In the late 1990s, when insurance firms were running high loss ratios (from 110 to 130), Lombard Canada Ltd., one of the oldest property and casualty insurance operations in Ontario, hired a consulting firm to assess its underwriting and claims leakage while it sought to improve IT and drive down expenses.With the firm's help, Lombard's loss ratio started dropping. While other Canadian firms were still grappling with hefty loss ratios, Lombard moved on to major technological decisions.

That strategic move went hand in hand with a larger initiative: Lombard integrated its application developers into business units so that they no longer reported to IT. "They had the ability to sit in on planning sessions on business initiatives and then be coherent when it came to 'this is what we want the system to do now' discussions that could benefit the business," says Peter Howling, the firm's vice president of IT.

Today, Lombard continues to operate in similar fashion. Eager to cut costs and stock the company with young and motivated IT staffers, Lombard decided to move from its multiple platforms and aged mainframe toward a single open platform. Its solution: to shift all of its core applications from its mainframe onto a Microsoft Windows-based server. The goal of the move, which began in February and was announced in May, is to enable the carrier to operate on one platform by March 2006.

Whether other insurers will follow Lombard's lead, however, remains to be seen.

With assets exceeding $2 billion (U.S. $1.6 billion), Toronto-based Lom-bard expects to reap major benefits by migrating from the IBM mainframe. "It frees up more than $1 million (U.S. $810,000) per year from what I pay for mainframe software," explains Howling.

"And the company can use that to reinvest in our ongoing IT system development." Lombard is migrating applications such as policy billing, back-end underwriting processes, policy printing and MIS and actuarial extracts and reporting.

Lift and shift

Lombard opted for what is known as a "lift-and-shift" approach, in which virtually all of its applications are moved to a new platform, rather than using a "rip-and-replace" strategy that would have it building applications anew. For this, the carrier turned to Micro Focus, a Berkshire, England-based provider of legacy application development and deployment software for enterprise platforms, and Cratos, an Oakville, Ontario-based software company specializing in migrations, and Microsoft.

"Lift-and-shift minimizes risk and at the same time provides significant cost savings," says Ian Archbell, vice president of product management for Micro Focus.

Howling, who expects the company's return on investment to be inside 18 months, says that a rip and replace is not only two to three times more expensive than a lift and shift, but also requires 24 to 36 months, compared to the 13 to 14 months it will take for Lombard to move to the Windows/Intel (Wintel) operating system.

Aside from the time factor, Howling believes a rip and replace operation would have excessively disrupted his IT department. "Today, because you have so many demands on a company to deliver the same service all the time, to make that intrusion in their workday can be difficult," he says.

COBOL's popularity

Lombard expects to attract and maintain top technology talent in the move from its COBOL-based environment to one that is more Java-based.

"You look at the skill set that has worked in the mainframe environment, and that population is aging," says Randy Lenaghan, director of financial services for Microsoft Canada. "And the availability of new talent coming out of schools are not working on COBOL. I would challenge you to go out and find a lot of software companies developing new and innovative applications on a COBOL platform."

Yet, the mainframe continues to be a secure and dependable option for many firms that have invested heavily in it. Jim Johnson, chairman of the Standish Group International Inc., West Yarmouth, Mass., says the bulk of migrations to Wintel have been made by smaller firms, since larger ones are loathe to leave behind their web of systems and languages. "People have predicted the death of COBOL for many years," he says. "We are seeing less and less investment in COBOL and less people understanding it, but there is still a great deal of business running COBOL in a great deal of mission-critical applications."

Howling believes that some of Lombard's peers are reticent to wholeheartedly embrace new platforms because they are bogged down tackling urgent business issues, postponing major technology decisions for another day.

Micro Focus doesn't anticipate a stampede of radical-or "big-bang"-migrations either, given that large insurance organizations have spent 30, 40 or even 50 years investing in mainframes. "We favor getting the best value out of that, and most of that investment will be in COBOL," says Archbell. Consequently, it may not make sense for large insurers, which have multiple mainframes, to race to join Lombard, which ranks among the 15 largest insurance firms in Canada, with annual gross premiums of $1 billion (U.S. $810 million).

"Bigger players are likely to dip their toes in the water-to take an application with a high likelihood [of successful migration] and migrate that first," Archbell explains. "Once they do that, they can take another step. There will not be a big bang from the other [big] insurance firms. That would be too risky for them."

And while many insurance firms are clinging to their mainframes, others are choosing to adopt Linux. Undaunted, Microsoft senses an ineluctable drive toward Windows. "As our customers are becoming more and more comfortable with the performance, reliability and scalability of our products, you will see more and more wholesale changes," says Lenaghan. "Getting them to get all of their mainframes integrated [into Windows] may not make sense today. If we can prove we are a viable option, there will be a time when they come on board."

Lombard's choice to be an early adopter will enable the company to improve the code that Lombard IT folks write, says Andrew Wickett, CEO of Cratos. "Not only will a migrated system perform better in the environment we are setting up for Lombard in terms of speed and efficiency, but also from a development point of view," he says. "The testing and developmental tools on the distributed platform are much more robust than those on a mainframe today."

Daniel Joelson is a business writer based in Arlington, Va.

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