Joy Agwunobi
A new McKinsey assessment has identified six dimensions that should guide property and casualty (P&C) insurers as they operate within the increasingly complex decisions around modernising their core technology platforms.Â
The report, which examines global trends in system transformation, warns that the industry is now at an inflection point where outdated systems can no longer support the pace, scale, and expectations of the modern insurance landscape.
According to McKinsey, the modernisation imperative has intensified as legacy platforms designed for slower, paper-based insurance operations, continue to restrain carriers with high maintenance costs, operational inefficiencies, and limited capacity for real-time responsiveness. These constraints are becoming more pronounced as customers increasingly expect instant quotes, faster claims settlements, and seamless digital engagement.
The advisory firm notes that the environment in which these modernisation decisions are unfolding has shifted dramatically in recent years. The rise of large-scale software-as-a-service (SaaS) platforms, combined with advances in data integration, cloud compute, and generative AI, has created new possibilities for insurers to adopt and scale emerging technologies. But this same shift has also introduced new complexity and risk, leaving insurers worldwide at a crossroads.
Mixed outcomes, global differences
McKinsey observes that while some US carriers have made bold moves either by heavily investing in new builds or modernising existing systems, results have been uneven. Many insurers, the report said, are still pouring resources into legacy systems, struggling to fully realise returns from transformation projects, or hesitating over whether to build or buy their next-generation platforms.
Europe presents a different picture: most carriers rely on commercial off-the-shelf (COTS) solutions that have been extensively customised over the years. But because large-scale replacements are often deemed too costly or complex, many European insurers are pursuing incremental approaches, such as selectively upgrading components or gradually hollowing out legacy systems.
Japan’s market, still anchored in mainframe-based infrastructure, is also at a turning point. Carriers are weighing a shift toward cloud-based vendor platforms but face regulatory hurdles and challenges around integrating heavily structured processes into more flexible technology environments.
Across all regions, the report stressed that modernisation is often mistaken for a purely IT-driven endeavour. McKinsey argues that this mindset is outdated, noting that business leaders must take equal ownership of the transformation journey to ensure process redesign, operational alignment, and strategic value creation.
Six dimensions shaping the build–buy–upgrade decision
To help insurers navigate the complexity of choosing whether to build new systems, buy from established vendors, or upgrade existing platforms, McKinsey outlined six dimensions that should guide decision-making. These dimensions apply not only to greenfield platforms but also to carriers reassessing whether to significantly upgrade current solutions.
At the heart of these considerations is platform functionality, whether a proprietary build is necessary to support specialised product structures or whether modern COTS platforms, now more configurable than ever, can meet evolving business needs. The decision becomes particularly nuanced for carriers upgrading existing systems, where the key question centers on whether an upgrade can significantly boost scalability, automation, and flexibility.
Workflow customisation and digital experience form another major dimension. Carriers with specialised rating models or those that rely heavily on proprietary datasets may find that custom builds preserve competitive differentiation. In contrast, vendor platforms offer ready-made digital tools—agent portals, self-service interfaces, and straight-through processing models that allow insurers to enhance customer experience more quickly. For insurers already within a COTS environment, the value of an upgrade depends on whether it delivers meaningful improvements in user experience and workflow efficiency.
The treatment of data governance, security, and control remains a defining factor. Proprietary builds offer the highest level of customisation and full control over data architectures, but the gap between custom systems and modern vendor platforms is narrowing as SaaS providers incorporate sophisticated analytical functions and robust governance frameworks. The choice increasingly hinges on whether an insurer wants to shape its own destiny or leverage vendor-led innovation.
Time-to-market and cost considerations also weigh heavily. Custom builds require years of development and generally involve higher upfront investment, while COTS implementations typically fall within shorter timelines and more predictable cost structures. Even so, upgrades within vendor ecosystems still demand extensive testing and operational adjustments, meaning insurers must assess the true financial and organisational risks across all options.
McKinsey further highlights the importance of organisational capabilities. Carriers with strong engineering talent may succeed with proprietary builds, but even highly capable IT teams often struggle to keep pace with innovation led by global SaaS vendors. As technology providers increasingly integrate applications, data, and infrastructure into unified offerings, insurers must weigh whether outsourcing innovation provides more sustained value than maintaining complex development efforts in-house.
Risk is the final dimension—both during migration and after deployment. According to the report, custom solutions offer more control over compliance and long-term architectural coherence but come with responsibility for continuous maintenance. Vendor platforms reduce migration risk but introduce long-term dependency. For carriers already operating on heavily customised COTS systems, upgrades can be particularly delicate and require meticulous planning to avoid operational disruptions.
Choosing the right vendor: a strategic challenge
McKinsey cautions that buying a core system is not merely a procurement exercise; it is a strategic decision that shapes an insurer’s operating model for decades. The report identifies six criteria that carriers should consider when choosing a vendor or when deciding whether to upgrade within an existing COTS ecosystem: scalability and growth readiness, integration flexibility, market credibility, collaboration depth, feature sophistication, and the strength of third-party support networks.
Best-in-class platforms, it noted, must demonstrate strong adoption across major carriers, API-first design principles, a dynamic partner ecosystem, and consistent product evolution backed by robust R&D investment. Carriers are urged to scrutinise vendor road maps, assess the quality of technical support teams, and ensure that operational resilience meets regulatory expectations in their markets.
A business transformation, not an IT project
While technology sits at the center of modernisation efforts, McKinsey emphasises that true success hinges on business-led transformation. Many failures in past system upgrades, the report noted, stem from siloed ownership, weak governance structures, and lack of alignment on strategic objectives.
The consultancy outlines several steps insurers should take before embarking on a modernisation program: Define and align business and technology priorities early. Conduct objective build–buy–upgrade assessments using structured criteria. Evaluate internal readiness, talent, integration landscape, and leadership alignment. Run a rigorous vendor selection or upgrade evaluation process. Prioritise initiatives using a phased, value-driven road map. Establish strong governance to manage scope, risks, and decision-making. Drive change management, workforce training, and continuous feedback loops.
Long-term success tied to coherent strategy and execution
McKinsey concludes that insurers that approach system modernisation with a clear strategy, disciplined governance, and integrated business-technology leadership are best positioned to unlock the full benefits ranging from reduced IT costs and improved operational efficiency to better customer experience and deeper ecosystem connectivity.
With P&C markets growing more complex and digital-first expectations reshaping insurance dynamics, the report stresses that carriers that delay modernisation risk widening the gap between operational capability and market demand. The next decade, it warns, will be defined by insurers that can build the right platform foundations and those that struggle under the weight of legacy systems.
