Technology makes the most of existing legacy systems

The insurance industry has faced fundamental changes in the last few years. With the passage of the Gramm-Leach-Bliley Act coupled with the changes in risk perception post-9/11, and recent questioning of the role of brokers and sales models in the industry, pressure continues to mount for organizations to be lean, profitable and responsive.

This, of course, is a tall order for an industry whose primary attributes historically have been stability, longevity and trust. In fact, it was these very attributes that governed the industry’s overall IT strategy, characterized by a focus on dependable and secure processes and systems. Actuarial and claims systems, as well as back-end financial systems, were mainframe-based and supported a well-understood, well-established business model. But all of this has changed.

The introduction of e-business to the industry, the introduction of online quoting and other interactive systems, the educational needs of agents who must adapt to new technologies, along with the post-GLB integration pressures challenged those models and the IT strategies that sustained them. Add to that the increasing financial and performance pressures, and the industry faced a problem common to other financial services segments–how to make the most of existing investments in legacy and other systems while being nimble with respect to developing new lines of business, partnerships and products.

IT departments faced increased pressures from these technological and regulatory changes. Management demanded that they develop the flexibility to build new capabilities that would respond to the changes while simultaneously reducing costs. But this is difficult in a typical organization, since IT has grown through a series of projects, one building upon another, and evolving technologies that sometimes result in multiple generations of technology. These combinations of matched–and often mismatched–systems are often the heart of key enterprise systems. The challenge is to conduct system maintenance and build/acquire new technology in a way that maximizes both reuse and flexibility.

There is a new software development discipline that begins to address this need. Service-oriented architecture (SOA) guides software developers in creating software resources that “hide” the technical complexity that is behind most business functions and which are technology platform-independent. This method of designing applications allows a developer to “wrap” existing application assets and to create reusable applications. In a specific instance of SOA, Web services, these reusable applications are accessible just like a Web site, using the same transport mechanism, making them available both within a network and to partners, providers and customers–to any system that can access a URL.

For example, the ability to create, read, update or delete a customer record is a function common to many enterprise applications. The introduction of an SOA allows an organization to build a single interface, a “service,” for interacting with the customer record, even if those records still existed in legacy environments. This ability to “wrap” a function as a service, making its complexity invisible to future systems and developers, radically decreases the total cost of ownership of that element of the system.

Since new development can access the simpler “wrapped” service rather than the complex legacy system, development time and cost is significantly reduced. And since this new service follows well-established standards, there is no learning curve involved in discovering how to access the functions that lie behind that service (a common problem in creating new interfaces to legacy systems).

SOA is made possible through open standards adopted by the major software vendors over the last few years, utilizing new technical standards. This means that services written on different platforms (Microsoft, Java, etc.) can be used interchangeably.

While SOA has been adopted by many organizations in many industries, insurance is the perfect environment for implementing technologies like service-oriented architecture. Legacy systems and their associated investments, coupled with the need to be agile in the marketplace, create a clear need for the industry to look for technologies that maximize reuse.

Insurance companies should be investigating SOA as a strategy to reduce total cost of maintaining old systems, and acquiring and implementing new systems while at the same time allowing the organization to focus more resources on developing new capabilities.

Robert Kelley is a founding partner of LiquidHub, a King of Prussia, Pa.-based systems integrator and technology consultancy. He can be reached at rkelley@liquidhub.com.