As the IT landscape changes in dramatic ways, there are few companies more intertwined in the fabric of data centers than Redmond, Wash.-based Microsoft Corp. Insurance Networking News' senior editor, Bill Kenealy,sat down with Microsoft CFO Peter Klein to get his take on where things are headed and on how insurers can leverage emerging technologies and trends such as cloud computing to competitive advantage.
INN: For a long time, IT was viewed as a cost center. How can insurers leverage IT as a strategic asset?
PK: The stock in trade of the insurance industry is information, so the notion of IT as anything but a strategic asset makes very little sense. In fact, our research shows that attracting the next generation of customers-and employees-will increasingly rely on innovative use of technology.
For instance, solutions such as unified communications, which bring voice, e-mail, instant messaging and video conferencing together, enable companies to replace traditional phone and voice mail systems, giving employees the ability to easily and seamlessly collaborate.
Virtualization enables workloads to move between on-site datacenters and the cloud so IT managers can get scale without sacrificing control. Windows 7 Enterprise gives insurers tools to handle the challenges of today's client computing by optimizing desktop infrastructure, making users more productive anywhere, managing risk by enhancing security and control, and reducing costs by streamlining PC management. These are just a few examples of how technology has the power to transform the insurance business.
Moreover, as the global economy recovers, meaningful growth will come from investments in innovation and IT will increasingly encompass a more strategic function in every company. That is one reason why Microsoft has continued its R&D commitment to produce an incredibly powerful platform for the insurance business. In fact, many insurance customers have already purchased software from Microsoft that can take the place of expensive alternatives they now use. By leveraging our R&D investments, insurers can spend less time managing IT and more time managing risk.
INN: How does the advent of service-oriented architectures change IT strategies?
PK: The insurance business is dominated by mainframes. The IT architectures that grew up around mainframes have made business processes duty-bound to IT. Most of the workflows in the insurance business are hard-coded into Cobol applications that underwrite policies or process claims and are very difficult to change. That is why the business process reengineering (BPR) trend of the 80s and early 90s yielded limited success in insurance.
IT was an obstacle, rather than an enabler. SOA has changed that. Rather than building monolithic applications that strictly define how an entire process must be executed, SOA breaks major applications down to components-or services-that closely mirror the component parts of a major business process. By marrying BPR and SOA we now have the ability to match technology to workflow at a very granular level. IT becomes an enabler. Even better, SOA is based on XML and established Web Services standards for everything from security to application integration.
At Microsoft we've taken this approach one step further for the insurance industry. For more than a decade, Microsoft's Insurance Value Chain (IVC) has been at the core of our efforts to bring innovation to insurance IT. The IVC is a model architecture for standards-based integration of best-of-breed insurance applications, leveraging not only Web Services standards but also insurance industry data standards from ACORD. A broad ecosystem of Independent Software Vendors that build applications on the Microsoft platform adopted this approach, allowing insurers to create major applications by selecting and bundling services supplied by many vendors. We have also created a toolkit-the IVC Software Factory for ACORD Standards-to help partners and insurers adopt the IVC approach and easy implementation of ACORD standards. The toolkit, code samples, reference applications and demos are freely available on www.codeplex.com/ivc-our open source community site. Using these tools and techniques, insurers can significantly reduce spending on custom application integration services-often the largest part of the IT dollar.
INN: What are the strategic and cost-structure implications of cloud computing for the enterprise?
PK:As an industry that relies heavily on data centers, the expense of physical space, power and licensing fees can account for a significant portion of IT spending. Alternatively, cloud-based services offer a "utility computing" model through which insurers pay only for the resources they actually use, similar to buying electricity by the kilowatt-hour from a local utility. There is no infrastructure to purchase, no software to install, and a simplified operations environment optimized for scale and with self-management capabilities that significantly lower the IT management burden. The benefits allow for much lower cost and faster deployment. There are important issues with cloud computing-guaranteed availability and network bandwidth, security, compliance. All are core aspects of our Windows Azure platform that every insurance or financial services company should investigate. Cloud is not just the latest fad in IT. It is truly a disruptive technology.
We offer a set of cloud-based solutions to meet the business needs of today's insurance firm including advertising, communications (e-mail, telephony, meetings), collaboration (document storage, sharing, workflow), business applications (CRM, business productivity), storage, management and infrastructure services. In other words, when it comes to the cloud, we are all in.
The cloud also provides a platform for application development through the Windows Azure platform, effectively enabling business class services within a well-defined SLA for enterprise development and deployment. We view the cloud as the next evolution of our IVC, where partners can run and sell their solutions as cloud-based services.
INN: What benefits can insurers derive from advances in areas such as parallel computing?
PK: The core competency of any successful insurer is the ability to predict the future by analyzing the past. Doing this effectively requires vast amounts of computing power to run sophisticated actuarial and investment models. This has always been the province of expensive super computers-until recently. The relentless march of Moore's Law has brought super-computing power to the PC platform, and through our high-performance computing platform, Microsoft is bringing the power of parallel computing to the masses.
Since cost is no longer an obstacle, insurers can apply predictive techniques like stochastic modeling more frequently and more broadly.
Common scenarios include improved actuarial modeling for more accurate pricing of risk, responding more quickly to natural disasters by predicting where damages will occur and pre-positioning assets and people, improved investment performance through sophisticated portfolio analysis, and offering more sophisticated wealth management services to more customers. As an example, Microsoft works with leading actuarial partners such as Milliman for risk analysis and catastrophe modeling-enabling faster and more accurate analysis of the impact of hurricanes and other natural disasters.
