More companies, including insurers, are recognizing the imperative of updating their technology. But doing so certainly isn’t easy, and such projects often last longer and cost more than expected. In the following interview, Enrique Laso, executive vice president of information technology at MAPFRE USA, shares why the insurer embarked on a massive technology transformation, how it managed risk, and how it approached change management—ultimately succeeding both in meeting its goals and in bringing people along on the journey.
McKinsey: What prompted you and your leadership team to undertake a transformation initiative to modernize your technology stack?
Enrique Laso: Most carriers are, to some extent, taking on these types of projects because of a combination of factors: the change in the industry that we are seeing, the aging of the systems that we have been using, and the availability of more powerful offerings in the market. Also, in our case, we operate in several US states, and we have a variety of different solutions and systems. We needed to consolidate to create efficiencies in our IT investments. This transformation was particularly important in Massachusetts, where our headquarters is located. We needed to revamp our business processes and enable opportunities for digitization.
We had been postponing such a transformation for a number of reasons, including risk aversion, but it was time to bite the bullet. Initially we had thought of starting with other states where we have smaller businesses, but eventually we decided to do this where we can get the most impact: in Massachusetts.
We debated how to approach the project and how far to take it. We considered very different IT architectural approaches, including sequential phases to roll out the project, but eventually we decided to build a complete stack of technology separate from the one that was in operation. Not just the core—all the systems, a completely new platform, as if we were launching a new company. I must admit, it was a larger undertaking than any of us would have liked, but it was the most effective in terms of protecting the business from project-implementation issues.
McKinsey: What were some of the risks of this program? How did you handle development and rollout to account for these?
Enrique Laso: In a product like this, there are many different risks to consider. You have the traditional risks of any technology project: budget overruns, delays, and struggles with quality may interrupt the operation. Possible business disruption concerned us the most. The question was: how can we minimize the risks for our operation in Massachusetts during the project implementation and rollout?
We also had to think about potential data issues. With all legacy systems, you run into data issues when you are converting. If you are not aware of them and don’t work on them proactively, these issues get amplified.
Considering all these risks prompted us to build the whole stack of technology with all the systems completely self-contained. It’s easier to manage risk with something that’s more or less independent of the systems in operation. This allowed us to manage the project risks while building and testing, and then handle the main business risks in the rollout.
We designed the new business processes, we implemented the new systems, and we tested it the best that we could. We handled all these technical activities, as well as what we call “transformation readiness”: an important and focused change-management and training effort. Meanwhile, our product owners did a great job containing the scope as much as possible, knowing that the project was huge already.
We went live with the first segment of agents with one of our auto products in May 2020. Then throughout the summer, we opened the new systems up to more segments of agents and new products so that by the end of August 2020, all new business was being produced with the new systems. In September, we started the conversion of policies on renewal. So, the rollout has been a process, and we are finishing it now.
McKinsey: What technology choices did you have to make?
Enrique Laso: Because we were not just updating the core platform, we had to make a number of technology choices. We reviewed all the existing systems, including the core and what we call the “satellite applications,” to determine whether we were going to replace or upgrade them, and we ended up replacing most of them.
In all those instances, we had to make the traditional buy-versus-build decision and, wherever possible, we tried to buy. We were very selective about the areas in which we were going to build a system. And we put a lot of emphasis on the integration layer because we know how important it is. If you don’t get the integration layer right from the beginning, it can create significant problems. If you’re able to do it right, it’s a big advantage and becomes a key asset for the future.
If you don’t get the integration layer right from the beginning, it can create significant problems. If you’re able to do it right, it’s a big advantage and becomes a key asset for the future.
Whenever possible when making these decisions, we adopted SaaS [software-as-a-service] solutions. Even the parts of the integration layer that we developed internally, we did so in a way that can be deployed in the cloud easily. For the core itself, there was not a mature, solid SaaS offering at the time that we thought we could adopt for the magnitude of the project, so we eventually decided to do an on-site implementation.
Today, I don’t think you can do this type of project without considering the cloud.
McKinsey: What were the biggest challenges you faced, and how did you tackle them?
Enrique Laso: The most obvious challenge was the sheer volume of the project. So much had to be changed, affecting everything from the agent on the front line to the gateway used for payments.
A challenge at the very beginning was integrating the business and the IT staff to create a single team. There was no doubt this was a company undertaking, and we needed to build a single team comprising business architects and IT professionals to manage the project and bring everything together. Building this level of trust and coordinating the interaction among people takes some time, but if you can pull it off, it works fantastically. In our case, we were fortunate to have the right people who knew how to do this and who showed an amazing level of commitment and determination.
I especially appreciated the discipline and continuity that the business teams showed to facilitate the implementation and to avoid scope creeping, which can be incredibly damaging in terms of both planning and costs. The teams’ flexibility to adapt as things changed was key.
Finally, it was challenging just to maintain momentum and motivation over such a long, stressful period—particularly when the pandemic hit during the final, critical phases of the implementation and rollout. Though it was a challenge, it was fortunately a success story as well.
As you see, the challenges are not as much related to the technology as they are to the human component, which frequently happens in these types of projects. In our case, I simply could not be prouder of how our organization—at all levels—rose to the occasion.
McKinsey: About that human component: what specifically did you do to keep people engaged throughout the process? What was your approach to change management?
Enrique Laso: By far, the most important part of a project like this is change management—successfully making the change in how people work. It’s difficult, particularly when the systems that you are replacing—and, more important, the business processes that you are modifying—have been in place for many years. People understand their jobs through these systems. Changing all that takes time and effort; you need to win people over.
This was a company undertaking, so everybody—absolutely everybody in the company—needed to be on board. Getting them on board was a very deliberate effort, and I think that was one of the keys to our success. From the very beginning, the team leading our transformation-readiness effort was highly communicative. They created labs where people could start to see what the new system would look like and how it compared with the old system. They wrote many papers to describe the new system. They organized fairs to generate awareness and positive momentum. They ran multiple training efforts. I give them a lot of credit for how they mobilized the organization to secure adoption of the new platform.
Given the magnitude of this undertaking, we also needed to have all the support of our parent organization, the MAPFRE Group, to not only secure the investment on the project but also to back the technology, since our experience is an important reference for other projects similar to this one. We wanted to be able to apply all the learnings from this big project to the smaller-scale projects that we are doing in other geographies.
Other than that, wherever possible, we tried to assign people to work on the project full time. Because the business was still running, we wanted to prevent people from being spread too thin on different initiatives. While we had the support of very solid and committed vendors, we didn’t hire new people to run the project. The team that managed the program was staffed completely from within. And the company empowered the team, so the product owners and the technical leads were the ones making most of the decisions—even when we were choosing the technical solutions. There was a very well-defined and structured governance model for the project, of course, but the key was that those teams were empowered and supported by management. People felt that they were part of building something big and important for the company.
McKinsey: What have the results of the transformation been? Did you reach your goals?
Enrique Laso: Before the project was launched, during the approval and brainstorming process, we conducted several workshops to try to anticipate what the results of this project would be. We weren’t necessarily looking for just a financial ROI, but since we were transforming the business processes and enabling new digital capabilities, there was an expectation that the business would benefit from the effort. We had conversations about the types of synergies or efficiencies we would be gaining and the new capabilities we would develop.
In terms of technology costs, the business case was definitely met, but we were probably too optimistic about when business outcomes would be achieved. We underestimated the complexity of and the difficulties during the conversion period as people are using both platforms—serving existing customers in the old platform while new customers and policies on renewal are coming into the new platform. Once we’re through this transitional period, I believe the efficiencies gained will be higher than what we expected. It’s also much easier and quicker to launch new products or enable new functionality with the updated system than it was in the past. In addition, the competences learned by our team have put us in a much better position to take on new challenges.
We missed our target implementation date by only one month. Considering the impact of COVID-19, which hit us toward the end of the project, missing that target was not surprising. More important, we managed to roll out the project within the time frame that was originally planned. So, in this respect, the project was very successful.
I think our achievement was possible because we had good program management and planning, but that will take you only so far. In a project of this magnitude and over such a long period of time, you have to be able to adapt to the many changes in circumstances. I wouldn’t say that we strictly follow a particular agile technique, but on the project as a whole, we definitely adopted agile principles and worked to be flexible whenever possible. People’s commitment and hard work did the rest—and, to the credit of our team, it worked.
McKinsey: What’s next?
Enrique Laso: This is just the beginning. We like to think that this was the minimum viable product that we could launch and there is still a lot of work that we can do on top of it. We see that this type of improvement is much more feasible now than it was in the past. The first step is to stabilize the whole system and keep standing it up in the states in which we operate. We also will be adding new products and migrating to the cloud.
Implementing the new core systems was a massive change, but it’s just the foundation. The big difference in the future will likely come from the data component of our business. So improving our advanced-analytics capabilities and operationalizing new algorithms to better serve our customers is our next frontier.