Joy Agwunobi
For years, legacy systems have served as the operational backbone of property and casualty (P&C) insurance firms—enabling underwriting, claims processing, and policy management across generations.
But in today’s digital-first world, what once enabled growth has now become a major constraint. These systems, designed for an era of paper files and batch processing, are increasingly unfit for a marketplace driven by speed, precision, and seamless customer experience.
A recent report from McKinsey & Company, “How P&C Insurers Can Successfully Modernise Core Systems,” lays bare the urgency of modernisation. The report frames core system transformation not as a long-term IT goal, but as an immediate strategic necessity for insurers hoping to stay relevant.
In a climate where customer expectations continue to escalate demanding instant quotes, digital self-service, and rapid claims processing—the firms still operating on rigid legacy platforms risk falling permanently behind.
According to McKinsey, the debate has moved beyond whether to modernise; the pressing question now is “how”. The transformation journey for insurers often centers around three pathways: building a new platform from scratch, purchasing a commercial off-the-shelf (COTS) solution, or upgrading an existing system. Each approach carries trade-offs in cost, speed, flexibility, and long-term strategic control.
To guide insurers through this decision, McKinsey outlines six critical dimensions to evaluate when charting a modernisation strategy. Each represents a potential advantage or pitfall—depending on the organisation’s goals, technical capabilities, and appetite for change.
The first dimension centers on platform functionality and capabilities. For insurers with highly specialised business models or complex legacy integrations, building a proprietary system may offer unmatched flexibility and control. However, for those seeking a faster path to market and lower implementation costs, COTS platforms have become far more compelling. These systems, once seen as too generic, now offer significant configurability and have evolved to meet a broad spectrum of product and operational needs.
Another key consideration is workflow customisation and digital experience. Carriers with unique operational processes or a need for bespoke interfaces may benefit from building a system tailored to their specific workflows. Yet buying a modern platform can fast-track access to prebuilt portals and automated processes for policy issuance, claims servicing, and customer engagement. For those already within a COTS ecosystem, the decision to upgrade depends on whether new releases truly enhance speed, automation, or user satisfaction enough to justify the cost and disruption.
McKinsey also highlights data governance, security, and control as a critical lens through which insurers should assess their options. Firms prioritising custom governance structures, proprietary data models, or unique security protocols may find building a system the most strategic option. Conversely, COTS platforms—especially modern, modular ones—are increasingly equipped with advanced analytics, AI-driven risk modeling, and robust security capabilities. Many now allow for configurable data governance while also managing complex compliance and cybersecurity updates at scale.
Then there’s the issue of time to market and cost,a dimension where the contrast between building and buying becomes stark. Developing a system in-house typically requires higher up-front investment and an implementation timeline that can span five to ten years, due to deep development and integration demands. COTS platforms, by contrast, offer faster deployments—often within three to five years—thanks to their use of low-code frameworks and minimal customisation.
Another vital dimension is organisational capability and innovation leverage. Carriers with strong internal engineering talent, agile teams, and a culture of innovation may be better positioned to manage the complexities of building their own system. However, even technologically sophisticated firms may struggle to keep up with the pace of innovation provided by leading SaaS vendors. These vendors invest heavily in research and development, frequently rolling out upgrades that span applications, infrastructure, and advanced analytics.
McKinsey notes that as SaaS increasingly delivers end-to-end ecosystems, insurers must weigh whether they can sustainably support a build strategy or would be better served by aligning with a vendor whose architecture supports long-term extensibility.
Finally, McKinsey points to migration risk and post-deployment resilience. Building a system grants insurers more control over compliance and reduces dependency on external vendors, but it also increases the burden of managing long-term maintenance and regulatory updates. On the flip side, buying a proven solution can minimise early-stage risk, streamline the migration process, and leverage vendor-managed security, compliance, and performance upgrades. However, insurers must still assess whether vendor lock-in and limited customizability align with their long-term goals.
While COTS platforms offer speed and cost benefits, McKinsey cautions that vendor selection is a high-stakes decision. Many insurers falter by choosing platforms without scalable infrastructure, underestimating integration complexities, or neglecting to evaluate vendor road maps and ecosystem support.
As the report underscores, insurers must look beyond the product’s current features and scrutinise the vendor’s financial stability, operational discipline, and capacity for sustained innovation. Even upgrades within an existing COTS environment require this level of diligence and strategic alignment.
What becomes evident throughout the report is that system modernisation is not just a technological initiative—it is a business transformation. Success depends as much on reimagining business processes as it does on implementing new technology. Without strong organizational leadership and operational readiness, even the most advanced systems will fail to deliver their full value.
To embark on this transformation effectively, McKinsey recommends several foundational steps. Leaders must align business and IT objectives from the outset, conduct a structured assessment of the build-buy-upgrade options, evaluate internal readiness and resource gaps, and approach vendor selection with rigor. Modernisation efforts should be carefully prioritised, sequenced, and supported by robust governance and change management frameworks to ensure adoption and impact.
In closing, McKinsey affirms that with a clear strategic roadmap and disciplined execution, insurers can unlock the full potential of their core systems. Modernisation, the report argues, is no longer about staying technologically relevant—it’s about gaining the agility and resilience necessary to compete and thrive in an increasingly digital, fast-paced insurance landscape. The report concludes: “With the right strategy, even mid-sized players can leapfrog into the future—turning technology from a liability into a competitive edge.”
