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How Do Insurers Future-Proof Their Legacy Technology?

To take advantage of enhanced analytics and asset management systems, many insurance companies are seeking new outsourced solutions that will evolve with their future needs.

As seen in Institutional Investor

As insurers’ investment strategies have evolved over the years, extracting data from the full investment lifecycle has become more crucial than ever. However, this has become increasingly challenging for insurers relying on siloed legacy systems developed decades ago.

While large insurance companies have embarked on digital transformation for customer-facing processes, industry insiders will tell you that many have allowed their internal investment-management technology – as well as other key analytics capabilities – to grow progressively more outdated amid the rapidly-evolving data needs. Facing the consequences of this neglect, a growing number are investing in modernizing these vital abilities with outsourced, cloud-based systems.

We spoke with Chris Dvorak, Head of Insurance Solutions for Northern Trust, and Calvin Johns, Northern Trust’s Manager of Emerging Solutions, for insights on the new technology solutions insurers are currently seeking to augment or replace their internal legacy systems.

Many insurers are hindered by their reliance on siloed, legacy investment management platforms that are in various stages of obsolescence. Can you set the stage on how this affects their ability to manage their investments?

Chris Dvorak: Advanced asset management systems are core in helping an insurance company thrive in an increasingly complex investment landscape. Today, there are powerful cloud-based solutions that didn’t exist just a few years ago, and insurers can now tap technology partners like Northern Trust that can provide them with sophisticated capabilities, so they no longer have to build and maintain these systems internally.

We partner with insurers to support them on the investment management side across a wide spectrum, from custody to securities lending to our Northern Trust Asset Management products. Investment accounting is especially critical for insurance companies, to support their  statutory accounting needs.

Calvin Johns: Let’s look at the macro environment we’re in, because the financial context is relevant to how we are thinking about the tools clients need in an environment of uncertainty.

The U.S. consumer price index (CPI-U) rose 0.8 percent in February on a seasonally adjusted basis and up to 7.9 percent over the last 12 months, which is the highest we have seen inflation rise in 40 years. i

We know historically that periods of high inflation have been challenging environments for bonds, so positioning a portfolio among interest rate and credit risk factors is an important consideration. 

However, we know our current environment is different from the past. For example, in 1981 U.S. Federal Reserve Chairman Paul Volker raised interest rates to 20% at a time when Debt to GDP was 31 percent.   Our current Debt to GDP ratio is at historically high levels, which increases the risk that monetary policy will be used to control inflation. ii

When considering the complexity of the macro environment with the constantly increasing feed of real time information and geopolitical events, investment systems need to present more data points faster.

To do that, it is important to reduce data silos and increase the frequency of updates to combined data sets. These data sets might include portfolio accounting, time series data such as price and yield, and security master data, which then must be combined with other sources such as fundamental balance sheet data about the issuer, and even some unstructured data regarding issuer industry sector expenditures.  

The ability to analyze the most complete, updated information allows our clients to manage their portfolios more effectively.  At Northern Trust we have a team of data visualization experts that build multi-dimensional designs to allow clients to understand the relative exposure to duration and credit risk within their portfolio holdings.

Dvorak: Adding to what Calvin said, insurers are also now trading products that these older platforms were not built to support. In some scenarios, insurers have multiple systems to support one portfolio, which requires them to cobble together data across more than one system to obtain a holistic view to get that yield that they need to support their portfolio.

Are insurers making a big push to upgrade their investment management systems?

Dvorak: Most realize they’re in a bad spot, so we are seeing insurers start to address this. But many aren’t doing enough. Some insurance companies are focusing on digital transformation, but their capital is largely going to modernize their customer facing processes. They want to make acquiring claims and paying premiums a much better user experience. But they’re not investing in changing their legacy investment management systems, simply because their capital runs out before they allocate to that part of their process.

Decision-makers understand that this can’t continue for much longer. And as insurers consider cost and other factors, many are seeking outsourced solutions to modernize their investment management capabilities. They are increasingly aware there are now technology providers that offer highly advanced solutions to handle different aspects of the investment cycle.

They’re asking, “Should we build and maintain this new investment management system internally – or can we partner with someone whose core competency is to produce this service for us which becomes part of our ecosystem?” And after they do this analysis, we’re seeing more clients interested in partnering with us to acquire these solutions.

What key technologies should insurers most consider implementing right now to modernize their investment data systems?

Johns: If clients are looking at a 10-year time horizon and building a new system today, they need to think about how to integrate those systems into a larger data collection of structured and unstructured data –to bring both the accounting and the portfolio management sides together to get the exposures they want.

And for that, they need to look into “data lake” technologies. These cloud-based implementations allow clients to cost-effectively scale up the computational power of using virtualized clusters of computational farms. They also combine structured and unstructured data without the additional complexity required to transform the data into specialized formats for particular combinations of data.

What is Northern Trust’s data analytics strategy for insurers?

Dvorak: We knew that we needed to have a digital solution for our client base. And that’s how we developed our insurance accounting platform known as Investment Accounting and Analytics Services Solution, or IAA. It provides our clients with a digital platform in the cloud.

To be clear, it’s not simply a report delivery system. Rather, it’s an end-to-end investment data analysis and interrogation platform that gives our clients transparency into what their portfolio is doing on a daily basis. And it presents the data in a very thoughtful way to empower our clients to truly understand what is going on in their portfolio, based upon trading activity and market conditions.

The platform offers everything from generic views of holdings or earned income, to cost progression rolled forward, to a full-blown change analysis. Clients can view the effects of changes day over day, month over month, and year over year, to fully understand the impacts on their portfolio at any given time interval. This truly gives them a tool to understand the macro impacts of changes in their portfolio, what their traders and outside asset managers are doing, and how all these factors will impact their accounting and the decisions they’re going to make on disclosures.

By moving that accounting deliverable from a monthly task to something you look at daily, it really makes it more of a seamless exercise. So when month end arrives, it’s just like another day.

And by impacting their workflows in such a positive way, it’s making insurers far more efficient and allowing them to do the higher level of analysis that many had been foregoing. That’s extremely important.

Finally, it’s important to note that our ongoing goal is to incorporate all this data into our Total Portfolio View, or TPV. That’s Northern Trust’s solution to give institutional investors one comprehensive view of their entire portfolio, spanning all its products, both public and private, utilizing one dataset that feeds all the engines needed to understand the portfolio virtually, in real time.

Future-proofing can be difficult, as market needs and technology capabilities can evolve unpredictably. How does Northern Trust’s data analytics strategy for insurers offer the practical foresight and flexibility to future-proof their data systems? 

Dvorak: Technology platforms need to evolve to meet market needs as they present themselves every day. And they need to be able to continually change, because of regulatory requirements or increased complexity of the portfolio composition. One thing that Northern Trust has embraced is an agile approach and development of our cloud-based IAA platform. We have a concept that we call “build to learn culture,” which focuses on learning from feedback over time, to deliver a final product that incorporates early user testing.

By using shorter product development, intense feedback loops and smaller software delivery teams, we’ve made the process nimbler and empowered our teams to design a more client-centric platform than we could ever achieve with traditional IT workflows. These are exactly the enhancements our clients have been looking for to support their business.

Johns: Thinking about where things are going can certainly help; but I think most of the time we need to adapt to the future and we need to be ever diligent to adopt that change.  And when this change is constant, as it is today, then we must consider that the software and systems we build are in a constant state of entropy and we must adapt to the present. 

From a software development perspective, the very moment you commit code, you have likely created what is called “technical debt” for a future developer who wants to improve the system.  For that developer to change the system, to make it better, they need to do what is called refactoring, a reorganizing of the code to reflect the new future.   Refactoring is the single most important thing a software product team can do to make the software “new” again.   It is interesting to point out that code that isn’t changed (refactored) and updated to make it easier to implement new features is typically referred to as technical debt.  When technical debt accumulates over time, the system becomes much harder to change than it is to throw away and start anew.  

This new system certainly could have instead been refactored code of the past.

Keep your code out of debt.

Dvorak: If we look back historically, the legacy systems many insurers are struggling with today were built with a very focused mindset of, “this is what we trade now.” Today, we fully appreciate that new products will come in, over time. Just look at crypto. So the new systems are built to be flexible and to handle all different products. Because it all starts with the trade capture, and the legacy systems weren’t necessarily built to handle these newer asset types.  

When insurers invest in a new, cloud-based asset management solution, the payoff can come in both efficiency and returns. But again, the solution must be powerful enough to provide data analysis across the entire investment lifecycle, not just in the initial decision-making. With our technology, data flows through to everything post-trade, including the accounting platform, because data integrity needs to be maintained over the entire cycle – from performance, risk, and exposure, right down to regulatory filings. That analysis throughout can help improve investment outcomes.

Learn more about new cloud-based platforms for advanced asset management solutions.


i, US Bureau of Labor Statistics, 2022
ii, FRED Economic Data, 2022

Christopher Dvorak portrait

Christopher Dvorak

Practice Executive, Asset Owners, Americas
Chris is responsible for the Insurance Solutions, Self-Managed Asset Owner (SMAO), Large Corporate West, and Correspondent Trust Services business segments within the Asset Owners Americas division at Northern Trust.

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