The hidden costs of legacy systems in insurance and how to break free
MAY. 12, 2025
2 Min Read
Insurers modernizing IT with cloud-native solutions overcome the high cost of legacy systems, accelerate product launches, and future-proof their operations for long-term success.
Legacy insurance IT systems aren’t just old software – they bleed money, slow down operations, and stifle innovation.
Sticking with decades-old core platforms carries a high cost in lost efficiency and agility. In contrast, modernizing these systems isn’t just an IT upgrade; it’s a strategic move with tangible business outcomes. Insurers embracing cloud-native architectures can cut costs and accelerate growth – many have seen productivity jump by as much as 40% after replacing legacy systems. The message is clear: updating core systems leads to greater efficiency, flexibility, and innovation, resulting in better customer experiences and stronger financial performance. This blog offers a pragmatic roadmap for insurance IT leaders to transform aging infrastructure into a cloud-native, agile future.
Key takeaways
- 1. Legacy drag: Aging core systems consume IT budgets and hamper innovation, causing inefficiencies, security risks, and an inability to scale. Modernization removes these hidden costs and frees insurers to focus on growth.
- 2. Cloud-native agility: Cloud-native frameworks give insurers the agility to scale on demand, rapidly deploy new services, and stay compliant – all while reducing operational costs.
- 3. Microservices acceleration: Microservices architecture makes insurance IT more modular and resilient, enabling quicker updates and faster product iterations with less risk and downtime.
- 4. Strategic roadmap: A phased modernization roadmap – from upfront assessment to iterative cloud migration and optimization – ensures a smooth transition to cloud-native at scale with minimal disruption.
- 5. Business outcomes: Legacy modernization drives tangible business outcomes – from cost savings and efficiency gains to better customer experiences and a stronger competitive position.
Legacy systems stall growth and add hidden costs
Outdated core systems weigh down insurers with hidden costs that impede growth. They demand excessive maintenance, diverting IT budgets to keep obsolete technology running. Gartner projects that in 2025, 40% of IT budgets will go to maintaining technical debt – money that could have funded innovation instead. Legacy platforms also introduce security vulnerabilities because they often lack modern defenses and vendor support. And inflexible systems create bottlenecks that make it hard to scale or launch new offerings. Tellingly, only 10% of large insurers have modernized over half of their core systems – meaning most are still tied to legacy platforms that drain productivity and limit agility, putting them at risk of falling behind nimble competitors.
Modern frameworks boost operational flexibility in insurance
Modern IT frameworks offer insurers a way to regain agility and flexibility. Cloud-native architectures built on scalable cloud services let teams deploy new applications or updates in weeks instead of months. Resources scale up or down on demand, so capacity isn’t an issue during peak periods. This agility translates into faster time-to-market for new insurance products. Equally important, cloud providers handle regular compliance and security updates, easing regulatory burdens on the insurer.
"Modernizing core platforms is not optional; it’s the key to unlocking agility, efficiency, and growth for insurers in a rapidly changing market."
Modernizing core systems unlocks faster innovation, greater agility, and lower costs, while up-to-date platforms also improve customer experience – for example, a cloud-based policy system can integrate with mobile apps and AI tools to enable instant quotes, policy changes, and speedy claims processing. In short, modern frameworks make an insurer far more responsive and efficient, turning IT into a growth enabler instead of a bottleneck.
Microservices simplify processes for quicker updates
Adopting a microservices architecture is another key strategy for modernizing insurance systems. Microservices break down large applications into smaller, self-contained services (for example, separate modules for quoting, underwriting, claims, and billing). Each service can be developed, updated, and scaled independently, which shortens development cycles dramatically. Instead of infrequent, risky releases, teams can deploy enhancements continuously without affecting the entire system. This modular approach also boosts reliability – if one component has an issue, it won’t crash the whole platform.
The benefits are proven: 92% of companies using microservices report successful outcomes in software quality and speed. For insurers, microservices also make integration easier via standard APIs. The upshot is that microservices make core systems more nimble and future-proof, enabling insurers to roll out updates and new features much faster.
A roadmap to adopt cloud native at scale
Transitioning from legacy to cloud-native at scale requires a clear roadmap. Insurance IT leaders can use the following steps to guide their modernization journey:
- Assess systems and set goals: Audit current legacy platforms to identify pain points and inefficiencies. Gather business input to define clear goals for modernization (e.g. cut costs by 30% or reduce time-to-quote).
- Design target architecture and plan phases: Define a future-state architecture using cloud services and microservices, and create a phased migration plan. Start with a pilot project rather than a risky “big bang” – for example, modernize one product line or module first – to minimize risk and learn from the process. Determine how new components will integrate with any remaining legacy systems during the transition.
- Execute, then iterate: Carry out the pilot migration and use it to validate your approach. After a successful pilot, iterate on the plan – migrate additional systems in priority order, applying lessons learned and performing thorough testing at each step.
- Scale and optimize: Expand the modernized architecture across the enterprise, gradually retiring legacy systems as replacements go live. Establish governance to monitor performance, security, and costs in the new environment. Continuously optimize and refine the system (and team processes) to maximize the benefits of the cloud-native platform.
By following this roadmap, insurers can break free from legacy constraints with minimal disruption. The end result is an IT ecosystem that is scalable, resilient, and aligned with business needs – a foundation for innovation rather than an obstacle to it.
The hidden costs of legacy systems are too great for insurers to ignore. Modernizing to cloud-native platforms isn’t just about IT upgrades – it’s about enabling the business to thrive. Insurers making this shift are cutting maintenance costs, strengthening security, and gaining the agility to outpace competitors. Cloud-native insurance solutions let carriers focus on innovation and customer value instead of struggling with outdated technology.
For CIOs and CTOs, the message is clear: modernize now to drive growth and stay competitive in the evolving insurance landscape.
Common questions about agility in insurance
What are the hidden costs of legacy systems for insurers?
How do outdated systems affect customer experience in insurance?
Why should insurance companies adopt cloud-native architecture?
How do microservices benefit insurance IT modernization?
What is a good roadmap for modernizing legacy insurance systems?
Break free from legacy system constraints and unlock your insurance company's potential.
