For many carriers, policy administration systems are the ultimate "legacy applications." Many were custom-built years ago by in-house development teams and still run on mainframe systems with "green-screen" terminal interfaces.However, as carriers begin to explore ways to open up these systems-and make applications and data available to end-users across the enterprise-they are finding themselves at a crossroads, faced with the dilemma of whether to modernize or to replace core policy administration systems.

Then, there's the middle road taken by The Hartford Insurance Cos., which has headquarters in Hartford, Conn. The company is pursuing simultaneous modernization and replacement strategies to upgrade mainframe-based policy administration systems, some up to four decades old, with newer applications that support SOA (service-oriented architecture).

The promise of SOA, many in the industry agree, is that carriers can use it to break down systems into standardized, interchangeable components or services that can be assembled or dissembled as business processes demand.

"I suspect that, like The Hartford, there are many companies that have aging, legacy platforms," says Rich Maynard, property and casualty chief architect for The Hartford. "They want to be able to help their businesses improve and gain more market share. Most legacy systems aren't really in the best spot to take advantage of service-oriented architectures."

The rush is on, then, to upgrade, improve or replace many of the policy administration systems that form the core of carriers' internal operations. The policy administration system market in the United States alone has grown from $150 million to about $375 million over the past four years, mainly among property and casualty carriers, says Boston-based Celent LLC, which has been tracking the market nearly 14 years.

During that time the landscape has changed significantly for P&C policy administration systems, says Chad Hersh, Celent analyst and author of the company's biannual study.

"First year TCO has dropped significantly in lockstep with a major influx of newer technologies, such as .NET, Java, SOA, Web services and ACORD XML," Hersh says. "When we started this report in 2003, people were barely thinking of new administration systems-the market was dormant. The change has been unbelievable."

The interest in policy administration systems is driven by pent-up demand, combined with industry initiatives around SOA, says Eddie Jones, senior vice president, marketing and product management, in Fiserv Insurance Solutions, a unit of Brookfield, Wis.-based Fiserv Inc.

"You have a profitable industry sitting on top of systems that are 30 to 40 years old," says Jones, "with the pressures of the need for speed, the need for flexibility, the need to address different audiences and the need to figure out how older systems can work together."

A survey of 100 global carriers by Bermuda-based Accenture also points to a trend toward centralizing policy administration systems. Among North American companies, 24% have already streamlined or consolidated their policy administration systems, and 38% have such efforts under way.

Globally, respondents that have consolidated policy administration systems on average reported a 19% reduction in operating costs, a 25% reduction in IT costs and a 35% increase in the speed at which they introduce products, Accenture says.

However, the survey also indicates many carriers have their work cut out for them-more than a third of the North American carriers, 34%, say their companies use 11 or more policy administration product platforms.


With so many types of policy administration platforms-not to mention other applications that tie into those systems-many carriers are turning to SOA, which supports common standards across the enterprise, to help deliver integration.

A survey by Cambridge, Mass.-based Forrester Research Inc. for Progress Software Corp., Bedford, Mass., shows that at least six of 10 insurance and financial services companies are pursuing such strategies (see "Survey: Internal Integration Main Goal Of SOA Agendas," page 38).

The challenge of integration is acute in the insurance sector because so many lines of business have been run in separate silos for years, says Roger Paehr, product manager of policy administration systems for EDS SolCorp.

"SOA breaks down walls and allows systems to work together. Print, image, workflow-you name it," says Paehr. "SOA allows you those paths outside but also allows you to bridge internally."

The policy administration system "is really the core of the whole puzzle," agrees Mic Maner, senior vice president for life information technology at Fiserv. "In addition to workflow, there are agent interfaces, competitive rating systems, customer portals, medical information bureau interfaces, as well as claims systems and billing."

The possibilities for system-to-system integration are almost endless, Maner says. "We have one customer that's built an automated customer phone system around SOA," he continues. "People have existing pieces to this big puzzle, and they're not going to want to replace all of it-certainly not all at once."

That's why carriers need to find a way to integrate the admin system and other systems into their established frameworks, portals and call center interfaces, Maner says, noting that IT has to accomplish the task without a big learning curve for end users. "Integration, in a loosely coupled fashion-not hard coded-is definitely one of the biggest keys to success today," he maintains.

The key standard that forms the building blocks of SOA-eXtensible Markup Language, or XML-can drastically cut integration time, says Hersh. The insurance industry's flavor of XML, ACORD XML, "gets you a lot of the way there," he says.

"Let's say you have 300 data fields in your policy admin system and 300 data fields in your claims system that need to be shared back and forth," says Hersh. "If 150 of those are in the ACORD XML standard format, then half your integration work is done up front. If you use Web services to make calls for a lot of the other data, you're perhaps another 20% to 30% of the way there. So you're integrating not even a third of what you used to have to do to integrate those two systems."

The ability to gradually service-enable pieces of applications and fit them into a growing open standards architecture-vs. an expensive and risky migration of an entire system-is one of the compelling advantages of SOA, observers say.

Harrisburg, Penn.-based Penn National Insurance Co., for example, is gradually replacing an aging policy administration system with a more modern one that will move more of the carrier's business to straight-through processing between its agency portal and back-end systems.

Penn National intends to migrate policy administration and other systems on a component-by-component basis vs. a "full-blown replacement," according to C. John Palmer, senior applications specialist at Penn National.

"We don't feel that replacing policy admin functions is a strategic thing from a competitive advantage," says Palmer. "Our pricing is where we make our competitive advantage."

"We're running about 20% to 30% straight-through processing right now without anybody touching it," Palmer says. Penn National has a "combination of vendor and home-grown applications that supports a Web process for new business quoting. But we do have straight-through processing for agent quotes, which go through a small set of rules, get reviewed by the underwriting department and then are sent up to the mainframe for processing."

SOA will enable Penn National to move more tasks to straight-through processing as it links more functions to policy underwriting and administration processes. The carrier is integrating Skywire Software's InsBridge rating system with a mainframe policy administration system from Columbia, S.C.-based Policy Management Systems Corp., and plans to replace the mainframe system.

"SOA gives us another option," says Helena Vendrzyk Gordon, manager, projects and planning at Penn National. "Classically, the choice was to buy or to build. What we're doing is constructing. We're taking components like Skywire's rating engine and the agency portal and eventually a component like a policy admin system-and connecting it all together. It's kind of like Legos-we're building ourselves a system that fits us with those best-of-breed components."

According to Gordon, the legacy policy administration system provided only "limited abilities to meet changing business needs, particularly around more sophisticated prices." Besides, the system required "maintaining and validating rating changes in two separate rating engines." The system also had only limited straight-through processing capabilities so a number of processes, particularly endorsement processes, were manual, Gordon says.

The Hartford will modernize some mainframe-based policy administration systems that are now decades old, while replacing others. In some cases, the customized systems provide competitive advantage.

"Our policy administration systems for personal lines are 40 years old, and the commercial lines system is 35 years old," says Maynard. "They're basically large IMS [IBM Information Management System] COBOL-based systems. On the commercial lines side, we're investing in renovating, or 'componentizing,' and, where it's appropriate, opening up through our service-oriented platform the services that need to be done."

The Hartford plans to purchase a new system for personal lines, which Maynard says he considers a commodity business. Plus, he adds this caveat: "I don't believe the product that we purchase for personal lines will scale enough to commercial lines in the time that we need it to be done."

Madison National Life Insurance Co. Inc., Middleton, Wis., launched an initiative last year with the goal of consolidating and integrating policy administration systems across three lines of business. The company's group insurance operations run on an AS/400, credit insurance operations run on a mainframe, and life and annuity operations are run on a Windows platform, says Elino Munsayac, the insurer's vice president of information technology.

"We have four administration systems and are moving forward to maybe two," says Munsayac. "The goal is to move toward a single architecture, based on SOA."

Madison National intends to build the newer policy administration around FIMMAS, offered through Management Data Inc., which has headquarters in Pelham, Ala., on a Windows and Web-based platform and gradually move from the larger legacy systems.

Fiserv's Jones says a huge installed base of mainframes across the industry runs policy administration and other core systems-a situation unlikely to change anytime soon.

"COBOL [the primary language for mainframe applications] is the widest-used language in production today in the world, with billions and trillions of lines of code," says Jones. "But they're very productive systems with low total cost of ownership."

However, Jones cautions, carriers with legacy systems face a potential lack of skilled personnel. As COBOL and mainframe programmers retire, few replacements are coming up the ranks or out of schools. In fact, recruiting and retaining employees for any job may be stymied by aging legacy systems, he says.

"You can't bring someone out of college today and put them in front of a 3270 green-screen terminal, give them a manual that's two inches thick and expect to have high employee morale," says Jones. "The talent that you can get today is far more interested in and educated in newer technologies."

SOA-based interfaces can help componentize many functions that formerly were locked away in back-end legacy systems. "SOA effectively makes it simpler to tie all these systems and applications together," says Paehr of EDS/SolCorp. "It's the capability to make it look to the end user like a single interface, or a single point of contact. And you can swap out or upgrade components as needed."

Until recently, many packaged applications failed to offer compelling value to carriers with customized systems written for their businesses. But that's changing because new products support open service-oriented architecture, says Celent's Hersh.

A couple of years ago, Hersh says, vendors offered systems that ranged from adequate to good. "Now, there's a round of systems that are coming out that are more than good," he says. "They're actually the systems that everybody hoped would be available some day."

What can the systems do, in Hersh's estimation? "Everything about them is flexible," he says. "They can meet the vast majority of carriers' needs with configuration rather than coding. They're service-oriented, so they can fit into an SOA framework. They're modular and can be used with or without the front end they come with."

Many carriers stand to benefit, continues Hersh. "It's finally getting to the point where there are good options in life, health, P&C personal and P&C commercial," he maintains. "That's really going to drive a lot of the sales in this market for the next few years."

However, The Hartford's Maynard cautions, the new systems are only the start of an evolutionary phase. "We just started the journey," he says, "so we're years away from having a completely componentized commercial lines policy administration system that we would say is completely and totally service-oriented."

Other IT executives advise a go-slow approach to service-orienting policy administration functions. "Adopt SOA slowly-it's not something you can just jump into," Madison National's Munsayac says. "People really have to look to see if it makes business sense."

The advantage of SOA-enabled architecture, Maynard says, is end-user companies have control and more choices over what products to add or remove from the infrastructure.

"The more we can componentize, the easier it will be to swap out technologies," says Maynard. "Vendors no longer are able rest on their laurels."

That's why many carriers adopt a "hybrid" approach-purchasing full applications suites from single vendors but also replacing some components over time, says Celent's Hersh.

"We're seeing a preference for multiple components from a single vendor, using an approach that allows for best of breed," says Hersh. "In other words, modular suites that allow you to swap out components either now or later, rather easily."

However, Maynard adds, rather than simply "dump" vendors, an SOA-based application infrastructure gives carriers such more leverage with vendors to improve products. "We want to be in a position where if we have Rating Engine A, and Rating Engine B has announced some pretty good features-and the Rating Engine A vendor doesn't want to include those-we can take advantage of that."

Editor's Note: Insurance Networking News will host a one-day educational and networking conference in New York on October 5, 2007 called "SOA Reality Check: Driving Business Value from Web Services and Service Oriented Architecture." For more information, contact Holli Gronset at 312-983-6178.


What drives service-oriented architecture (SOA) projects? Key factors include internal application and data integration, according to a report by Cambridge, Mass.-based Forrester Research Inc.

Some 80% of the 400 companies that Forrester surveyed for Progress Software, which has headquarters in Bedford, Mass., still use manual methods for integration. The study also indicates that issues abound with internal integration. In fact, 75% of those surveyed say integration fixes increase maintenance costs, and two-thirds report problems with unforeseen breakage of other applications dependent on the same data.

To cope, more carriers are using SOA across enterprises to achieve end-to-end data management and integration, the survey says. While 44% of respondents now use SOA for integration, 59% report that they plan to do so over the next two years. In addition, 62% of finance and insurance companies responding to the survey use SOA today for application and data integration.

The survey shows integration efforts are increasing across most industries as a result of demand for real-time globally accessible data. IT professionals are challenged to keep pace, while still mired in manual processes and ad hoc fixes, the study says.

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