Best's Review


At Large
An Insidious Risk

Technical debt is like a leaky pipe waiting to wreak havoc on a homeowner.
  • Bill Pieroni
  • January 2021
  • print this page


Insurers, obviously, are in the risk management business. There is no other industry better equipped to identify, understand and mitigate risk. However, a troubling number of insurers continue to ignore one of the most profound risks to their own business—technical debt.

Every year, ACORD assesses the state of the industry globally. One area we consider is the level of digital maturity at the carrier level. In 2020, as in previous years, we found that the top tiers of digitally mature insurers materially outperformed their less-digitized competitors across growth, profitability and shareholder returns. They largely achieved this by systematically investing in technology, aligned with strategic intent, for extended periods of time. Notably, it wasn't just the scale, or duration, of this investment that mattered. These insurers also had a keen understanding of exactly how and where to invest.

Potential investment areas across the enterprise can be examined along two dimensions: value potential (creation vs. destruction) and investment tangibility (explicit vs. implicit). It is relatively easy to allocate resources to optimize the impact of value-creating explicit capabilities like underwriting or claims software. However, sustainably investing in high-value potential, implicit capabilities is where most resource allocation mechanisms fail. Research indicates that for a significant number of carriers globally, architecture and infrastructure investments are regularly deferred, creating significant risk in the form of a technical deficit.

The more explicit the capability issues or opportunities are, the easier it is to identify and resolve them. Because explicit capabilities are often monitored across common metrics, they make their presence relatively obvious. High-performing, digitally mature insurers engage in a more continuous and thorough technology assessment process. This supports the identification of, and investment in, value-creation opportunities across both explicit and implicit areas.

Value-destroying implicit capabilities—what we call technical debt—are a much more insidious danger. Unlike explicit deficiencies, they often accumulate unnoticed over time. Because these are not the sort of liabilities that show up on balance sheets, they do not regularly draw the attention of leadership or shareholders—especially given the pressure to produce near-term results.

In fact, technical debt can be tempting to ignore. Reducing expenses by underinvesting in architecture and infrastructure can provide a near-term income statement benefit. This makes technical debt an even more pernicious danger, as it creates a false sense of security and success which masks the true risk. At some point, the accumulated technical debt will reach an event horizon—a point where the time, scope and resources required to address it are simply too great.

Insurers who allow themselves to accumulate technical debt are like homeowners who ignore their failing pipes until they burst and flood the house beyond recovery—unlike their neighbors, who took on the (ultimately lesser) financial burden of maintaining their pipes properly. Put another way: Would you pat yourself on the back for saving money by avoiding regular oil changes—after all, the car seems to be running fine without them—until the engine fails and you're facing a much more expensive problem?

Successful insurers sidestep the “boom and bust” cycle of IT spending, and invest continuously and systematically for renewal, stewardship and long-term positioning. By avoiding technical debt, they are able to reap the benefits of digital maturity.

Best’s Review contributor Bill Pieroni is president and CEO of ACORD. He can be reached at

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