A major strategy within the property/casualty insurance industry is entering new distribution channels using the Web and other technologies. To facilitate this strategy, the underlying business functionality that supported the expansion into new distribution channels was primarily based on systems that are on average more than 25 years old-augmented with newer technologies, such as expert underwriting engines.These back-end systems are inherently front-end technology "neutral" and have successfully been front-ended by J2EE and .NET frameworks. While most of these efforts have been successful in meeting the initial goal for entering new markets, these efforts also have uncovered-and in some cases intensified-the inherent legacy problem.
How nimble?
The nimbleness required in the "Web-enabled" world is not easily obtained using back-end systems.
A recent study from Stamford, Conn.-based Gartner Inc. reveals that most P&C carriers use multiple policy systems (2.5). These systems rarely share the same internal architecture or supporting database technology.
In addition, the problems inherent in these older systems include:
- Product definition and introduction: Most of these systems were developed in-house or are highly modified packaged solutions in which product definition is handled within the code itself. As such, maintenance of existing products and introducing new products remains a time consuming and costly undertaking.
- Rate changes: As with product definition, most rating is "hard-coded," which makes rate changes to existing products a time-consuming and expensive proposition.
- Inherent architecture: The flexible flow of a Web services front-end is hindered by the application-enforced flow of the existing systems, limiting the ability to address multiple user audiences. Additionally, unlocking the functionality to support alternative interfaces has proved challenging. In fact, in many cases, it has been abandoned, resulting in multiple code bases to support the same functionality in the same system. This has produce yet another headache-data synchronization.
- Transactional nature: The transactional nature of existing systems is potentially at odds with Web services. That's not to say Web services can't handle transactions-to the contrary. However, the manner in which they are handled is different. Traditional systems traditionally rely on online transaction processing (OLTP) and fixed and rigid transaction paths. Web services, on the other hand, are inherently dynamic.
- Costs of ownership: Older systems are expensive to run. The costs for legacy systems can represent as much as 85% of the entire IT budget, leaving little for new business initiatives.
No easy answers
These issues have no easy answer. They require a long-term strategy for each company that will support its business initiatives. These strategies, however, should accommodate the following:
- System consolidation: While there are many differences in the P&C industry between products themselves, there are many similar functions that must occur across all products. Among them are rating, billing and basic policy processing, such as renewal, endorsement and issuance. Many companies are either developing or purchasing engines that provide these services across all lines. This will give them the ability to consolidate common functions into various components or services and access them from all systems in a consistent manner. This has many advantages. For instance, it simplifies maintenance and starts overall consolidation. As the engines are introduced and integrated, the same functionality within the existing systems is subsequently retired.
- Legacy retirement and replacement: For the unique characteristics of a given company's products, investigation needs to start in finding a product definition capability that will support all lines, both personal and commercial. This capability, in conjunction with engines that support the processing requirements, provides the basis for complete retirement of the existing systems into one that supports the business on an equally flexible footing-as is available from Web services with a substantially reduced operating cost.
- Data: A strategy must be put in place to enable the conversion of existing legacy data to a consistent platform. By using a common data strategy, substantial costs can be driven out of the IT budget.
The front-end flexibility provided by Web services is very powerful. However, their full potential cannot be realized until the processing capabilities of back-end systems are brought up to the same level.
Some experts may argue that legacy platforms such as MVS have had their day. Nothing could be further from the truth. They are still very robust and necessary to run the business.
It is the systems that run under these platforms that need to be given the new and overdue attention they so richly deserve.
Andy Labrot is chief technology officer for The Innovation Group, which is based in the United Kingdom. He is based in Hartford, Conn.
