Interest on debt grows without rain
What is technical debt, and why is it weighing some insurance balance sheets down like a lead balloon?
It’s been said that most concepts within financial services should be explainable to a child – otherwise something may be very wrong with your business model.
So, given our industry’s penchant for jargon, why am I banging the drum about technical debt?
It’s because technical debt matters. Technical debt is weighing our industry down, it’s impacting balance sheets and not in a good way. The term was first coined by software developer Ward Cunningham – the idea is that technology, like any financial debt, incurs interest.
This interest is measured in the additional time and mounting costs it takes to implement changes or systems upgrades because of the existing infrastructure beneath it. The layers of “best-in-class” legacy technologies at many insurers mean that the technical debt installments have grown larger as the heap of systems aches and groans under the weight of upgrades and obsolescence.
It is particularly relevant for the situation within which many insurance companies increasingly find themselves, having invested – with some pain and discomfort – in previous generations of costly technologies. To exacerbate things, they then took their “fit for purpose out-of-the-box systems” and customized them beyond all technological recognition.
The banking sector is familiar with this term – many have found technical debt as frustrating and troubling a reality as their customers have found their financial debts, if that’s not too crass a comparison to draw. And paradoxically, much of the digital transformation taking place in recent years under the fintech wave has exacerbated the scale of the problem.
New wine, old bottles
The volume of data generated is – as we know – rising exponentially, and at the same time the technology designed to make use of this data is evolving rapidly. The pace of technology change is making old technology obsolete faster than ever before.
The solution lies in the fundamental architecture of technology.
Closed-box siloed systems are the source of technical debt across industries, not just banking and insurance. Systems that cannot adapt, that have no openness or commonality to allow them to plug in to the latest innovations using the same architecture, effectively just sit there in offices giving them impression that business as usual is being achieved, but all the while adding extra costs and inefficiencies that keep getting worse as time goes on.
High performing and low performing companies
It’s this cumulative technical debt that makes the difference between low performing and high performing companies. And we see it day in, day out – insurers are spending too much just keeping the lights on and upgrading and not enough on real innovation that would make their businesses more competitive and agile.
It’s our belief that only by taking technology out of company servers and into cloud SaaS architecture, with the connectivity to an evolving digital ecosystem of complementary applications and add-ons that this entails, can companies avoid paying exorbitant debts on their technology spending. Only when software houses take responsibility for their own software via SaaS will we start to overcome the upgrade issue and growing technical debt lurking in the payday loan of quick fixes.
Lord Polonius was right: “neither a lender nor a borrower be.” This applies to technical debt. Don’t lend your budgets to quick fixes and borrow time at the expense of increased technical debt.
Take a deep breath, step back, and invest wisely.