Talk concerning the benefits that Web services can bring to the insurance industry has run rampant during the past few years. But talk is cheap-and Web services, on the other hand, can be expensive. That leaves one perplexing question: When will carriers actually let go of the purse strings and invest in this promising technology?Certainly, all the chatter about Web services should make insurance companies interested in-or at the very least curious about-the vast potential that the technology holds. Based on open, standard protocols, primarily XML, Web services expose an application or data on one computer to requests from other computers without using proprietary interface languages.
With Web services, insurers can easily integrate internal applications, presenting a consistent view of business data over multiple applications through structured and controlled transactions.
In addition, the technology can be used to integrate business-to-business applications, thereby altering external business partner transactions. And, by using Web services, insurers eventually will be able to facilitate the development and deployment of applications accessed by Web, mobile and office devices, according to Wipro Technologies, an IT services company based in Bangalore, India, in a white paper, titled "Web Services for Insurance Industry."
The benefits of using Web services for such integration include reduced operating costs, decreased time spent on standard processes and practices, improved customer service, increased revenues and improved internal development, according to a survey by MapInfo Corp., a provider of location intelligence solutions based in Troy, N.Y. (see "Most Important Benefit of Web Services").
Certainly, early adopters of the technology have proved that Web services can help insurers operate in a whole new realm, moving from merely using the Internet as a publishing tool to tapping it as a means to integrate applications within and across organizations.
Nonetheless, many insurance companies have yet to deploy Web services. But the tide could finally be changing.
While only time will tell for sure, many industry experts are now predicting that insurers will finally get past obstacles such as security, cost and stagnant corporate cultures to finally move toward realizing all of the benefits associated with Web services.
Certainly, the positive experiences of early adopters should prompt other insurance companies to at least start thinking about Web services.
For example, Standard Life, an insurance company headquartered in Edinburgh, Scotland, has reaped significant benefits as the result of implementing a standard operating architecture (SOA) and reusing business services via Web services.
Standard Life uses WebSphere Business Integration Message Broker software from IBM Corp., Armonk, NY, to integrate legacy applications with Web services, enabling the company to introduce new services and share them with key constituents whenever necessary.
The company uses IBM Rational Application Developer for WebSphere software and IBM WebSphere Application Server software to develop and deploy Web services in an integrated, open-standard-based development environment.
According to a case study published on the IBM Web site, with these Web service capabilities in place, Standard Life has been able to reuse more than 50% of its services, contributing to savings of more than 3 million pounds.
Similarly, the fourth largest mutual insurance company in the United States, Guardian Life Insurance Co. of America Inc., New York, has reduced new technology costs by about 30% by implementing Web services, a savings that has more than paid for the company's initial eight-figure investment, according to a report from Celent Communications Inc., a financial service research and advisory firm in Boston.
While these large companies are demonstrating just how Web services can help, many smaller insurers have remained on the sidelines-for a number of reasons, including cost, legacy systems and security (see "Obstacles to Web Services," page 19).
The question, now, however, is: Can insurers move beyond such obstacles-or as some might say "excuses"-and follow the lead of the trailblazers?
A look at the some specific roadblocks and how insurers might get over them in the near future sheds more light on the situation:
SECURITY. For many years, insurers have steered clear of Web services due to security concerns. Certainly, Web application interfaces can have multiple points of entry, enabling hackers to attack and compromise systems.
But security is not the wet blanket it once was, according to MapInfo's survey. In fact, respondents ranked security third out of six roadblocks to Web services implementation.
Indeed, security vendors have stepped up to the plate with products that enable IT developers to separate Web services security from the Web services themselves, says Marc Chanliau, director of product management at Computer Associates International, an Islandia, N.Y.-based management software firm. As a result, developers do not have to develop separate security protocols for each application.
"If you are building security into each Web services application, then you have to do it 2,000 times if you are building 2,000 applications," says Chanliau. "If you are building it outside of the application, however, you just have to do it once."
With products that enable companies to successfully deploy security measures outside of Web applications, as well as other security options available, security should no longer be a stumbling block, says George Foulke, vice president of individual business technology at New York-based Metropolitan Life Insurance Co. (see cover story).
"Anyone can do it. The security products are available. And, many smaller companies don't have the need to secure as many applications as bigger companies. So, the scope of the challenge typically is equal to the level of resources available," he says.
Craig Bedell, director of insurance strategy at MapInfo also says that companies should get past the security concerns.
"Web service applications and products are being built with security in mind. Security has evolved substantially and, as a result, I just don't think security is as much of an issue as it once was," Bedell says.
COST. Coming up with the funds to initiate a Web services program, however, might be a more daunting challenge for insurers.
Because insurers typically make money by acting conservatively, most will not rush to invest in a newer technology, says Larry Fortin, vice president of the insurance practice at Edgewater Technology Inc., an IT consulting firm in Wakefield, Mass.
But the tide is about to change, he predicts. "Insurance companies spent a lot of time and money on the year-2000 computer problem. Then, they rode out the downturn in the economy and held tight."
"Now that the economy is recovering, they will be looking at the next big thing. And, many of them will be moving toward Web services," Fortin says.
Research from Celent Communications corroborates this observation. Based on responses from 27 senior IT executives at U.S. insurers, the focus of IT spending has shifted from cost-cutting to profitability and supporting growth initiatives, states Celent in a report titled, "2004 Insurance CIO/CTO Survey Results." While budgets are still somewhat flat "CIOs seem to be more forward looking."
CORPORATE CULTURE. The problem, however, might not be how much money the insurers have to spend, but how willing they are to part with their cash. While many insurers are hip to the idea of Web services, most do not want to be among the first to actually spend money on the technology, says Ric Young, president of Strategic Insurance Systems Initiative Group, a consulting firm based in Dallas.
"You have wildly successful membership at ACORD. So, it's obvious that insurers are interested in Web services and are buying into the concept," Young says. "However, very few carriers are actually applying the technology. They are waiting for the next carrier to build momentum and then they will jump on the bandwagon.
"I've had CEOs at carrier companies tell me that they really like the solution, but they want to be the 10th customer, not the first. It's sort of a group psychology thing," he says.
In addition, many companies simply do not want to deal with the idea of replacing or altering their legacy systems to accommodate Web services.
But company cultures are bound to eventually change, especially as more technology-savvy employees replace the old guard, says Edgewater's Fortin.
"At a lot of companies, internal champions of the technology will begin to tout the benefits of Web services-and then you will see companies start to make the investments in the technology," he says.
In addition, outside pressures will force insurers to take the plunge and deploy Web services, Young predicts.
"There will be a point where outside organizations, such as dealers selling their products, will demand the service," he says. "If they don't get the service, they will turn around and start working with someone else. So, when these outside business needs create enough pressure, then the vertical market of the insurance industry will start to react en mass."
John McCormack is a freelance writer based in Riverside. Ill.
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