For many insurers, delaying core modernization can appear to be a sensible way of managing risk. Their core systems keep operating reliably, they meet their regulatory obligations and they avoid disruption. In an industry where stability and control are paramount, postponing large-scale change is therefore often viewed as a prudent choice.
However, while the immediate risks of modernization are clear, the costs of delay are less obvious. Over time, deferring the modernization of core systems increases complexity, adds operational risk and makes transformation initiatives difficult and disruptive. It also limits insurers’ ability to innovate, as their delivery capacity is consumed by maintaining existing systems rather than introducing new capabilities.
As a result, their competitiveness erodes gradually. Product enhancements take longer to deliver, process improvements are deferred — or, in the case of agentic AI, even become impossible to implement — and opportunities to differentiate through new services are missed.
Their systems may remain stable, but their business becomes less responsive to market change overall, creating an opportunity for more agile competitors to advance faster.
When stability masks growing complexity
Insurance core systems are designed to run consistently and accurately. As long as policies are issued, claims are paid and reports are produced, the environment appears stable.
However, beneath the surface, complexity accumulates. Each workaround introduced to meet a new requirement, each point integration added to connect systems and each technology-specific exception handled manually contributes to a more intricate operating environment.
Individually, these changes are manageable. Collectively, they make systems harder to understand, test and modify.
Because these effects build gradually, they are rarely treated as urgent. The system continues to operate, but the effort required to change it increases disproportionately.
Skills risk increases as legacy estates age
Another consequence of delay is the growing reliance on a shrinking pool of legacy expertise. Many insurance environments depend on older technologies that fewer engineers are trained to support. Over time, knowledge becomes concentrated in a small number of individuals.
This introduces operational risk that is easy to underestimate. When critical knowledge is not widely shared or documented, routine changes take longer and unexpected issues are harder to resolve. Recruitment becomes more difficult, onboarding slower and succession planning more complex.
As a result, the cost of maintaining existing systems rises.
Deferred change increases security and compliance exposure
Security and compliance requirements continue to evolve, regardless of whether infrastructure does. Legacy platforms were not designed with modern threat models, data protection standards or audit expectations in mind.
When modernization is deferred, insurers often address new requirements through compensating controls. Additional monitoring tools, manual checks or parallel reporting processes are introduced to bridge the gap. But while these measures can reduce immediate exposure, they also increase operational overhead and complexity.
Over time, maintaining compliance becomes more effort-intensive. Each regulatory update requires more coordination and validation, increasing both cost and risk. And the longer modernization is postponed, the harder it becomes to adapt systems to meet new obligations.
Delay compounds future transformation risk
Perhaps the most significant hidden cost of deferral is its impact on transformation efforts. When change is postponed, technical debt quickly accumulates, dependencies grow and documentation becomes outdated. The scope of what needs to be addressed expands.
As a result, the insurer’s next transformation program must tackle more issues at once. An incremental modernization turns into a large, high-risk initiative: Timelines extend, budgets increase and stabilization periods lengthen.
This creates a vicious cycle. Because the next program is larger and riskier, the insurer becomes even more cautious about starting it. Delays increase and complexity keeps growing.
Inaction carries long-term risk
It’s easy to view core modernization as optional until a clear trigger appears, and short-term stability can be reassuring. In practice, however, delaying it has cumulative consequences. Complexity, cost and risk continue to rise even when change is not immediately visible.
Deferral may avoid near-term disruption, but it often makes future changes more difficult and less predictable. These hidden costs rarely appear on a balance sheet or risk register, yet they affect long-term competitiveness and resilience.
This does not mean insurers should rush into large-scale transformation programs. It does mean recognizing that inaction is not neutral. Leading insurers understand that the question is not whether to modernize, but how to do so in a way that reduces long-term exposure rather than increasing it.
WHAT TO DO NEXT
Read the NTT DATA ebook, Driving intelligent change in insurance, to explore how insurers are addressing core modernization constraints in a controlled, value-led way.