Insurance CIOs report that the emerging mix of legacy and Web systems in their enterprises creates a set of integration challenges that dominate their list of IT priorities. Not only are these integration challenges technically demanding, they're becoming increasingly critical to the business of insurance.Spending on enterprise application integration (EAI) in the insurance sector reflects growing levels of commitment to achieve legacy-to-Web integration. Gartner Dataquest forecasts that worldwide spending on EAI-related services in the insurance sector is poised to grow from $654 million in 2000 to more than $1.7 billion in 2005.
Insurance executives say it's common to maintain legacy systems that date back years or even several decades. Yet the challenges of electronic business-and of competition from investment companies and banks-have created heightened interest in purchasing packaged applications, particularly electronic business and customer self-service applications that use Internet technology.
IT Challenges
Modular offerings for claims processing and policy administration that use the Internet are also gaining traction in the market. The preservation of legacy systems, along with investments in Web-related systems, presents information technology challenges along multiple dimensions:
Product-centric applications vs. customer-centric applications. The widespread adoption of customer relationship management (CRM) strategies creates questions about how to link legacy systems focused on financial products with newer systems focused on customer transactions and information.
Interfaces with multiple external systems of partners and customers. The interconnected nature of financial services creates interenterprise challenges. Collaborative work by insurance enterprises to standardize insurance forms, for instance, requires both technical and business synchronization.
Proliferation of channels. Insurance carriers continue to expand the scope of technologies and channels they use to reach their agents and customers. Even a short list often encompasses some combination of mobile, Internet, contact center, remote agent and office operations.
There are essentially two schools of thought about the need to accomplish legacy-to-Web integration. Supporters of application integration at the enterprise level believe it is critical to achieve business agility and to effectively realize the benefits of customer retention and cross-selling. Skeptics of enterprise application integration believe that a technically elegant infrastructure only matters insofar as it delivers business benefits, because of the cost and technical complexity of application integration.
The current economic slowdown has further complicated the decision-making process for legacy-to-Web integration. On one hand, the slowdown has caused some re-evaluation of the level of capital spending in favor of spending to optimize resources already on hand. This favors spending on integration, particularly on engagements that aim to cut costs or increase revenue. On the other hand, middleware software sales have softened along with software sales in general. This softening reflects the difficulty in convincing C-level executives that application integration directly and positively impacts the bottom line.
On balance, the level of spending on enterprise application integration continues to grow as carriers look to optimize their environments and prepare for increased competition ahead.
New Solutions
Insurance carriers can expect the look and feel of legacy-to-Web integration to be far different in 2005, just as today's legacy-to-Web integration looks and feels different than its counterpart two or three years ago.
In the late 1990s, achieving legacy-to-Web integration often meant launching a large custom integration project. For consulting and systems integration firms, these engagements generally required learning new skills and covering new ground.
Today, consulting firms and systems integration companies have learned that they need to present a viable and tested EAI framework to be considered as a contender for engagements that include a legacy-to-Web component. These solution providers also have established partnerships with middleware software vendors. Software and service providers alike are investing in and improving the integration alternatives available to meet the needs of financial service providers.
Insurance carriers can expect a wider range of integration alternatives to reach the market in the next three to four years. Emerging integration alternatives reflect the movement toward just enough integration, as opposed to after-the-fact integration or massive customization so prevalent in the recent past.
The emerging integration alternatives include Web services, preconfigured business solutions that integrate best of breed elements, and component-based solution offerings. The availability of outsourced solution offerings will also offer an alternative to some internal integration challenges.
Meeting Business Needs
By 2005, attention will be squarely focused on achieving business process improvements through integration. After all, insurers do not pursue legacy-to-Web integration for the sake of technical elegance. Meeting business needs is the bottom line.
As new approaches to integration ease the challenges related to data integration, focus will return to achieving business process improvements and closer alignment of IT and business strategy.
