The insurance industry has faced fundamental and permanent changes in the last few years. The introduction of e-business to the industry, increased adoption of single-entry, multiple-carrier interfaces (SEMCI) and interactive systems, the educational needs of agents who must adapt to new technologies, along with post-Gramm-Leach-Bliley Act integration pressures, have challenged traditional models and the IT strategies that sustained them.Add to that the increasing financial and performance pressures, and the industry faces a problem common to other financial services segments: how to make the most of existing investments in legacy and other systems, while being nimble in developing new lines of business, partnerships and products.

Service-oriented architecture (SOA) begins to address this need by guiding software developers in creating software resources that "hide" the technical complexity behind business functions.

While many IT professionals within the insurance industry are becoming aware of the benefits and efficacy of SOA, convincing management that the investment is smart, worthwhile and timely has proven a challenge. To address this, IT managers must put on their business hats and begin to think and plan in a way that will demonstrate the real benefits of SOA.

Like many of the hot IT topics of the past, SOA is simultaneously over-hyped and under-appreciated.

But organizations looking to gain the benefits it promises need to consider it from a technical, business and industry perspective.

From a technical perspective, SOA refers to the industry-specific XML standards, Web services, process management and development techniques used to create applications that are "loosely coupled"-providing a layer of abstraction between the interface and the logic.

Standards are important

From a business perspective, SOA relies on the modeling of the services that represent the business an enterprise conducts, and assembling system resources to reflect these activities.

From an industry perspective, standardization is of particular importance when communicating between organizations, though most vendor and many internal applications now developed support an XML standard appropriate for the service they perform.

It is important to dispel the notion that SOA requires significant investment in technology.

Unlike the Internet craze of the late 1990s, or the deployment of claims processing or imaging systems, SOA is an approach, not a specific technology.

While there are tools on the market that provide sophisticated process orchestration and other capabilities that may be used in an SOA implementation, they are not needed to begin reaping the benefits of adopting an SOA approach. It is not necessary to make a significant capital investment to get started.

Prudent organizations are approaching SOA both from "top-down" and "bottom-up" perspectives. Top-down activities focus on understanding the strategic goals of the organization and the plan for achieving them, while bottom-up activities provide a low-risk "proof-of-technology" that should be done before undertaking a major initiative.

Initial proof-of-technology projects frequently focus on "wrapping" existing application assets to create reusable applications and demonstrating the increased flexibility promised without extensively rewriting or replacing the existing application.

Top-down analysis goes beyond the traditional annual plans to support new product offerings, customer services improvements, integration with external partners or improved utilization of data to support claim management or underwriting practices. It requires developing a strong understanding of the business services that the company offers (and relies upon), of how these services are provided to the enterprise (or extended enterprise) and of the underlying technical capabilities and linkages that support them.

There are certainly some challenges to SOA and Web services implementations. Most insurance companies are reluctant to be too early in the adoption curve of new approaches-and for good reason; typically the early adopters do not have the same degree of support or benefit of the lessons learned that come with time.

The reality is that SOA is an emerging discipline, and some of the more sophisticated standards and tools that facilitate this approach are still evolving. Also, the number of experienced practitioners who understand the nuances of SOA will be in short supply for the foreseeable future, as increasing demand will outpace supply.

And the wide reports of industrywide adoption may be overblown. For example, Gartner Inc., a Stamford, Conn.-based research and consulting firm, reports that the relatively high usage of Web services reported in the insurance industry may be misleading.

Not using transports

According to a February 2005 report, many insurers are not actually using the transports that are required to be a true Web service. Management in some organizations may think they are going down the right path but are not yet realizing the benefits.

Nevertheless, there are positive signs that SOA is rapidly maturing and supporting significantly more capability than most insurers can implement today.

ACORD XML standards continue to advance, and these and other standards have been through several iterations and are receiving support from leading software vendors.

In addition, IBM's delivery of more than 100 business process models, model definitions and other content to ACORD shows real promise.

These models were developed as part of IBM's Insurance Application Architecture (IAA) initiative, which represents a "generic" insurance business and IT architecture framework. This is widely expected to accelerate the adoption of business process standards that will facilitate system-to-system and company-to-company integration.

The challenge for forward-looking insurance companies, then, is not the readiness of the technology, or its proven applicability to the industry. Instead, the real challenge adopters of SOA face is the need to focus on the business benefit to be gained from simplifying technology.

With SOA the tools now exist to simplify an organization's enterprise application architecture, exposing the capability of long-hidden legacy systems to employees, agents and customers.

In the short term, this means better access to systems, but in the long term, it can allow more agility for insurance providers, easier collaboration with partners, agents and even other financial services companies.

It can allow faster time to market for new and combined products, greater flexibility in competing for the attention of independent agents and higher customer service to the insured. In short, it is an investment that can facilitate a business-focused IT strategy, one driven by the needs of stakeholders, not of the systems that support them.

Maturation of XML, Web services, industry process standards and software products have combined to provide the insurance industry with the necessary tools to apply a service-oriented approach to the creation of true business services.

A properly planned service-oriented architecture will enable the insurance industry to continue to benefit from their legacy applications, introduce new functionality to the enterprise and attain the process flexibility the industry needs today and in the coming years.

Thomas Ford is director and Robert Kelley is a founding partner of LiquidHub, a technology consultancy in King of Prussia, Pa.

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