Adding built-in insurance to legacy systems.

We work in an industry heavily influenced by trends, which often set the direction of insurance companies. Unit-linked insurance used to be the hot topic, but now the entire industry’s attention is focused on parametric and embedded insurance.
Let’s take a closer look at built-in insurance and highlights the technological challenges facing insurers.

What is built-in insurance?
Built-in insurance refers to perfect integration of insurance products in the process of purchasing other goods or services. Rather than offering insurance as a stand-alone product, it is “embedded” into the main product or service the customer buys. An example of this is when you purchase an expensive smartphone and are offered device protection insurance during the transaction. Similarly, when booking a holiday, travel insurance could be included in the package. This integration removes barriers from the purchasing process, allowing customers to add insurance to their cart with just a few clicks.

Importance of APIs in Embedded Assurance
To succeed in the embedded insurance market, a company must be able to integrate its insurance products into the sales process of various providers. This is where technology comes in, specifically APIs (Application Programming Interfaces). APIs are crucial because they allow disparate systems to communicate and exchange data, ensuring that the insurance offering is seamlessly integrated into the provider’s sales process.

APIs in the context of embedded assurance must be fast, scalable, and reliable. During events like Black Friday, when sales volume increases, an unreliable API could mean missed opportunities and lost revenue. If a customer doesn’t add insurance at the point of purchase, they’re unlikely to come back for it later.

In addition, the API must handle key functions such as real-time quotes and policy issuance. Given the sensitive nature of customer data, these interfaces must also comply with data protection regulations such as GDPR (EU) or CCPA (US), ensuring that customer information is processed securely.

Challenging legacy systems
Once the necessary API infrastructure is in place, you’re ready to collaborate with providers. However, at this stage, a significant challenge arises: flexibility. Each provider you work with will likely sell different products and services, requiring unique terms, prices and conditions for their embedded insurance offering. This means you need the ability to quickly set up various insurance products and pricing models. And here we run into the problem: legacy systems.

Most insurers rely on legacy systems that are slow, rigid and not designed to handle modern, internet-based transactions. These legacy systems often lack the ability to quickly adjust insurance products or flexibly model premiums, which is critical when offering embedded insurance across different sales channels.

The solution: Layering modern software on top of legacy systems
While issues with legacy systems may seem like a significant obstacle, they don’t have to be the end of the road. With the right software and an agile approach, insurers can implement solutions in months. The key is to avoid a complete overhaul of the legacy system, which is expensive and time-consuming, and layer modern solutions on top of the existing system.

The first step is to set up a general insurance product within the Policy Administration System (PAS) that will accept policies, matching, accounting and reporting tasks. Instead of building a new user interface (UI), companies can develop an API layer that handles quoting, validating, and issuing policies.

With this approach, the new system can handle real-time interactions with customers (such as quoting and issuing policies) while asynchronously transferring policy data to the legacy system for backend tasks such as accounting and reporting. Separating front-end from back-end operations allows companies to maintain fast and modern sales processes without disrupting the rest of the business.

The heart of the system: Product configurator
A crucial component of this solution is the product configurator. This tool allows insurers to quickly create and modify insurance products based on the requirements of different providers. For example, the configurator can help define the features and pricing of a policy in a way that can be easily adapted for different sales channels in just minutes.

Insurers can choose to develop their own product configurator or use existing solutions that support rapid product development and premium calculations (such as BRE – Business Rules Engine). With such tools, companies can tailor insurance products to the needs of different providers without adding unnecessary complexity to their systems.

By integrating the product configurator with the API, companies avoid introducing additional policy management systems (PAS) into their architecture. This not only simplifies the management of insurance products, but also reduces the risk of future data migration challenges, which are notoriously expensive and error-prone. In fact, many insurers stay with legacy systems precisely because of the high costs and risks associated with migrating data to newer systems.

Don’t lose hope
Integrated insurance is undoubtedly the “new black” in the industry, offering insurers a unique opportunity to reach customers in a simpler and more convenient way. However, the path to successfully implementing embedded insurance is not without its challenges, especially for insurers that rely on legacy systems.

The good news is that with the right strategy, these challenges can be overcome. By layering modern solutions on top of existing systems and using APIs and product configurators, companies can introduce flexibility, speed and scalability to their insurance offerings without the need for a complete system overhaul.
So if you are an insurer operating on an old system, don’t lose hope. With the right approach and technology, you can continue to capitalize on the integrated insurance trend and position your business for success in this rapidly evolving market.