Far from being passe, virtualization is still a vital concern among IT professionals these days. While there are many instances of carriers that have virtualized everything from their desktops to their servers to their entire office staff, there are just as many insurers, if not more, still holding back on some level. And while their reasons for abstaining are no doubt legitimate, maybe carriers should reassess whether the risk/reward ratio has changed.

There are a number of different ways virtualization is currently being employed in the insurance industry, with server virtualization probably the biggest technology trend of the last few years, according to Andrew Reichman, senior analyst with Forrester Research Inc., Cambridge, Mass. Server sprawl, he believes, is a major issue for most insurers, with each department and application team deploying new services and, generally, doing it with physical servers. As a result, there's little ability to keep track of all the servers, with many having low-utilization of CPU, cache or disk space that might be on board. Additionally, the mix is difficult to manage, inefficient and costly, says Reichman.

"Server virtualization allows you to have a big server that can be partitioned into many virtual servers," he explains. "When a team deploys a new service or new application, they'll typically just create a single partition, and put that out there rather than buying a new physical server and configuring and running it. What virtualization gives you is faster time to provision, so you don't need to wait for shipping or physical implementation (racking, stacking, plugging it in, etc.). You have a physical machine that's there ready to go, and you just create a space on it."

Typically, between 10 and 40 physical servers can be converted to virtual images within one large physical server, Reichman says. Doing this allows you to use more of the CPU, cache, IO and disk resources on the virtualized server, as well as realize major power savings.

"It's generally more efficient to do each of those images on a single physical server," he continues, "as you're sharing power supplies across each of the images. Before, every small server would have two power supplies and would draw a good amount of power. So with virtualization, you're using far less power."

One insurer capitalizing on these benefits is Nationwide Services Co., Columbus, Ohio, which began its virtualization push in 2004. With more than 5,000 servers running with 10% or lower utilization, there was an easy business case to be made to virtualize the seemingly endless stacks.

Scott Miggo, VP, technology engineering for Nationwide, says the company started with two types of virtualization - working with Xilinx Inc., San Jose, Calif., solutions on the mainframes, and Palo Alto, Calif.-based VMware Inc. on the Intel-based servers.

Leveraging VMware, Miggo's goal was to eliminate from 500 to 700 servers each year for the next three years. So far, his team has pared the data center down to about 3,500 physical servers, including about 100 that are running around 1,000 virtual servers. They plan to eliminate another 800 physical servers in the next year, and add about 40 virtual servers to handle the additional workload.

"As a result of our efforts, we've freed up a ton of space in our data center, and are seeing a great reduction in power consumption," Miggo says. "We have a large data center that was running near maximum capacity on power, and there wasn't really space to put in any more back-end power systems. While we're still looking at potentially having to build another data center in the future, we've been able to delay that. When we initially thought we were going to run out of power by 2012, it's now going to be closer to 2014 or 2015 before that happens."


Often a part of the broader virtualization and Software-as-a-Service (Saas) discussion, cloud computing also has come to the forefront of insurers' IT strategies. And while there are similarities, overlap and evolutionary footprints tying the three terms together, none of them are exactly synonymous.

To clarify, the concept of virtualization is both an abstraction of hardware and, in some cases, software, depending upon what layer is being discussed. But it's really about taking something physical and abstracting it from its physical nature for the purpose of delivering a product to customers and end users, says Ed Martinez, VP, information systems in Newark, N.J.-based Prudential Financial's corporate operations & systems department.

SaaS, on the other hand, is typically a hosted application to which a carrier would connect via the Web. With SaaS, the intention is for users to simply see a screen that displays the application. Access to this application, generally, is paid for over time, and often eliminates an initial outlay of capital.

"Cloud computing is similar to SaaS," Reichman explains, "but there's an element of flexibility associated with the delivery of SaaS that's geographically dispersed and, typically, will involve shared tenancy, where SaaS may or may not be a dedicated server or dedicated storage equipment for each individual business user. There are slight shades of distinction between cloud computing and SaaS, but cloud is the latest-hyped reincarnation of SaaS, which has been around for a while."

Cloud computing is more than a fresh coat of paint on SaaS, says Jon Bock, senior manager, product marketing with VMware Inc.

"Cloud computing is basically the pooling of internal resources," he says. "People often think of it in terms of leveraging a third party's resources; but it goes beyond that to how you more efficiently pool your own internal resources. So we often talk about customers turning their own internal IT into a kind of internal cloud, and being able to leverage that using virtualization."

Martinez considers all three terms to really be virtualization, but "depending on who you're talking to - a software developer or a server person - they're going to view them as different because of the different layers," which may account for all the divergent points of view. "The terms are used as they're convenient, but I really just think it means virtualization of hardware."


As part of a carrier's virtualization strategy, cloud computing can take some of the capital expense and risk away from the user. This is a key benefit, says Nationwide's Miggo, who has been working with VMware since 2004 to cull servers from the company's data center.

"If I were to buy a piece of hardware for some type of new development, but then decide not to move forward with it, I'm stuck with the capital expense," posits Miggo. "I think, especially right now, cloud computing seems like a great opportunity to go out and do a great deal of new development, proof of concepts and other things that you're not too sure are going to go forward."

Nationwide is currently developing a lab environment that can be configured and quickly changed using virtualization, he says, and believes cloud computing could be a good replacement for that lab environment.

Like Miggo, VMware's Bock thinks cloud computing is something carriers should seriously consider, offering the example of claims processing after a major disaster such as a hurricane. He says at times like these, insurers would benefit greatly from having the additional capacity that comes from leveraging their resources via the cloud to process the windfall of requests, which is undoubtedly much greater than the normal demand.

"We're working with service providers to make it easy for [an insurer] to expand their capacity to move applications into that external cloud," he says, "or to even spread their application across the internal and the external clouds in a flexible way so that [carriers] can move their applications there when they need the extra capacity, but then move it back to their data center when they're back to a normal state of operations."

Traditionally, Bock says, carriers would have to build data centers to handle these types of scenarios on their own-building for the maximum possible demand, which is far more costly and demanding. But with this model of cloud computing, carriers can build for average demand, and supplement with additional cloud capacity as needed.

Another aspect of virtualization that VMWare's Bock believes insurers should keep an eye on is applications the company is currently using that could be used if delivered as a service.

"I think for insurers - going back to the cloud computing aspect - this definitely will apply because they often have spikes in demand and need capacity," he says.

However, despite these potential benefits, cloud computing, for Miggo, is still like the pretty bauble he admires from afar - but hesitates to touch.

"I've talked to a number of people about this, but I think cloud computing is still too new," he says. "Many companies are still trying to figure out how to properly do service-oriented architectures. There are just so many unknown variables out there that the cloud computing vendors are still trying to work through, so for me, it's still just a little too bleeding edge at the moment."


The best way for insurers to begin a virtualization project, according to Andrew Reichman, senior analyst with Forrester Research Inc., Cambridge, Mass., is with proper planning. Insurers need to know how many servers, applications and workloads would be affected by the change, thoroughly research vendors specializing in their desired type of virtualization and, as always, do the proper testing ahead of time. But aside from these seemingly obvious steps, he also notes there are several other factors to keep in mind when looking to virtualize.

Reichman recommends that once insurers have decided on a certain virtualization strategy, depending upon where the company is with its existing investments, phase it in alongside an already planned server refresh. "Rather than taking servers that are pretty new and putting them in the trash in favor of the latest gear, if you were going to refresh them anyway, you can get a pretty quick realization of benefits."

This was the case for Prudential Financial, Newark, N.J. According to Ed Martinez, VP, information systems, corporate operations & systems department, the insurer had the impetus of "NT Twilighting," which is his term for the extinction of the Windows NT operating system.

"What this did for us is say, "Hey, we have thousands of Windows NT physical servers - if we were to replace them on a one-to-one basis, that would cost us 'X', but if we were to virtualize these servers, what would it cost us?" We saw a tremendous savings in data center real estate, power, networking and cost," Martinez says. "So we proved the model in the lab, piloted some environments on it and went ahead. Lots of people in the company used it for test environments, but my group, with less risk than the others, went right ahead with it."

Utilizing this plan, Reichman believes insurers should begin to reap the cost benefits as quickly as year one or two.

"If you have to build a lot for the first time, such as a file-area network, or if you're an environment that run servers into the ground, or build out second-site data protection capabilities for the first time and are doing server virtualization that you wouldn't otherwise have done, that can really push out the benefits horizon to three, four, five years due to the big capital outlay," he says.

In addition, carriers need to be wary of the thorn that is application licensing. Oftentimes, Martinez says, apples are often oranges in regard to application licensing terms and pricing among various vendors.

"In a virtual environment," he says, "you really have to talk to them and understand the application licensing for the different vendors, which can be an onerous task. Because there are different licensing models for each vendor, this may give pause to many insurers looking to virtualize."

(c) 2009 Insurance Networking News and SourceMedia, Inc. All Rights Reserved.

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