The Staggering Cost of Technical Liability in Insurance

Cost concerns are a common culprit when it comes to choosing business as usual over making changes or improvements to outdated technology and processes. Believing that the cost of implementing modern solutions will be far greater than the cost of maintaining their current, legacy technology can put insurance organizations into technical debt and negatively impact their opportunity for growth.

What is technical debt?

Technical debt refers to the time, money and resources an organization should spend on software development compared to the cost of keeping its legacy solutions running. Simply put, technical debt occurs when an organization prioritizes “business as usual” over innovation.

Companies 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 put themselves into technical debt to avoid the research required, the time spent and the money needed to update their outdated technology.

But like putting off a visit to the doctor or dentist, going into tech debt is only a short-term solution to a problem. While the consequences are more immediate for the individual dealing with a toothache, which will likely only last for a few weeks to avoid the dentist until the pain becomes too unbearable, it may take longer for a company’s technical debt to catch up.

There’s no reason to put off updating your older technology. While it may not be in the next five months or even the next five years, eventually technical debt will come back to haunt those who choose to ignore it, and when it does, it will likely be a much bigger problem . Just take the end of the 2022 Southwest Airlines disaster for example.

Technical debt in the insurance industry

The “if it ain’t broke don’t fix it” mentality has long been used by insurance experts to avoid investing in modern solutions. And while the technological revolution has inspired quite a few agencies, carriers and MGAs/MGUs to rethink how they approach insurtech, not everyone has been convinced.

We understand, overhauling an entire system is no small task. That’s why some organizations still rely on legacy technology, spreadsheets and manual processes to get the job done.

Sunk-cost fallacy can stop innovation

What’s stopping people from upgrading their old technology? You know, except for the hassle of trying to move a decades-old system with massive amounts of data. Unfortunately, sunk-cost mistakes have a tendency to stop technological innovation in its tracks.

Human nature tells us that it makes more sense to keep investing money in older technology, because it will surely cost less than overhauling the whole thing in favor of new solutions. A serious, valid concern for large-scale carriers: Moving to a new system could mean disconnecting other systems and potentially impacting 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 of reengineering your tech stack for modern insurance infrastructure are real, many organizations don’t even realize the exposures that are already built into their current way of doing business.

How does technical debt increase the cost of doing business in insurance?

Allocating funds to legacy technology maintenance and updates can give the appearance of cost savings, dammit actually save an organization money in the short term, but it is unlikely to remain so. Sure, technical debt can save your insurance business the money you would spend on new solutions, but it also costs you a lot in the long run. Let’s explore some of the ways outdated insurtech can impact your bottom line.

1. It wastes employees’ time

Your employees keep things moving in your organization; don’t slow them down with repetitive, manual processes that can be performed by an automated system. Take producer licenses for example. If business as usual at your carrier means your onboarding team is stuck with redundant data entry and lots of paperwork just to validate existing licenses or secure appointments for each new distribution partner, it’s safe to say you’re not maximizing anyone’s time or talent.

2. It opens up compliance risk

Processes that involve a significant amount of human touch (ie, spreadsheets and manual data entry) also have a higher chance of human error. While the manual approach may work for some, agencies that deal with large numbers of producers (each working in multiple states and with different operators) know how complex compliance management can quickly become.

Just think of all the additional costs a carrier operating a manually coded system had to pay to adapt when states like Massachusetts and Kansas did a complete overhaul of their state meeting systems. Without updating to an automated compliance management solution, an agency can open itself to a higher risk of compliance violations.

3. It makes it much more difficult to recruit new talent

We have already established that the insurance industry is currently facing a talent crisis. Competing for top talent from a shrinking pool of applicants means offering an exceptional employee experience—something that’s much harder to do when outdated technology makes work more tedious and less efficient. Without new talent, it can be a challenge to grow your client list and secure a future place in the market.

These are just a few of the ways technical debt costs your agency, operator or
MGA/MGU. Download our guide on the cost of doing nothing for a more in-depth analysis of how business as usual can throw off your bottom line.

The cost of obsolete technology is more than the sum of its parts

We are not trying to sugarcoat the difficulty of updating your old systems. It’s a time-consuming task that most organizations have the best intentions to eventually complete. But how many manual errors and lost records disappear in the meantime?

The effects of technical debt are both direct in the way they eat into your budget and indirect in the way they inhibit growth by making your agency, operator or MGA/MGU a less desirable partner, employer and M&A candidate. Overall, the cost of relying on outdated technology is probably costing you much more than replacing it.

AgentSync can show you how affordable it can be to invest in a new solution. If you’re ready to trade as usual for increased efficiency and reduced risk, see what AgentSync can do for you today.