Legacy modernization in insurance: Why insurers should act now

Legacy modernization has been an insurance talking point for years. What has changed is not that legacy has suddenly become a problem. It is that the market is now exposing the cost of living with it more quickly and more visibly.

For UK life and pensions firms, and for P&C insurers, legacy is increasingly a brake on change: on product evolution, on operational efficiency, on data access and on the ability to respond at pace when the market moves. McKinsey’s research suggests that digital leaders in insurance grow revenue roughly five times faster and deliver about twice the total shareholder returns of their peers, yet many incumbents are still weighed down by extensive on-premise legacy technologies and technical debt in their core processes.

That is why insurers should look at legacy modernization now. Not because every old platform must be replaced. And not because regulation alone is forcing the issue. The case is broader than that. It is about competitiveness.

What do we mean by “legacy”?

In insurance, legacy does not simply mean “old”, and it certainly does not mean every established core platform.

Legacy is better defined by behavior than by age. In a previous article with Forbes, Thoughtworks’ Enterprise Modernization Lead, Shodan Sheth refers to the “fitness for purpose.” It is the part of the estate that makes change too slow, too expensive or too risky. It is where product logic is hard to untangle, integrations are brittle, data is trapped, testing is cumbersome and every meaningful change creates disproportionate effort.

Why now?

The answer is not one thing. It is a combination of market pressure, competitive pressure and a meaningful shift in what is technically and economically possible.

First, the pressure on agility is rising. In P&C and general insurance, the growth of managing general agents (MGAs) reflects a broader bifurcation between agency and capital. Deloitte notes there are now over 300 MGAs operating in the UK, representing roughly 60% growth since 2019. That matters because MGAs are taking share in parts of the market through focused operating models, and technology is critical to how efficiently and effectively they can launch, service and adapt products. As more premium and fee income flows toward those models, the pressure increases on incumbent carriers whose product, pricing, servicing or delegated authority capabilities are still constrained by legacy estates.

Second, insurers themselves are saying the same thing in different terms. Adacta’s 2025 survey found that 46% of respondents cited inflexibility to adapt to market changes as a major limitation of current core systems, 46% cited integration challenges with new technologies, and 45% cited high maintenance costs. The same survey found that for P&C and general insurers, the leading issue was inflexibility in adapting to market change, while life insurers most often pointed to compliance with new regulations.

Third, regulation has sharpened the consequences of delay and, for some firms, can be a primary motivation for change. Board-level accountability has become much more explicit, and there is increasing focus on dependency mapping, important business services and third-party resilience. In the UK, the key operational resilience deadline landed on 31 March 2025, and the FCA’s new rules for operational incident and material third-party reporting comes into force on 18 March 2027. That does not mean every insurer modernizes because of regulation alone. It does mean regulatory expectations can turn legacy fragility from a technology concern into a more immediate business priority.

AI has changed the economics

This is the biggest shift.

Historically, legacy modernisation has often looked prohibitively expensive because the work starts with uncertainty: incomplete documentation, hard-to-understand code, scarce skills, slow testing and a high fear of breaking something mission-critical. That combination has made many programmes longer, riskier and more expensive than they needed to be.

AI changes that dynamic. Not by removing the hard work, and not by turning modernization into a push-button exercise, but by making it far more feasible to understand existing behavior, analyze dependencies, generate documentation, accelerate testing and support incremental reconstruction of critical systems.

AI changes that dynamic across legacy modernization more broadly. In the specific case of mainframe modernization, Thoughtworks’ partnership with Mechanical Orchard is relevant because it combines Thoughtworks’ engineering, delivery and transformation capability with Mechanical Orchard’s AI-powered approach to understanding and recreating system behavior in a more modern, maintainable form. But mainframe is only one part of the legacy landscape. For many insurers, the challenge sits just as much in policy administration complexity, brittle integrations, trapped data and change-heavy surrounding systems as it does in the mainframe itself.

In practical terms, AI has made legacy modernization more affordable because it reduces uncertainty, reduces manual effort in understanding the estate, and supports more incremental pathways to value. For insurers, that matters as much as the technology itself.

What insurers need to make modernization work

Technology is only part of the answer. The harder part is usually within the insurer itself.

Modernization succeeds when insurers are clear on two things.

The first is ambition. Many firms are still trying to create agility by buying something new at the edge while allowing the real bottleneck underneath to decay. Sometimes that is sensible. Often it simply relocates complexity. If the core estate still makes product change slow, data hard to access and servicing expensive, then the organisation has not solved the problem. It has just put a cleaner interface on top of it.

The second is sustained executive intent. Not sponsorship in the abstract, but a willingness to back a modernization path that is tied to business outcomes rather than framed as a technical clean-up. CIOs and CTOs are central, but they are not the only audience. In many insurers, CUOs, product leaders and operations leaders are living with the consequences of legacy every day: slow product adjustments, constrained underwriting workflows, poor visibility, cumbersome handoffs and delayed data. If modernization is not connected to those outcomes, it usually loses momentum.

That is also why the starting point matters. The best programs do not begin with a grand statement that everything must be transformed. They start where legacy is most clearly constraining value: a product line, a servicing capability, a delegated authority flow, a core integration bottleneck, or a claims process that has become too expensive to evolve.

The real prize

The real prize is not simply to retire old technology. It is to create an estate that can change at the speed the market now demands.

For life and pensions firms, that may mean reducing the friction involved in adapting products, journeys and servicing models while improving transparency across the estate. For P&C insurers, it may mean launching and adjusting products faster, integrating partners more easily, and giving underwriting and claims teams better access to the data and workflows they need. In both cases, the point is the same: insurers need to lower the cost of change. That also increases the importance of standards and interoperability across the market, not just internal platform renewal.

That is where the discussion now needs to move. For incumbents, the pressure is coming from several directions at once. In P&C, legacy can limit the ability to respond to faster-moving distribution models and changing partner expectations. In life and pensions, the challenge is different in form but similar in consequence: legacy makes product, servicing and operational change harder and more expensive than it should be.

At the same time, regulatory expectations make fragility harder to ignore, and AI has made a wider range of modernization paths economically credible. Modernization no longer needs to mean a single, high-risk replacement program. It can be targeted, incremental and tied to measurable business outcomes.

Thoughtworks’ recent membership of ACORD speaks to an important part of that shift. Modernization is not only about renewing internal platforms; it is also about improving interoperability across products, data and partner ecosystems, using standards where they add speed and coherence.

The insurers that move well now will be the ones that are clear-eyed about what is truly legacy, disciplined about where to start, and ambitious enough to modernize the parts of the estate that really determine the cost of change.

For insurers working through that question, the next step is not another abstract case for change, but a practical conversation about where legacy is constraining value today and how to modernize what matters most.


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