Smart insurance systems solutions
Faced with increased competition, commoditisation of traditional
offerings and changing consumer needs, insurance companies are demanding
that their IT systems be the key business enabler to provide an
innovative response. IT departments, on the other hand, are faced
with enormous challenges to respond whilst hamstrung with a patchwork
of product systems that are complicated, poorly integrated and expensive.
Realising that there is no quick fix, forward looking insurance
companies are making significant investments in a more modular approach
to architecture. Rather than focussing on technology to solve tactical
problems, they are adopting a long-range view of the overall enterprise
architecture, resulting in lower cost of ownership and decreased
lock-in to any particular technology. This enables them to make
sensible decisions between ripping out old systems and replacing
them or leaving them in place and leveraging what is there.
Ripping out and replacing the old
Although ripping out and replacing legacy systems seems attractive
as new visions of ease of use and flexibility are exhorted, it has
key disadvantages. A one size fits all IT approach makes the scope
too broad, resulting in ballooning costs and untenable delivery
dates. A case which comes to mind is that of a major general insurer
where the new system that was replacing a number of legacy systems
has now joined them as an additional legacy system. Quite simply
the business moved on whilst the five year build and conversion
was taking place.
There are success stories of “out with the old, in with the
new within a year” and these are the ones the vendors love
to write case studies about. Look closely, however, and you will
find that it is usually a subsystem or a product system of a small
insurer not the replacement of several core insurance product systems.
So, what strategies are companies using to replace the old green
screen insurance systems that are hampering business performance?
Leave and leverage
Rather than ripping out and replacing they are shrinking their
legacy systems gradually by removing functionality into new modules
and in some cases giving those green screens a new front-end with
additional functionality. These new modules bring together similar
functionality that can be used by a number of systems. This is done
progressively until the legacy system eventually serves only as
a partial database or is retired.
Rating engines, for example, have existed for some years outside
product systems, overriding or supplementing product systems rating
functionality. A key advantage is that the rating rules for several
products can be maintained and updated in one place without the
need to change each product system.
The more innovative insurers are externalising hard coded product
information within legacy systems into a separate module. The business
can accelerate this process by examining their portfolio of products
and services and rebalancing it in light of the value of variety
(from a customer’s viewpoint) and the cost of complexity.
In doing this they will help define a clear product architecture
that brings together product-related information into a single place
that can be referenced by other systems. Often called product configurators,
these pieces of software automate and isolate the complexity and
time taken to define new customised products.
A challenge often faced with multiple product systems is the ability
for service staff to get a single view of what products a customer
has. This can be done by creating a separate customer module that
acts as an index to legacy system customer records and presents
a single list of business relationships with that customer. It can
be extended to act as the new centralised customer database and
used as a vehicle to gradually get rid of legacy systems.
This increased modularisation now paves the way for the next step
in smart sustainable enterprise architecture - that of a Services
Oriented Architecture (SOA). According to Forrester research, in
2005, 89% of large organisations were moving towards a services
oriented architecture. Note the emphasis is on “moving towards”
– this is a gradual process.
Simply put, SOA it is a collection of services that communicate
and thus integrate with each other. The services referred to in
SOA are business services, e.g. “get customer data and policy
details”. These service points can then be combined to perform
a business process, e.g. “renew customer motor insurance”.
The key advantage is reusability and of course the promise of giving
new life to legacy systems by packaging parts of tried and tested
applications as a service.
The hype about SOA is at its peak and no product, no matter how
much a vendor promises, will automate an SOA. SOA is simply set
of best practices and it takes persistence, hard work and discipline.
Nor is SOA the answer to every integration challenge. In the meantime
insurance companies are still saddled with older integration architectures
like Enterprise Architecture Integration (EAI). Again, forward looking
insurers are looking for ways that SOA can compliment existing architectures
and are in some cases implementing the Enterprise Service Bus (ESB).
ESB is a Web Services aware revitalisation of traditional EAI solutions.
Where does this leave you, as business owner?
As business owner who has just been presented with the proposed
new systems architecture, how do you know that it is leveraging
your current IT investments and will support your needs for tomorrow?
Your systems architect should be able to demonstrate the following:
- Which business needs are driving their architectural design?
(e.g., speed, flexibility, reduced costs, product flexibility)
- What are the key issues and challenges they face transitioning
towards this architecture? (e.g., restructuring applications,
data migration, skilling, staff training, time taken?)
- What in concrete terms can this architecture do for the business?
(e.g., customer needs met faster, quicker access by staff to information,
faster time to market with new product packages or product changes)
- What is the ROI on the new investment and does it take into
account retirement of existing systems?
- Is there a clear justification for building solutions (in-house)
- Is there a transition plan with major milestones that includes:
- the impact on service staff,
- leveraging of current IT assets
- Have they provided references to others in the insurance industry
or related industries who implemented this approach successfully?
We have taken a new look at old “rip and replace” vs.
“leave and leverage” philosophies in light of the trend
to increased modularisation of system components. In addition, as
business owner this provides you with guidelines to help you assess
system architectures in terms of business outcomes.
For further information on the ideas outlined in this article please
contact us for an obligation free discussion.
Donna Vaughan and Desne Doman are the authors of the e-book:-
Mercenaries - Manage your consultants or... they will manage you"
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Insurance systems solutions(PDF)
|“Fortunately, the key issues in IT aren’t technical,
but managerial. Making good IT decisions is something that all
executives can do, provided they use a sound evaluation methodology
and take the trouble to develop their business and IT judgement.”
The McKinsey Quarterly 1998 Number1