Every year an insurer delays core system modernization, it pays a compounding opportunity cost: lost business, eroded talent, slower product launches, and a widening service gap against more agile competitors – a bill two insurance technology executives say is measurable well before the technology itself visibly breaks down.
More than half of US insurance executives report spending between 51% and 75% of their IT budget just keeping existing systems running, and 94% said at least one strategic technology program was delayed or cancelled for budget reasons in the past year, according to a 2025 West Monroe Partners survey of 300 US insurance executives.
Amid today’s rapid technology change, Vineet Bansal (pictured), chief information and technology officer at The Mutual Group, an insurance operations platform serving mutual carriers, breaks the cost of insurance modernization delay into four buckets: the cost of maintaining legacy technology itself; the cost of delayed growth; staffing costs specific to legacy systems; and – the one he calls most important – the cost of lost business outright.
"Older technology is inherently more expensive to maintain, but that's not the whole story," Bansal said. Eroding competitiveness against better-equipped rivals, slower speed to quote and to service, and weaker digital access all function as a real opportunity cost, Bansal said, even without a precise dollar figure attached. Add to that a legacy-specific staffing cost: talent who can maintain older systems are harder to find and more expensive to retain, even as a carrier is only halfway through modernizing.
Bansal said there is a checklist of early indicators that a carrier's technology has already become a liability, well before the business shows visible strain. A business can still run fine, he said (that's precisely what makes the signs easy to miss). Rather, carriers should watch for: operating costs that quietly rise; manual workarounds that pile up inside a system; production issues that recur; and change-cycles that stretch longer than they used to.
Add rising cybersecurity and controls exposure: “your platforms have inherent deficiencies that you cannot address,” said Bansal. And slower product launches – if bringing a new product to market is taking longer than it once did, Bansal said, that's a sign the technology isn't keeping pace, not a coincidence.
This pattern spans the industry rather than isolated carriers: roughly 35% of insurance applications industry-wide still run on legacy technology stacks that aren't cloud-ready, according to BCG's analysis of global insurance IT spending.
The pace at which those warning signs turn into real damage has also compressed, Bansal said. He pointed to Blockbuster, Nokia and Xerox as the classic cautionary examples, which may soon appear antiquated next to the speed of modern company decline. What took those companies roughly a decade to lose could now happen in a fraction of that time. "It will not be a decade," he said. "It will be something between like a year and ten years.” Bansal said he expects competitiveness to erode faster in the next five years than it did in the last fifteen, given the pace of AI-driven change specifically.
“The warning signs are visible to companies that are losing business, or are on the trajectory of losing business. What happened decades back, the difficulty with (those) large, mammoth companies was their ability to disrupt themselves… It's happening today also, for some companies... large, very successful, both in SaaS solutions or insurance carriers."
Jay Sarzen, director of insurance research at Conning, located the sharpest edge of that erosion at the customer-facing layer.
Modernization isn't worth it "just for the sake of upgrading," he said, for insurers whose customer base genuinely doesn't demand a better experience. Nevertheless, that group of contented-client insurers is shrinking fast. Most policyholders now expect what he calls "an Amazon experience": an accurate quote with no ballpark estimate, a fast bind, and transparent, low-friction service through a claim.
Legacy systems that can't deliver that, said Sarzen, produce more downtime, slower speed to market, and weaker integration with broker and agent partners – all of which show up primarily as lost business. "Legacy systems are not the only game in town," he said. The share of US P&C customers who switch insurers climbed from 6% in 2016 to 10% in 2022, according to Bain & Company, as price-transparency tools turned comparison shopping into routine behavior.
Sarzen pointed specifically to claims as the highest-stakes moment for that experience, since it's "where the rubber is going to meet the road" for any insurer. Automated first notice of loss (something he called almost mundane compared with flashier AI use cases) addresses a genuine, underappreciated source of delay: carriers frequently misroute claims to the wrong person, costing a day or two before the right adjuster even sees them. Sarzen cited older research suggesting a policyholder who has a poor claims experience is roughly three times more likely to leave, even when the insurer ultimately pays the claim in full.
For insurers existentially behind the curve, the prescription starts with sequencing, said Bansal: modernize the core first. Everything a carrier layers on top of a weak core – digital front ends, AI tools, broker integrations – inherits its limitations. "It's like upgrading your car but leaving the engine and transmission old," he said. "I always say start with your core because if the core is not strong, everything else gets slower."
In parallel, build a genuine data foundation – a data lake with a strong semantic layer and real governance. “Not just for your business reporting, your analytics, or your instrumentation, but also increasingly important for AI to be more efficient," said Bansal.
From there, break modernization into initiatives that take months, not years; a two-to-three-year roadmap item is now, in his view, too slow given the rate of industry change. Pair that technology sequencing with a talent sequencing effort, since new systems still require new skills. Roughly 74% of large-scale core system transformations fail, and nearly a quarter become full write-offs, according to BCG's own published research – exactly the risk Bansal's bite-sized approach avoids.
Bansal also pointed to a related M&A dynamic worth watching. "It's not that the larger companies don't have the talent. They have more talent, they have more depth in their pockets to invest. It's just the weight of the company… It's very difficult to take a large cruise liner ship to turn 10 degrees than a yacht to turn 25 degrees." Smaller, nimbler carriers, he said, hold a real structural advantage in exactly this kind of transformation, one that increasingly makes them acquisition targets rather than laggards. "The (time) and the cost of innovation is greater than the cost of acquiring a company that has done that innovation," he said.
Together, the two executives' answers sketch a three-year framework any carrier can apply to its own numbers: tally the visible legacy-maintenance spend, then price the harder-to-see costs of eroding competitiveness, legacy-specific staffing, and customer attrition against the sequencing plan – core first, data foundation second, bite-sized initiatives third – that both executives argue is now the only realistic way to close the gap before it widens further.
