The insurance industry in 2025 faces a critical paradox: innovation is imperative for survival, yet the constraints of legacy systems often stifle the very progress insurers seek. Despite years of effort, many carriers remain entangled in outdated technology, fragmented data ecosystems, and organizational inertia. How can the industry break free from these limitations to embrace a future defined by agility and innovation?
In a compelling discussion between Reetika Fleming, Executive Research Leader at HFS, and Vijay Pahuja, Head of Insurance at Sutherland, bold strategies to address these challenges were explored. Their insights provide a roadmap for carriers to converge business priorities with technological innovation to drive transformative change.
The Cost of Inaction: A Risk Too Great to Ignore
While 74% of insurers acknowledge that legacy systems hinder their business growth, only 28% have developed a comprehensive modernization plan. This disparity highlights a pervasive issue in the industry, a reluctance to confront the barriers of legacy transformation despite its critical importance.
As Vijay observed, these barriers are multifaceted:
- Aging Technology and Data Silos: Legacy systems trap valuable insights in isolated silos, limiting their usability.
- Rising Costs: The significant investment required for modernization often creates hesitation among insurers.
- Knowledge Gaps: With 25% of the insurance workforce over 55, retiring expertise exacerbates operational challenges.
Yet the cost of doing nothing is far greater. Fragmented infrastructures undermine agility, delay claims processing, and erode customer trust, jeopardizing long-term competitiveness.
Breaking Silos: A Unified Path Forward
A striking example shared in the discussion highlighted a Midwest specialty carrier that tackled legacy transformation by unifying six disparate claims systems. Under the leadership of a cross-functional team, including the CIO, Chief Data Officer, and business leaders, this initiative broke down silos to align goals, share accountability, and prioritize measurable outcomes.
The results were transformative: faster claims processing, improved customer satisfaction, and a strategic roadmap to modernize policy and billing systems. This underscores a pivotal takeaway: business and technology convergence is no longer optional, it is essential.
Outcome-Based Transformation: A Model for the Future
One of the most compelling strategies discussed was Sutherland’s outcome-based approach to transformation. Unlike traditional service models with fixed costs, this innovative approach ties payments to measurable results, aligning incentives and mitigating risk for carriers.
Examples include:
- Recoveries as a Service: Compensation based on value recovered for the client.
- Credit Control as a Service: Payments linked to reductions in outstanding balances.
- Policy Operations: Pricing aligned with the number of policies serviced.
As Vijay explained, this model not only de-risks transformation for insurers but also builds trust by demonstrating a direct correlation between investment and outcomes.
The Cultural Shift: Driving Transformation from Within
Technology alone cannot resolve the challenges of legacy transformation. As Ritika noted, cultural resistance is a major hurdle, with nearly 70% of digital transformation projects failing due to internal pushback.
Vijay emphasized the importance of fostering a cultural shift, driven by younger, more diverse talent entering the insurance industry. This new generation brings fresh perspectives and an openness to innovation, reshaping how insurers collaborate, make decisions, and embrace transformative technologies.
The Role of AI and Automation in Legacy Transformation
The conversation also highlighted the game-changing potential of AI and automation in addressing legacy challenges. By integrating technologies such as generative AI, document intelligence, and hyperautomation, insurers can achieve unprecedented efficiencies and customer-centricity.
Sutherland’s CognilinkClaims ecosystem exemplifies this approach:
- Document AI: Automates claims data ingestion and extraction with precision.
- Generative AI: Powers interactive document management.
- Knowledge Management Solutions: Provides real-time insights for decision-making.
- Conversational AI: Enhances customer interactions with intelligent, personalized support.
These solutions streamline operations while delivering tangible outcomes, including faster claims settlements, improved accuracy, and significant cost reductions.
Key Insights for Insurance Leaders
Ritika and Vijay offered actionable recommendations for insurance executives navigating legacy transformation:
- Collaborate Across Functions: Foster alignment between business and technology leaders to ensure transformation initiatives are both strategic and executable.
- Prioritize Outcome-Based Models: De-risk modernization efforts by adopting frameworks that tie success to measurable results.
- Invest in Culture: Empower diverse talent and cultivate an environment that embraces innovation and collaboration.
- Leverage AI and Automation: Implement integrated digital solutions to drive efficiency, scalability, and enhanced customer experiences.
The Road Ahead: Rethinking Legacy Transformation
The insurance industry is at a pivotal juncture where legacy transformation must go beyond incremental fixes to reimagine how insurers operate and deliver value. As Vijay aptly noted, “Technology will upend this industry, but it’s the people and culture that will determine how effectively we embrace this opportunity.”
For insurers ready to lead this transformation, the time to act is now. With the right strategies and partnerships, the future of insurance can be built on a foundation of agility, innovation, and trust.
Explore these insights further by watching the full discussion between Reetika Fleming and Vijay Pahuja here.
