. Download our guide the cost of doing nothing for a more in-depth analysis of how doing business as usual can negatively impact your bottom line.
The cost of outdated technology is more than the sum of its parts
We’re not trying to whitewash the difficulty of updating your legacy systems. It’s a time-consuming task that most companies would like to complete at some point. But how many manual errors and deleted records are left unaccounted for in the meantime?
The impact of technical debt is both direct, as it eats up your budget, and indirect, as it stunts growth by making your agency, carrier, or MGA/MGU a less desirable partner, employer, and merger and acquisition candidate. Overall, the cost of deploying outdated technology is likely to be much higher than replacing it.
AgentSync can show you how affordable investing in a new solution can be. If you’re ready to go “out of the box” to increase efficiency and reduce risk, check out what AgentSync can do for you today.
The most important insurance news in your inbox every working day.
Get the insurance industry’s trusted newsletter