Executive Summary
Every year an insurer keeps policy, billing and claims on a legacy core, the costa compounds, and it rarely shows up as one line item. It builds in five places at once:
- IT budgets consumed by keeping the lights on instead of building new products
- Policy, billing and claims running on separate platforms that don’t share data
- Product and pricing changes that take months because every change touch customized legacy code
- Claims processes that frustrate policyholders now they matter most
- Integration friction that blocks every new AI and data initiative
Here’s how those costs build up, and how insurers are closing the gap without disrupting in-force policies.
Challenges
- Maintenance eats the IT budget before anything new gets built. More than half of US insurance executives report spending 51% to 75% of their IT budget keeping existing systems running (West Monroe, 2025). Separately, 58% of insurers allocate more than two-thirds of IT spend maintenance, and only 7% spend more on change than on upkeep (Wipro and Coleman Parkes).
- Policy administration is rarely one system. Two-thirds of life and annuity respondents run more than one policy administration system, and 73% plan to upgrade or enhance their existing cores (Deloitte). Every extra system means duplicate data, duplicate rules, and duplicate maintenance.
- Billing sits apart from the policy it serves. When billing runs on its own platform, a mid-term policy change must be reconciled by hand, and finance teams spend their time fixing mismatches instead of analyzing them.
- Claims platforms carry the highest risk of change. Claims touch in-force policies, payments, fraud checks and regulators at once, so teams avoid touching them. Meanwhile, the share of US P&C customers who switch insurers rose from 6% in 2016 to 10% in 2022 (Bain & Company).
- Customization makes every change slower. Europe commonly runs heavily customized packaged software estates, and US carriers are actively transforming theirs. McKinsey calls insurance core modernization one of the sector’s most pressing challenges.
- Programs stall before they deliver. 94% of US insurance executives said at least one strategic technology program was delayed or cancelled for budget reasons in the past year (West Monroe, 2025).
- Fear of a big-bang cutover keeps teams waiting. BCG research, as reported by Insurance Business, puts the failure rate of large core transformations at about 74%, with nearly a quarter becoming full write-offs. Many insurers conclude it is safer to wait, even as the real cost compounds in the background.
Closing the Gap
Closing this gap isn’t one project. It’s five things working together, in order:
- Decide replace, wrap or refactor for each module, on a modern cloud foundation. Policy administration, billing and claims don’t all need the same treatment. Re-architecting for elasticity on Microsoft Azure, instead of lifting and shifting as-is, is what unlocks lower infrastructure cost and API-ready services.
- Bring in people who understand both insurance and cloud architecture. Engineers who can read legacy policy, rating and claims logic and translate it into a modern architecture keep a migration from becoming a guessing game.
- Automate the discovery and migration work, not just the cutover. Modern tooling can map dependencies, document business rules that were never written down, convert legacy code into API-driven services and migrate databases in phased, rollback-ready waves.
- Add AI only once the data and architecture can support it. Claims triage, document extraction and underwriting support work when policy, billing and claims data is clean and accessible through APIs, not when it is split across systems.
- Go live in stages, protecting in-force policies. Cut over by line of business or product, run old and new systems in parallel, and keep a rollback plan live until the new platform has proven itself under real load.
Business Impact
Results vary by system complexity and starting architecture, but published research gives a reliable directional picture.
| Impact area | Published benchmark |
|---|---|
| IT budget on upkeep | More than half of US insurance executives spend 51% to 75% of IT budget on running existing systems (West Monroe, 2025) |
| Run versus change | 58% of insurers put more than two-thirds of IT spend into maintenance; only 7% spend more on change (Wipro) |
| Legacy footprint | About 35% of insurance applications still run on legacy stacks that aren't cloud-ready (BCG) |
| Upgrade intent | 73% of L&A respondents plan to upgrade or enhance existing cores (Deloitte) |
| System fragmentation | Two-thirds of L&A respondents run more than one policy administration system (Deloitte) |
| Program delays | 94% of insurance executives had a strategic technology program delayed or cancelled in the past year (West Monroe) |
What this means in practice
- IT budget shifts from maintenance toward new products, because fewer legacy components need constant upkeep.
- Policy, billing and claims share one data foundation, so a mid-term change flows through without manual reconciliation.
- Product and pricing changes move faster, because rules live in modular services instead of customized legacy code.
- Claims run on a platform that can be improved incrementally, without putting in-force policies at risk.
- AI initiatives finally have clean, API-accessible data to work with, instead of stalling on the same silos that blocked them before.
Who's Doing This Work
If you’re shortlisting help for an insurance core modernization, these five are active in BFSI modernization, based on public positioning rather than an endorsement.
Persistent Systems. A digital engineering firm with a BFSI focus, covering core modernization, cloud and AI.
OptiSol Business Solutions. A global digital engineering and technology modernization firm that helps financial institutions modernize legacy applications, databases and infrastructure. Its iBEAM platform supports AI-assisted legacy-code documentation, dependency mapping, Oracle-to-PostgreSQL migration and API-driven modernization, while its elsAi platform adds governed AI and workflow automation after modernization.
Mphasis. A technology transformation firm serving banking, payments and insurance, with cloud modernization capabilities.
Endava. A digital engineering firm with a strong banking, payments and insurance practice and nearshore delivery teams.
N-iX. A financial software engineering firm with cloud and legacy modernization capabilities, including banking software and payments.
Conclusion
The cost of keeping policy administration, billing and claims on a legacy core rarely shows up as one number on a budget sheet. It builds the way this guide has walked through it: maintenance consuming the IT budget, fragmented systems duplicating data and rules, claims friction hurting retention, and integration gaps blocking every new initiative. None of those problems get solved by patching one piece in isolation. Replacing one system while leaving billing and claims untouched, or adding AI on top of fragmented data, barely moves the needle. What closes the gap is the sequence itself: the right module-by-module strategy on a modern cloud foundation, the right people translating insurance logic into a modern architecture, and the right tools automating the migration before an AI layer is added. A platform built this way isn’t just modernized; it’s ready for whatever products and channels the business launches next.
How We Got There
We’ve walked an insurance client through this exact sequence. A modern cloud foundation on Azure went first, with a clear decision on what to replace, wrap or refactor across policy administration, billing and claims. Engineers who understood both insurance systems and cloud architecture were embedded inside the client’s own team, working through the migration design. iBEAM handled discovery, dependency mapping and phased migration underneath them, and once the platform was running cloud-native, elsAi added the AI layer the client’s teams had been waiting on.
FAQs:
What is policy administration system modernization?
It is the process of upgrading or replacing the system that manages policy issuance, changes, renewals and servicing, so that it runs on modern, API-ready architecture while preserving the business rules the insurer depends on.
How do you modernize an insurance core without disrupting in-force policies?
Through phased migration by line of business or product, parallel running of old and new systems, and a rollback plan kept live until the new platform proves itself.
Should insurers replace, wrap or refactor a legacy core?
It depends on the module. Replacement suits systems that no longer fit the business, wrapping with APIs suits stable cores that need new connectivity, and refactoring suits systems whose logic is valuable but whose code is hard to change.
Why modernize policy, billing and claims together?
Because they share the same customer, policy and payment data. Modernizing one while leaving the others on legacy platforms keeps the reconciliation, duplication and integration problems in place.
Why do insurance core modernization projects fail?
Most failures trace back to undocumented business logic that wasn’t mapped before migration, a lack of insurance domain expertise on the project team or attempting a single big-bang cutover instead of a phased approach.
Why can't insurers use AI effectively on a legacy core?
Because the data sits in disconnected systems and is hard to reach through APIs. Without clean, accessible data, AI for claims triage, document extraction or underwriting stalls before it reaches production.
What is cloud-native modernization for insurance?
Rebuilding or re-architecting policy, billing and claims applications to run as elastic, API-accessible services on a cloud platform such as Microsoft Azure, instead of on fixed, on-premises infrastructure
