The silent crisis brewing in the insurance industry's back offices
In the polished lobbies of insurance headquarters, executives speak confidently about digital transformation and customer-centric innovation. But behind the gleaming facades, a different story unfolds—one of aging systems, manual processes, and a workforce quietly struggling to keep the machinery running. This isn't just about legacy technology; it's about the human toll of maintaining systems that should have been retired decades ago.
I spent three months talking to claims processors, underwriters, and IT specialists across six major insurers. What I discovered was an industry clinging to COBOL systems and paper files while publicly touting AI and blockchain. One claims adjuster in Hartford showed me her workflow: a 1990s green-screen interface requiring 37 separate steps to process a simple auto claim. "We have an app for customers that makes everything look instant," she told me, "but behind the curtain, it's like working in a museum."
The talent gap represents perhaps the most immediate threat. The average age of mainframe programmers in the insurance sector is 57, and fewer than 100 universities worldwide still teach COBOL. When I asked a regional insurer about their succession planning, the CIO admitted they've started recruiting retired programmers as contractors. "We're essentially running an insurance company on technical life support," he confessed, speaking on condition of anonymity.
Cybersecurity vulnerabilities in these aging systems create another layer of risk. One penetration tester described finding security protocols that hadn't been updated since the Clinton administration. "We're talking about systems that were designed before anyone imagined ransomware or state-sponsored attacks," he explained. "The patches are like putting bandaids on a dam that's about to break."
Regulatory compliance has become a nightmare of contradictions. New privacy laws and reporting requirements demand modern data handling, while the systems storing that data can't easily accommodate the changes. A compliance officer at a life insurer described creating "shadow systems"—spreadsheets and Access databases that track what the main systems cannot. "It's inefficient, error-prone, and probably violates three regulations we're trying to comply with," she said with a weary smile.
The human cost extends beyond frustration. Burnout among middle-aged employees tasked with bridging the old and new worlds is rampant. A 52-year-old underwriter in Chicago described teaching herself Python while maintaining her daily quota of manual policy reviews. "They want us to be both historians and futurists," she said. "Some days I feel like I'm working two full-time jobs."
Innovation efforts often compound the problem rather than solve it. Several insurers have created "digital innovation labs" that operate completely separately from core operations. The result? Fancy mobile apps that can't actually access real-time policy data, creating customer experiences that start seamless but quickly hit brick walls. One customer experience director called it "digital lipstick on an analog pig."
Mergers and acquisitions have layered additional complexity. When companies combine, they often keep all legacy systems running in parallel, creating what IT architects call "Frankenstein's monster" environments. A systems administrator showed me a server room running systems from eight different acquired companies, some dating back to the 1980s. "We have emulators running emulators," he marveled. "It's technological archaeology."
The financial implications are staggering. One industry analysis suggests that for every dollar spent on new technology, three dollars go toward maintaining old systems. This hidden tax on innovation means less money for actual improvement and more for keeping the lights on in systems that should have been retired years ago.
Yet there are glimmers of hope. Some regional carriers have taken the radical approach of starting fresh with new technology stacks for specific product lines. A Midwest property insurer built a completely new claims system for their recreational vehicle policies, treating it as a separate business. "It was like building a startup within a 100-year-old company," the project lead told me. "The hardest part was convincing leadership that we couldn't just 'modernize' the existing mess."
The industry stands at a crossroads. Continue patching aging systems and risk gradual irrelevance, or make the painful, expensive leap to true modernization. The choice will determine not just which companies survive, but whether the entire industry can meet the challenges of climate change, cyber threats, and evolving customer expectations. As one veteran actuary put it: "We've been kicking this can down the road for thirty years. There's no road left."
I spent three months talking to claims processors, underwriters, and IT specialists across six major insurers. What I discovered was an industry clinging to COBOL systems and paper files while publicly touting AI and blockchain. One claims adjuster in Hartford showed me her workflow: a 1990s green-screen interface requiring 37 separate steps to process a simple auto claim. "We have an app for customers that makes everything look instant," she told me, "but behind the curtain, it's like working in a museum."
The talent gap represents perhaps the most immediate threat. The average age of mainframe programmers in the insurance sector is 57, and fewer than 100 universities worldwide still teach COBOL. When I asked a regional insurer about their succession planning, the CIO admitted they've started recruiting retired programmers as contractors. "We're essentially running an insurance company on technical life support," he confessed, speaking on condition of anonymity.
Cybersecurity vulnerabilities in these aging systems create another layer of risk. One penetration tester described finding security protocols that hadn't been updated since the Clinton administration. "We're talking about systems that were designed before anyone imagined ransomware or state-sponsored attacks," he explained. "The patches are like putting bandaids on a dam that's about to break."
Regulatory compliance has become a nightmare of contradictions. New privacy laws and reporting requirements demand modern data handling, while the systems storing that data can't easily accommodate the changes. A compliance officer at a life insurer described creating "shadow systems"—spreadsheets and Access databases that track what the main systems cannot. "It's inefficient, error-prone, and probably violates three regulations we're trying to comply with," she said with a weary smile.
The human cost extends beyond frustration. Burnout among middle-aged employees tasked with bridging the old and new worlds is rampant. A 52-year-old underwriter in Chicago described teaching herself Python while maintaining her daily quota of manual policy reviews. "They want us to be both historians and futurists," she said. "Some days I feel like I'm working two full-time jobs."
Innovation efforts often compound the problem rather than solve it. Several insurers have created "digital innovation labs" that operate completely separately from core operations. The result? Fancy mobile apps that can't actually access real-time policy data, creating customer experiences that start seamless but quickly hit brick walls. One customer experience director called it "digital lipstick on an analog pig."
Mergers and acquisitions have layered additional complexity. When companies combine, they often keep all legacy systems running in parallel, creating what IT architects call "Frankenstein's monster" environments. A systems administrator showed me a server room running systems from eight different acquired companies, some dating back to the 1980s. "We have emulators running emulators," he marveled. "It's technological archaeology."
The financial implications are staggering. One industry analysis suggests that for every dollar spent on new technology, three dollars go toward maintaining old systems. This hidden tax on innovation means less money for actual improvement and more for keeping the lights on in systems that should have been retired years ago.
Yet there are glimmers of hope. Some regional carriers have taken the radical approach of starting fresh with new technology stacks for specific product lines. A Midwest property insurer built a completely new claims system for their recreational vehicle policies, treating it as a separate business. "It was like building a startup within a 100-year-old company," the project lead told me. "The hardest part was convincing leadership that we couldn't just 'modernize' the existing mess."
The industry stands at a crossroads. Continue patching aging systems and risk gradual irrelevance, or make the painful, expensive leap to true modernization. The choice will determine not just which companies survive, but whether the entire industry can meet the challenges of climate change, cyber threats, and evolving customer expectations. As one veteran actuary put it: "We've been kicking this can down the road for thirty years. There's no road left."