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Legacy IT hampers digital strategy at banks and insurers

A highly regulated environment, a risk-averse culture and a reliance on core legacy technology are holding back banks and insurance companies from modernisation

A study from Forrester has identified data as one of the key areas that needs improving for businesses to embark on a successful digital strategy.

The digital transformation race has begun, a study commissioned by Virtusa, found that businesses that struggle with data optimisation will struggle to drive positive customer outcomes through digital marketing.

Forrester said that data quality, access and action are among the areas businesses struggle with when trying to derive value from collecting big data.

The research, based on a review of 600 major firms across the US and Western Europe, found that the vast majority were still struggling to deploy digital technologies.

“A firm that lacks information and insight to power its strategic decision-making will compromise its ability to win, serve and retain customers,” said Forrester. “Digital transformation initiatives ultimately must be designed to drive customer value. Therefore, firms across industries would be well served to start with the data in order to craft a digital transformation plan that will deliver what their customers want.”

Among the issues identified by the study is reliance on core legacy technology. Forrester found that although banks have largely focused their digital transformation efforts on driving down costs, such as through easy-to-use digital self-service capabilities and more efficient back-office operations, these innovations are being built on top of outdated legacy technology and risk-averse cultures.

These factors slow down the pace of digital transformation, preventing banks from understanding how to monetise their data, and act as barriers to partnerships for creating new sources of value for customers, according to Forrester.

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Turning to the insurance sector, Forrester said that customers, business operations, distributors, competitors, and even many of the assets that insurance covers are fundamentally digital in nature, and this will increase as a result of the use of telematics and usage-based insurance models.

“Many insurers are only at the beginning of their digital transformation journeys and are currently focused on allowing customers to self-serve,” it said. “The complexity of products and services, heavy reliance on legacy technology, and risk-averse cultures are affecting how quickly insurers can move forward with their digital transformation journeys.”

Frank Palermo, global head of digital solutions at Virtusa, said: “While most companies are preparing to make digital transformation a priority, they have a long way to go before achieving any kind of mastery over the multiple disciplines required to innovate effectively.”

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