The year 2016 proved a watershed for Fintech. It saw Fintech move from discussion and concept to implementation in the real world. Below are four key global trends in wealth management, the central theme of this post.

  • Fragmentation of retail services: There has been increasing diversification among purveyors of asset management services including major securities firms, discount brokers, and independent asset management companies. These include a rich variety of services and technologies that span online and self-service services as well as technology-based advisory services.
  • Emergence of next-generation investors: So-called Generation X individuals (those born between 1961 and 1981) are comfortable with technology and have adopted an investment style that accommodates schedules with steep time constraints. Meanwhile, millennials (people entering the workforce in 2000 or later, in the US, primarily those born from 1980 to 2000) are gradually becoming the core investment demographic, with more than 80 million individuals of the so-called digital native generation emerging as next-generation investors.
  • A shift to passive investing: There is a broad market shift afoot to index-driven investing from active asset management, which has peaked and is declining. Exchange traded funds (ETFs) are emerging as the next stage of passive investing.
  • Digitalization: Investors, brokers, and asset management companies are demanding applications with greater mobility and automated processes. Key issues here include investor-broker communication, social media, social trading, and crowdsourcing.

In addition, fragmentation is occurring in the asset management sectors of mature markets. Robo-advisor-driven services are gathering greater attention as a technologically advanced, low-cost means of automated asset management in a market that is increasingly crowded with players including traditional brokers (such as banks with domestic and international networks and comprehensive securities firms), independent investment advisory firms, and online securities companies.


Automated Advice

The definition of a robo-advisor can be slippery, differing by service provider and analyst. For the purposes of this report, Celent defines robo-advisors as new services from financial institutions that possess the following characteristics.

  • Key features seen in 2015: The three primary features are automation of onboarding and analysis, portfolio management, and reporting. Gradually, in addition to online assistance, human customer response initiatives, such as call centers, are beginning to appear. While in principle a non-face-to-face approach, automated initiatives are increasingly being expanded and coupled with manned support and full-line support a la those conducted by traditional operators.
  • Non-human advisors: Algorithms are used to support investment and portfolio-building based on the risk appetite of customers including tax optimization, all based on a customer profile developed from an online questionnaire.
  • Easy to understand: The process is streamlined to reduce customer anxiety and give customers peace of mind by using simple, typically three-stage processes that support investors from application stage to portfolio creation.
  • Small-value, low-cost options: Caters to small-value amounts in the range of $5,000 to $25,000 with investment (automated robo-advisor) fees in the neighborhood of 0.3%. These small-value, low-cost investments are customized services but automated and do not involve any manual (human) attention.

Robo-advisor services are evolving at a rapid clip, particularly at the cutting-edge of the industry, and much of the effort in this area is being concentrated in the three areas below.

  • Easy-to-use non-face-to-face channels: Eliminate the tradeoff between price and convenience, offering services that are both low in price and highly convenient.
  • Full service investment support from onboarding to reports: Automating services will enable greater processing efficiency that allows industry players to break through existing limits in their capacity to handle small value investments.
  • Hybrid operation support catering to diverse needs and levels of literacy: Online self-help services combined seamlessly with existing contact centers and face-to-face channels.


Segment Targeted by Robo-advisors

Initially, the demographic segment targeted by robo-advisors was a fragmented portion of the retail investor market, but this has changed. As noted above, in North America robo-advisor services are most embraced by traditional and active retail investors (individuals around age 50 located somewhere in the mass to low-mass affluent demographic).

However, this demographic is not static. With age, experience, and increases in investable assets, the need for investment advice rises. In addition, advancements in technology and investment literacy are blazing a trail to undeveloped market areas for robo-advisor services. Indeed, investor segments such as seniors and the affluent, which have until now been largely untouched by robo-advisor developments, can be expected to increasingly hop on the robo-advisory services bandwagon.

FIG 1: Automation of Advice Market Segmentation (US)



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The situation surrounding financial and payment services has undergone dramatic change. In any era as dynamic as ours, a comprehensive conceptual framework that can serve as a guide pointing toward a better future is essential. Toward this end, Celent uses its payments taxonomy and payments value chain frameworks as lenses to examine evolution in the payment sector. [1] Payments innovation is also informed by the changing behavior of payment services users and exists in the context of the payments value chain. Service providers should see this field as a blue ocean—a market space ripe for pioneering new payment initiatives.

The intense competition over the already existing services, which is called legacy systems in Japan, makes the market a red ocean. There is no room for anything new in the interbank payment settlement systems such as the BOJ-NET or the Zengin; ATM as a cornerstone of cash distribution; and credit card network systems as the most noncash methods of payment. We need to think of some “value proposition” which is new and beyond already existing payment methods. Despite consumers in the digital era hoping for something more convenient than cash, the supply side is not aware of this demand. As a matter of fact, the number of online banking accounts is about 60 million. This accounts for only 20% of the number of ATM cards, which is 300 million. The financial services institutions have failed to provide handier and more convenient services than cash.[2] FSI which are thriving in Japan's growing e-payment market are not very traditional ones so far.[3]

Here, Celent wants to advocate a conceptual system as an open innovation platform that would create a platform layer (the formulation of rules under new frameworks) with an innovation layer (creation of new services within the new framework). The expectation is that this conceptual system could fulfill the role of API provider in the era of the API economy. This envisions a situation in which financial institutions use an infrastructure shared with the manufacturing, retail, and logistics industries, using the API to fuse together not only B2B but also B2C information—that is, information about consumer lifestyle and consumption patterns—with financial information to create a blueprint to enable technology to bring relevant financial services into the daily lives of consumers. Historically, the business or commercial information regarding companies and consumers’ lives has been far from integrated; doing so moving forward is aimed at illuminating the flow of related funds and creating a closer and more useful relationship between the two.

In crafting a vision of the financial services of the future, one must ostensibly imagine services that transcend the traditional confines of financial services and are more intimately intertwined with corporations and their activities as well as the lives of consumers. The advent of fintech continues to raise the expectations of financial services customers. Indeed, the key to competition in financial services may lie outside the financial industry, coming from services and businesses that specialize in knowing the customer such as YouTube and Ritz-Carlton, customer behavior prediction such as Google and Amazon, or even referencing how SNS seek to clearly iterate their services and realize simple interactions. In short, meeting these needs and expectations can be seen as a compass that points toward building the financial landscape of the future.

Celent prioritizes the following three points when it envisages “the future of financial services.”

  1. The technology evolution that is taking place through the building of financial market infrastructures: the rise of Bitcoin, Blockchain, and Distributed Ledger Technology (DLT) and their latest examples.
  2. Competition and co-creation in building these financial market infrastructures: Classical technology (ACH, SWIFT, etc., which are equivalent to Japanese Banks’ Payment Clearing Network) VS Emerging Information and Value Transfer (Next-generation digital gift card service networks of Gyft[4]  and, Ripple’s[5] bi-directional messaging system coupled tightly with distributed ledgers for international banking payments).
  3. Blue Ocean Strategy on payment services: New services based on financial market infrastructures which have resulted from the fusion of old and new techniques; Resultant new digital lifestyle or new digital supply chains. 
  • a) for retail market: inexpensive Peer to Peer (P2P) money transfer services for less frequent and small transfers.
  • b) for corporate market: next-generation transaction banking services where commercial distribution, commodity distribution, and money transfers are all integrated.

These new money transfer services for retail customers will be a total watershed, replacing existing e-money. They will serve as a basis of information transfer and value transfer for digital native generation as well. On the other hand, the next-generation transaction banking services for corporate customers will make it possible to renovate existing supply chains and exercise tighter control over corporate information and value transfer through digitalizing and liberalizing contracts and settlements. Celent sees great potential for significant innovation and a “fund transfer revolution” in these new services.

Figure: Open Innovation Platform



This area is explored in depth in the Celent report:




「日銀ネット」「全銀システム」に代表される銀行間決済インフラ、「現金」流通の要であるATMや、「現金代替手段」であるクレジットカードのネットワーク網は、日本社会のレガシーシステムであり、その領域は既にレッドオーシャンである。構想すべきは、それらが実現していない「利便性」である。デジタル時代の消費者は、「現金」以上の利便性を望んでいないのか?いや、サービス供給者が、その需要に気付いていないだけだ。事実、ATMカードの発行枚数(3億枚)に対して、オンラインバンキングの契約口座数(6千万件)は2割に満たず、金融機関は「現金」以上の利便性を提供していない。[2] また、隆盛する電子マネーの担い手は、今のところ、伝統的な金融機関ではない。[3]




  1. 金融インフラを構築する技術の進展: ビットコイン、ブロックチェーン、分散型台帳技術の隆盛と、その先進的なユースケース
  2. 金融インフラの主流を巡るビジネスの攻防: レガシーな技術による金融インフラ(例えば、全銀システムのような各国のACH、SWIFTなど)と、新たに隆盛する、インターネットをフルに活用した情報と価値移動のインフラ(例えば、Gyft[4]とChain.comによる次世代デジタルギフト券サービスネットワーク、Ripple[5]による新たな国際銀行間決済サービスネットワークなど)の競合と共創の関係
  3. 決済サービスのブルーオーシャン: そうした新旧の金融インフラを駆使して提供される新サービスと、それが革新する新たなデジタルライフやサプライチェーン
  • 個人向け:少額低頻度のP2P送金を極めて安価に提供するサービス
  • 法人向け:商流、物流と金流を融合する次世代トランザクションバンキングサービス


図: オープンイノベーションプラットフォーム


Core System Strategies for the Fintech Age: LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 6

Finally, we will speak out the proposal from three perspectives…

  1. Automation to Complex Systems
  2. Core Standard and Local Variation
  3. Review Sourcing Models

Winding down this post series, Celent would like to put forth an approach specifically tailored to helping insurers formulate modernization plans.

This entails determining top-priority business strategy challenges, formulating a solid scope definition sufficiently reflecting a firm’s capabilities, strengths, and appetite for risk, architecture design, and assessing the feasibility of the project.




It is important to create a conceptual diagram that will function as a systems map, containing the peculiarities and implied information to give stakeholders a clear overview of the systems.

In addition, using a system landscape, which is an accepted industry approach to convey knowledge (including the constitutive elements of the core systems in the context of business goals and by involved stakeholder), companies can thrust the unique and peculiar elements into relief.

This task will probably be unfamiliar to Japanese insurers who have designed, developed, operated, and maintained their own core systems. In short, it will be difficult to determine

  • What is standardized?
  • What is peculiar?
  • What can be outsourced?
  • What should be internalized?

Identifying modernization targets, along with formulating the project scope definition, will facilitate setting business strategy priorities and will help lead to emphasizing core system priorities based on desired capabilities.

FIG6-1: Landscape and Targeting: Insurer System Landscape




The greatest risk of any legacy modernization project is recreating legacy issues.

Indeed, Celent regards this as more significant than both stable system operation and realizing a business case.

It is of paramount importance that modernization projects do not recreate legacy challenges but rather free firms from them. Celent puts forth the three proposals below to help ensure that insurer modernization initiatives are successful.

1. Automation and Its Application to Complex Systems

The key to attaining a high level of operational efficiency, not only among systems, but also with straight-through processing (STP) of insurance office tasks as well as office and communication processes, lies in applying automated business processes to complex systems tasks (this refers to processes that are excessively concentrated and frequently require exceptions processing).

When it comes to communication among insurer stakeholders (customers, intermediaries and agents, employees, management, and others involved in the market), it is important to look at several things including rethinking stakeholder interaction and communication (reports, contact, and consultation routes that occur in daily operations), making communication possible through a portal, and the possibility of consolidating existing applications such as workflow tools.

The capacity for insurance office activities to be automated (core processes, exceptions processing, eligibility criteria, business rule management, and business process management) is rooted in a common infrastructure and the monitoring tools of this infrastructure. The positions and opinions of many internal staff members, ranging from actuaries, underwriters, and marketing staff to name a few, must be considered when, for example, implementing a monitoring scheme, renewing automated rules and processes, and setting and modifying governance rules. In particular, for changes in rules or processes, the transition must be rapid and be able to respond to increased business volume. In addition, the objective of STP is to minimize exceptions processing. Eligibility criteria need to be used from the initial stages of the process even if conducting appropriate process routing.

FIG6-2: Automation to Complex Systems



2. Establishment of Core Standard and Allowance for Local Variation

The key to realizing agile operations and reducing IT costs is determined by reusability and standardization in lower layers. Of the three layers of presentation, business logic, and data, the first two, must be shared to standardize and make the data layer reusable.

This is difficult as shown by the insurer responses indicating that "data model rigidity" is one of the largest IT challenges. While it may be difficult, if insurers do not address this matter, they are doomed to recreate their legacy issues.

FIG6-3: Core Standard and Local Variation



To avoid being ensnared in this pitfall, Celent recommends referencing the below approach. These are universal issues that are applicable across industries, and Celent hopes to see vendors create tools and strategies that offer better solutions to this problem.

  • Presentation layer:
  • Configuration for unique user interface (even if fixed or common, configure using tool base).
  • Equip with framework for items such as shared user interface, reporting, and audit procedures, security (even if for unique user specifications, configure using tool base). 
  • Business logic layer:
  • Architecture allowing common office processes and unique variations to operate in tandem.
  • Equip with rule library to implement unique variations and common office processes (even if for unique user specifications, configure using tool base). 
  • Data layer:
  • Standard data model and field for adding unique items.
  • Mechanism to allow the use of non-structured data.

FIG6-4: Core Standard and Local Variation (cont.)



3. Review Sourcing Models

Formulating a modernization plan should include a review of sourcing models. This should start with the design phase, involve assessment of the build phase, and sufficiently verify plan feasibility.

Global insurance IT firm offerings are many with options spanning core system build, operation, and maintenance. IT firms have expanded their scope of activities to include areas such as maintenance of existing applications, testing relating to the center of excellence (CoE), and data migration.

FIG6-5: Review Sourcing Models



We should conclude this post series in this page.

KRQ #3: What does an insurer roadmap to modernization look like?

We’ve found the following:

  1. Legacy modernization framework.
  2. Understand your organization’s priority challenges and risk tolerance.
  3. Scope definition.
  4. Ensure that your modernization does not simply reproduce legacy issues.


Related releases:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals


Back to the top of this topic – Click here

Core System Strategies for the Fintech Age: LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 5


Since its inception, Celent has helped host countless events to facilitate financial institutions selecting the optimal next-generation core system.

Sometimes as a project management office (PMO), other times as a third party advisor, Celent has long been deeply involved in working with financial institutions on processes to optimize core systems.

Rooted in this wealth of advisory experience spanning countless projects, Celent has formulated and suggests using the theoretical yet practical framework in this table.

In the modernization project, three things you should know before starting a tender are:


  • Initial motivation and direction


  • Management, systems, products and services, business process and its priority


  • Quantitatively, qualitatively, need to measure the ability of your organization

FIG5-1: Legacy Modernization Framework



The next three things you should need are Methodology for the best project execution:


  • Usually, it is the Constitution of the project, the project charter to be a live document, these seven items are described.


  • Not only the solution to be implemented (the new system and the new organizational structure), all of the things that the organization is involved up to its realization, without omission, rather than duplicate, each other without contradiction, MECE (Mutually Exclusive and Collectively Exhaustive) is essential.


  • Especially in its project members, evaluation team, it is necessary to ensure the cross-organizational human resources:from both sides of the solution evaluation and commercial evaluation.

FIG5-2: Legacy Modernization Framework (cont.)



When selecting a next-generation core system, the important thing is not to depend on industry-specific differences or degrees of complexity, but to establish a methodology that is versatile.

In other words, the essence of legacy modernization is a comprehensive framework.

That should highlights top-priority business strategy challenges, includes architecture design, and fully reflects the scope definition in light of a firm’s capabilities and strengths to assess the feasibility of the project, all while making sure that it is a good fit.

The KFS are Scope Definition; Understanding Your Risk Tolerance and Organization’s Priority Challenges.

FIG5-3: Scope Definition



Factors that will be crucial to determine the success of system modernization projects include firmly understanding your organization’s priority challenges and appetite for risk coupled with a good project scope definition.

This involves determining priority areas, what to procure and build, and what to cut — all within the scope of your risk tolerance.

Maximizing the use of limited business resources to respond to increasingly diverse and sophisticated digital users’ needs cannot be achieved by simply letting things take their natural course; rather, this requires intent and taking the initiative.

FIG5-4: Legacy modernization is a strategic move in digital innovation



Related releases:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals

To be continued – Click to read more


Core System Strategies for the Fintech Age: LEGACY MODERNIZATION IN INSURANCE INDUSTRY, Part 4

This post series examines the current status and future directions of legacy modernization in Japan’s insurance industry.

It is based on a legacy modernization survey Celent conducted in 2015. The survey targeted insurers, financial institutions, and brokers. It was supplemented with additional information gathered in follow-up interviews.

The new two-part report is an extension of this work that narrows the focus to the insurance sector.

The Report Part 1 offers an overview of the state of modernization in the industry.

The Report Part 2 builds on this to offer policy prescriptions and suggestions for industry players.

KRQs: Our Key Research Questions are…

  1. Where are Japan’s insurers in terms of legacy system modernization?
  2. What does legacy system modernization mean to insurers and why do they do it?
  3. What does an insurer roadmap to modernization look like?

In Part1 – 3 of this post series, we’ve discussed the KRQ1 – 2.

From Part 4 of this post series builds on this by seeking to answer questions three.




First, we will address the relationship between digitization, innovation, and legacy modernization.

  • Celent advocates that companies revisit how they frame the legacy modernization challenge and stop thinking about it as a system unit or cost center issue.
  • Interviewees told us that it was not that core system business cases were not viable, but that business cases without ownership were not viable. Determining where costs should be allocated and breaking down the attendant benefits are important, but more important is reaffirming that today, success hinges on modernization of core systems and core system business processes for more than half of digital financial services.
  • Companies talk the talk and undertake digital projects, but these are often limited to the front office — that is to say, the contact point with the customer. At the same time, today’s digital consumer is increasingly comfortable with digital processes.

In Europe and the United States, digital native financial services have undertaken modernization of core business processes to such an extent that they will not consider adoption of a process that cannot be digitized. Here, we want to show a diagram that portrays the eight dimensions of digital financial services. Figure 6 draws attention to the importance of core systems of the middle and back office and operational processes, which collectively occupy more than half of the eight dimensions.

FIG4-1: Digital Financial Services



The level of digitization reflects the modernization level of core systems.

In other words, the digitization of customer behavior spurs a shift in the digital processes of financial services (such as STP, automation, and self-service), which in turn drives the modernization of legacy systems — a difficult challenge that many people would rather ignore.

It shows us the stages of digital adoption. It is premised upon a modern core system in the middle and back offices that seamlessly combines with front-end digital channels.

FIG4-2: Digital Transformation




In the insurance industry, a novel business model is appearing. Still in its early stages, this approach fuses peer-to-peer (P2P) insurance with the traditional insurance model, creating insurance based on small circles or small communities.

This insurance is based on a small inner circle that is akin to a “circle of friends.” This approach has deftly used social networks to find a foothold and niche that meets the needs of digital natives.

It has undergone two or three iterations, is optimizing cost, and growing a new customer base at an extremely rapid clip.

Here also technology is the key to agility.

FIG4-3: Digital Native Initiatives




In the insurance industry, IT needs have accelerated to an unprecedented pace in the third sector arena, which includes new service sectors such as medical and nursing care, involving the addition of new sales channels and novel underwriting assessment models using AI, the IoT, and robotics.

The securities industry is also experiencing change and heightened requirements in terms of variability and flexibility for core system and back office operations (such as securing availability, variability, and scalability related to processing, latency, and connectivity to accommodate varying transaction sizes).

SaaS and BPO are no longer the latest and greatest technologies. Instead they are only two of the available sourcing model choices to accommodate the level of involvement that financial institutions and their technology partners desire as well as their resource, cost, and risk parameters.

Like best execution and optimized trade market selection, these choices are subject to pressure from sponsors and shareholders. Selecting technology models that can accommodate varying transaction volume and frequency is becoming the norm, and relationships between financial institutions and technology vendors are changing from a more specialized model to a more utility-based model.

FIG4-4: Technology Sourcing Models



Related releases:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals

To be continued – Click to read more




There are Two Major Modernization Propositions for Insurers:

Let’s think about what modernization means to an insurer. Respondent answers to this Celent survey indicated that they expected modernization to yield more agile business operations and to reduce IT costs.

This prompts the question: How do they expect to make this happen? Celent advocates these two propositions.

  1. Straight-through processing (STP) for insurance office processes
  2. Realizing operational efficiency that extends beyond the system, including office and communication process operations

These propositions involve:

  • Communication between insurer stakeholders (customers, intermediaries and agents, employees and management, and other involved parties) and
  • Using common infrastructure and monitoring tools to control the capacity to automate insurance-related office processes (core processes, exceptions processing, suitability criteria, business rule management, and business process management).

FIG3-1: Two Major Modernization Propositions



And we have already found out Five Approaches to Modernization:

Celent’s survey results clearly indicated Japan’s insurer system replacement strategies to be the following:

  • System replacement with a new system
  • Rewriting with new code
  • Replacement with a new platform.

For insurers undertaking modernization, Celent puts forth five approaches as examples.

Insurers can use these to gauge their risk tolerance and select an approach that best fits their needs.

FIG3-2: Five Approaches to Avoid ‘Bad Legacies’



New Technology and the Need for an External Perspective

Core system modernization projects require a long-term perspective. This perspective must have one eye on the future, be driven by technology, and consider factors that will drive business model transformation.

  • An example of the successful transformation of a business model in progress is nonlife insurer use of telematics to calculate individualized rates for policyholders. Already, this technology is offering a glimpse of things to come and a disruptive business model that is emerging in auto insurance rate calculation and underwriting.
  • One example of this is post-underwriting assessments in life insurance that use the socalled “Internet of Things” (IoT). The IoT era is an era of sensors. External biomonitors, such as fitness bands and wearable computers, track everything from body temperature, pulse, and blood details to oxygen consumption and exercise volume to generate information about the user’s health level and risk for disease.

In other words, core system modernization extends beyond the replacement of internal IT assets.

  • An internal perspective that considers the future is of course important, but in addition to this, an external, more macro view of modernization is also indispensable.
  • The challenge that insurers face is to improve the caliber of their internal system while building a platform that will enable them to do more and do it better by adding competencies in the future. Ultimately, this entails preparing architecture that will enable them to take advantage of external opportunities.

FIG3-3: The importance of external perspective



KRQ #2: What does legacy system modernization mean to insurers, and why do they do it?

We’ve found the following:

  1. Insurer legacy system modernization means migrating an insurer’s core system, including business operation functions, integration, support, new product development, scalability, and sourcing models, to a more modern configuration to streamline operations and create new business opportunities.
  2. Business drivers of system modernization are typically a desire to implement a growth strategy, restructure and rebuild business units, and realize new processes (high-efficiency STP) to respond to changes (more digitization) in demand.
  3. Modernization should be conducted carefully to avoid reproducing the legacy issues it is designed to eliminate. An external perspective is essential. This perspective should be focused on ensuring that the result is fueled by technology and can drive business model transformation.


Related releases:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals

To be continued – Click to read more



Insurer core systems do not always evolve in the most planned, orderly way.

In a certain sense, their development can be quite random. But in terms of application area, they could have arrived in their current position by taking the path of least risk.

  • Through mergers and acquisitions, insurance companies have maintained multiple core systems seeking business merits other than IT.
  • When wading into a new business area, insurers have tended to use new or different core systems or systems infrastructures.
  • Repeated business integrations, forays into new markets, and waves of sales channel changes have taken a toll on the core systems of insurers.

Today, these superficial solutions are reaching their limit, and solutions that tackle root causes rather than symptoms are necessary.

It is clear that the heart of the cause is the contract management system, which includes the core processes and records of insurance contracts, and underpins all of the general insurance services provided to policyholders.

FIG2-1: Insurer Core Systems and Legacy Modernization



Celent has consulted on many insurer legacy modernization projects.

At the outset of these projects, Celent asks the CEO and CIO a number of questions similar to those below.

CEO Questions:

  • How long does it take to get a new product to market?
  • What’s your average cost per policy?
  • How many systems does your call center staff have to access to answer a customer query?

CIO Questions:

  • Do product changes require customization of code?
  • How easy is it to integrate current apps into new ones?
  • Are you spending more on keeping the lights on versus new projects?

These are among the questions that executives need to ask themselves when they look to tackle IT challenges (e.g., data model rigidity, lack of application flexibility, IT duplication, and associated labor efforts).

If you already know the answers to these questions, then the typical challenges insurers face spelled out in this report likely do not exist for you.

The issues broached here are not the kind of challenges that can be resolved by improving peripheral systems or patchwork core systems solutions.


For financial institutions that have designed, developed, operated, and maintained core systems themselves, formulating a replacement strategy is akin to putting together a plan to travel to an unknown world.

  • Such a situation requires correct understanding, which mandates a bird’s-eye view or systems map of the entire firm (as-is state) coupled with recommendations for the system to be (to-be state).
  • Moreover, companies must select the solution that best matches their needs from existing solutions in the market. The key is the business requirements document (BRD).
  • This means defining the operational functions and system requirements that will satisfy the next system’s needs.
  • Often, understanding the current situation accurately is not easy, the ideal system goes unrealized, and companies end up with something approximating a reproduction of the legacy system.

Thus, it is crucial to distinguish between the legacy and modern systems.

FIG2-2: What is modernization and a modern system?



Related releases:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals

To be continued – Click to read more



This post series examines the current status and future directions of legacy modernization in Japan’s insurance industry.

It is based on a legacy modernization survey Celent conducted in 2015. The survey targeted insurers, financial institutions, and brokers. It was supplemented with additional information gathered in follow-up interviews.

The new two-part report is an extension of this work that narrows the focus to the insurance sector.

  • Part 1 offers an overview of the state of modernization in the industry.
  • Part 2 builds on this to offer policy prescriptions and suggestions for industry players. 

I hope that this post series will act as a catalyst for legacy modernization initiatives at financial institutions and aid in the pursuit of innovation.


  • Legacy modernization: Updating an existing system.
  • Legacy system: Systems that have been developed and in place for many years and possess many features but are difficult to upgrade. 
  • Modern system: A system built with high-performance, cutting-edge features that enable easy upgrades and are able to separate code and business rules.

Key Research Questions:

  • KRQ 1. Where are Japan’s insurers in terms of legacy system modernization?
  • KRQ 2. What does legacy system modernization mean to insurers and why do they do it?
  • KRQ 3. What does an insurer roadmap to modernization look like?

Part 1 of this post series answered the first key research question. From part 2, builds on this by seeking to answer questions two and three.


As the answers to the KRQ 1, we have been reviewing the following five things through the report Part 1.

  1. More insurers are seriously considering legacy modernization and moving to the implementation stage:  The norm for replacement strategies is increasingly the deployment of a new system rather than a version upgrade or wrapping, with the decision driven by cost, fit with existing IT skill and aptitude levels, and risk tolerance.
  2. As organizations progress to the implementation stage of replacement  projects: they do not always sufficiently consider potential new solutions such as software as a service (SaaS) or business process outsourcing (BPO).
  3. The greatest challenge for companies is selecting the optimal program.
  4. Business cases could be used better: They are generally only used as tools to monitor progress rather than functioning as live documents.
  5. Changes in the roles of business and IT units accompanying modernization: have yet to translate into changes in the responsibilities of these units.

My past report, Legacy Modernization in Japan’s Financial Industry, Part 2: argued that financial institutions looking to modernize should cease targeting a specific customer demographic and shift to a new strategy that incorporates the below points:

  • Create a community with customers using advanced digital technologies.
  • Build an ecosystem across the entire value chain.
  • Adopt technologies that can be reused and improved.
  • Transition to technology as a service, white-label products, and to revenue generating models.

In other words, Celent sees legacy modernization as nothing short of a wholesale upgrade of how companies do business and a strategic move in terms of both digitization and innovation.

Now we will focus on an in-depth look at legacy system modernization for the insurance industry and suggestions for insurers in Japan.

FIG1: Legacy modernization is at its heart the modernization of business



Related releases:

Legacy Modernization in Japan’s Insurance Industry, Part 1: Survey Analysis and Status Update

Legacy Modernization in Japan’s Insurance Industry, Part 2: Prescriptions and Proposals

To be continued – Click to read more