Modernizing legacy systems: A blueprint for Canadian insurers

This article was also authored by Prithvi Srinivasan, Partner, Technology, Strategy & Digital Transformation, Digital Insurance, KPMG Canada and Andrea McCausland, Director, Risk Consulting Services, KPMG Canada

Canadian insurers rely on a wide range of core systems to support policy administration, claims, finance, and customer management. Many of these platforms were built or acquired over different eras and through industry consolidation, leaving organizations with multiple versions of ageing or disconnected systems. These systems often have limited integration, inconsistent data structures, and shrinking pools of experts who fully understand how they work. As customer expectations rise and regulatory requirements become more demanding, the constraints of these older, fragmented systems are becoming increasingly difficult for insurers to navigate. Modernization is no longer a technology upgrade, it's a strategic imperative that directly shapes insurers’ ability to compete and operate safely. This article explores the market forces driving change, the risks and opportunities involved, and how insurers can take a practical, sector‑aware approach to modernization.

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Why market pressures are accelerating legacy modernization in Canada

Canadian insurers are facing mounting pressures that make legacy system modernization not just beneficial, but urgent. Operational risk is a key concern: aging employees are maintaining older, disconnected systems with limited documentation and dwindling expertise. According to KPMG’s Global CEO Outlook, employee retirement and a shortage of skilled workers is cited as insurance CEO’s top labour concerns, with generational skill gaps close behind.¹

In contrast to Europe, where regulators can impose capital add‑ons tied to operational risk, effectively creating financial pressure to modernize outdated systems, Canadian insurers do not have equivalent incentives. Without this external regulatory push, Canadian insurers must take a more proactive stance in addressing system fragility and emerging workforce risks before they become critical.

The operational risks posed by legacy systems are compounded as experienced staff retire and expertise dwindles. In Canada, the absence of financial incentives to hire skilled workers means insurers must address these vulnerabilities before they become critical.

Gavin Lubbe

Partner, Management Consulting and Regional Lead, Data & Analytics, KPMG Canada

At the same time, regulatory expectations are rising. OSFI’s E‑21 and B‑13 guidance requires insurers to demonstrate strong data lineage, resilience, and clarity around critical operations – standards that fragmented legacy systems struggle to meet. Meanwhile, customers increasingly expect digital, self‑service, always‑available experiences. Insurtech competitors have raised the bar further by offering fast, intuitive digital journeys.

Cybersecurity pressures are adding urgency as well. Eighty‑three percent of insurance CEOs identify cybercrime and cyber insecurity as the biggest barrier to organizational growth, underscoring the need for resilient, modern platforms. And advancing digitization and connectivity is now the top operational priority for insurers, reflecting the push to improve both customer and employee experiences.²

While all insurers feel these pressures, their modernization needs differ:

Workers compensation

AI‑enabled triage and automation shorten case durations and improve outcomes.
Life and health

Highly fragmented books require benefit rationalization and stronger actuarial and data lineage capabilities.
Property and casualty

Catastrophe‑driven claim surges demand scalable, cloud‑based systems that can absorb sudden spikes in volume.

Balancing the benefits and risks of modernization

Modernizing legacy systems offers Canadian insurers major advantages, but it also introduces risks that must be managed carefully. The benefits are compelling: modern platforms deliver a more seamless customer experience through real‑time access and intuitive digital self‑service. Automation reduces manual effort, allowing teams to focus on higher‑value work and improving both speed and accuracy. Stronger data governance and auditability help insurers meet evolving regulatory expectations with greater confidence. Modernization reduces dependence on a shrinking pool of legacy‑system experts and strengthens operational resilience by addressing vulnerabilities in aging technology.

However, the most significant risk now is the risk of inaction. Each year that insurers remain on legacy systems, technical debt grows, modernization costs increase, and regulatory expectations rise, creating a widening gap that becomes more expensive and complex to close.

Modernization challenges remain. Migration can be costly and disruptive, especially for organizations with decades of fragmented data that must be consolidated and cleansed. This is also where insurers should more intentionally explore emerging AI capabilities: AI‑assisted data profiling, mapping, cleansing, and reconciliation can accelerate data migration and improve quality which reduces downstream rework, audit issues and conversion risk. Cloud‑based platforms can introduce unexpected operating costs due to consumption‑based pricing models. And as insurers rely more heavily on a small number of technology vendors, concentration risk increases, making robust continuity and contingency planning critical.

Modernizing legacy systems unlocks efficiency and better customer experiences, but also brings challenges, from migration cost to cloud and vendor risk. Success depends on balancing these with careful planning.

Catherine Nadeau

Partner, Information Management, Data and Analytics, KPMG Canada

The impact is clear: insurers that remain on outdated systems risk misadministration and regulatory exposure, including heightened scrutiny, compliance deficiencies, and potential penalties, while those that transition successfully to modern, cloud‑enabled platforms can reduce operational risk, improve service quality, and accelerate decision‑making. Ultimately, success depends on a strategic, measured approach that captures the benefits while mitigating the risks. In many cases, pairing technology modernization with broader business transformation is essential to maximize ROI – rethinking the business matters as much as choosing the technology.

Legacy modernization creates the greatest impact when it’s intentionally aligned with finance transformation. While cloud ERP can be a powerful enabler, the real value comes from modernizing core systems in a way that strengthens data consistency, controls, and insight across operations and finance – turning technology change into a foundation for better CFO decisions and long term resilience

Gui Iglesias

Partner, FS Finance Transformation, KPMG Canada

Modernization strategies: Buy vs. build, cloud and incremental approaches

As Canadian insurers work to overcome the limitations of legacy systems, selecting the right modernization strategy is critical for improving resilience, compliance, and competitiveness. Whether buying an off‑the‑shelf platform, building custom capabilities, migrating to the cloud, or taking an incremental approach, the decision must balance regulatory demands, long‑term scalability, overall enterprise solution and data architecture, and available resources.

In practice, most insurers favour buying proven platforms rather than building complex systems internally. Purchased solutions offer faster implementation, lower development risk, and the benefit of vendor‑driven innovation that keeps pace with evolving regulatory expectations. AI is now a top investment priority for 73% of insurance CEOs, with 67% expecting to see returns within 1–3 years.³ This signals that vendor roadmaps and ecosystem partnerships can accelerate value realization.

Given the pace of regulatory change and the complexity of modern insurance operations, there’s limited appetite to build core systems internally. Vendor‑supported platforms offer a faster path to compliance, scalability, and innovation.

Alison Rose

Partner, Actuarial, Risk and Insurance Services, KPMG Canada

Key lessons learned:

Redesign processes first

Modernizing without rethinking workflows only recreates old inefficiencies.
Use incremental, high‑value migrations

Prioritize customer‑facing and high‑volume areas first; save the most complex integrations for later stages.
Be strategic in procurement

Choosing the wrong platform or vendor can derail modernization, making careful evaluation essential.
Use AI to de‑risk and accelerate migration

Explore AI‑enabled tools to improve data discovery, mapping, conversion testing, and reconciliation—helping insurers migrate faster while improving migration quality and control.

Meeting Canada’s evolving regulatory and resilience expectations

Canadian insurers are operating in a rapidly shifting regulatory landscape. Federally regulated financial institutions (FRFIs) must now meet OSFI’s guidelines E‑21 and B‑13 which place stronger emphasis on operational resilience, technology and cyber risk management, data integrity and lineage, and the ability to withstand and recover from disruptions. Insurers operating in Quebec also face additional requirements under AMF guidance, further reinforcing expectations around governance, critical operations, and system reliability. Together, these frameworks indicate a shift away from assessing business lines in isolation and toward evaluating the strength of insurers’ full operating environments. With 77% of global insurance CEOs concerned that the pace of regulatory progress could hinder organizational success, modernizations that support both compliance and resilience are becoming increasingly essential.⁴

Legacy systems make this difficult. Limited integration, weak data lineage, outdated architectures and constrained capabilities such as data and PII deletion, undermine insurers’ ability to identify critical operations, respond quickly to incidents, and demonstrate compliance. Regulators now expect insurers to understand how their systems connect, where vulnerabilities exist, and how efficiently they can restore services.

Recent regulatory changes emphasize operational resilience, requiring insurers to identify critical operations, strengthen system integration, and demonstrate their ability to recover quickly from disruptions.

Andrea McCausland

Director, Risk Consulting Services, KPMG Canada

Modernization introduces new considerations, most notably vendor concentration risk. As more insurers rely on a small number of cloud and platform providers, continuity planning, data quality, and system integration become essential. The organizations best positioned for the future will be those that modernize in a way that strengthens resilience, reduces dependency risk, and ensures they can meet regulatory expectations with confidence and agility.

Critical success factors for modernizing legacy systems in insurance

Successful modernization requires more than new technology, it demands clear priorities, aligned teams, and disciplined execution. Insurers that want to succeed need to define a focused scope, bring together cross‑functional expertise across business, technology, actuarial, and regulatory functions, and apply realistic cost–benefit analysis that considers long‑term operating costs and cloud consumption. They invest early in change management to drive adoption, and strengthen data and AI literacy. According to the latest insurance CEO Outlook report, two top growth constraints are AI workforce readiness and upskilling (77%), and competition for AI talent (75%) – elevating the importance of change enablement and talent strategy in modernization programs.⁵

Key actions to drive modernization:

Assess the current state

Identify technical debt, operational risks, and vulnerabilities.
Redesign processes first

Improve workflows before adding new technology.
Develop a holistic business case

Tie modernization to digitization, customer experience, compliance, and cost efficiency.
Select the right modernization path

Determine the right mix of buy, build, cloud, or incremental approaches.
Plan for operational resilience

Mitigate vendor concentration risk and strengthen continuity planning.
Engage stakeholders early and often

Build alignment across functions and leadership to drive consistent progress.

The future of insurance modernization in Canada

Modernization will reshape the Canadian insurance industry by accelerating digital experience, improving underwriting and claims accuracy through AI, and enabling climate‑aligned risk insights. Seventy‑two percent of insurance CEOs say sustainability is embedded in strategy and business models, and 77% see AI enhancing climate‑risk modelling and scenario planning, which signals that modernization is as much about resilience and ESG as it is about speed and cost.⁶ It will also transform the workforce, allowing teams to shift from manual tasks to higher‑value decision‑making.

For insurers, core modernization is no longer a technology upgrade – it’s a board-level growth and survival imperative. Legacy cores constrain regulatory responsiveness, limit speed to market, and leave carriers exposed to digital-first competitors. Insurers that invest now in modern, modular, and cloud-enabled cores will be the ones that adapt faster, innovate with confidence, and deliver the seamless experiences the next generation of policyholders expects. The rest will spend the next decade trying to catch up.

Prithvi Srinivasan

Partner, Technology, Strategy & Digital Transformation, Digital Insurance KPMG Canada

How we can help

KPMG supports insurers throughout their modernization journey, from assessing legacy environments to designing future‑ready architectures and delivering complex transformation programs. Through our Connected Enterprise approach and deep expertise across business, technology, and regulatory domains, we help insurers modernize confidently and build stronger, more resilient organizations.