Insurance is leading other industries in the adoption of service-oriented architecture (SOA) and is moving toward a state where carriers will be able to rapidly create new business opportunities by extending services to external organizations, said Fred Danback, head of global technology services of New York-based broker Integro Insurance Brokers, speaking at the session "Architecture Innovation: SOA Success Factors" at Insurance & Technology's annual Executive Summit in Phoenix, Ariz.
Quoting a Forrester study, Danback claimed that 84 percent of insurance companies surveyed by Forrester have budget for and are working on SOA projects, compared to 50 percent across all industries.
Danback identified SOA as having emerged at the end of a timeline that began with some basic reusability of code from otherwise inflexible systems in the 1970s and 1980s. Later, standards were developed to enable business-to-business connectivity, followed by developments such as the common object model and CORBA, which established what he described as the "molecularization" of functionality into components. With the advent of XML, Danback said, communication between clients and partners became easier.
Today, insurers are driven to adopt SOA in both internally and externally focused ways by the need to cut costs and increase revenue, respectively, according to Danback.
Loosely Coupled Architecture
From an internal perspective, SOA is defined by companies' ability to "break down our systems so that each of them can interact through loosely coupled information architecture," said Danback. "By way of that we are abler to get information to our clients faster and at less expense to the organization."
Seen as an outward-facing capability, SOA is defined as the "functional decomposition of the business to an extended network of highly productive value-added resources that lead to a virtual and highly productive end product or service," Danback said.
Insurers seeking to move toward an SOA should start slowly, Danback advised. "Start developing Web services that will allow you to expose some of your existing functionality and unlock it from the current infrastructure," he said. "Find tactical steps to getting into SOA that won't affect the entire organization."
Danback recommended creating an enterprise service bus, which would serve as a point of exchange for Web services, organized by an internal registry, and offered "five essentials" to building a successful SOA.
Essentials of SOA
First, SOA and the implementation of an enterprise service bus should not be sold to senior management as part of a sweeping move to enterprise architecture, but should be presented as part of a longer-term road map.
Second, insurers need to clearly define what the digital business services are, working in close collaboration with the business.
Third, SOA should always be thought of as a transformation of IT infrastructure, not the addition of an extra layer on top of it.
Fourth, insurers should make it clear that SOA is the only way that IT can successfully build new systems, but not to use the SOA label if that was likely to undermine support for initiatives. "You know internally in IT what it means to you, so go ahead and implement it on a road map that makes sense for your business," Danback commented.
Finally, Danback related, insurers need to refresh their IT talent to keep pace with technology. "Otherwise we continue to build old systems on new technology," Danback warned.
Enterprise Approach to Architecture
John Kellington, chief technology officer of Ohio Casualty (Fairfield, Ohio), said that an enterprise technology approach based on IBM's Insurance Application Architecture (IAA) led to the development of the carrier's home-grown, component-based PARIS system (Policy Administration Rating and Issuance System).
The success of PARIS' use for commercial lines has made the system popular with the business side and has paved the way for its current rollout for personal lines, Kellington related. "I think of it as a bunch of really cool components," he glossed.
The service-oriented/component-based nature of the system facilitates the extension of functionality to Ohio Casualty's distributors via the Web, Kellington said. "By looking at an enterprise component model you can do a lot of things easier and better for yourself."
Failure to approach systems development from a big-picture, enterprise architecture perspective leads to building disconnected point solutions and "one-off" initiatives, Kellington cautioned.
"Without an enterprise architecture you get what is technically known as a 'fur ball,'" Kellington quipped. "That will be the 'legacy' that our successors will complain about if we don't think holistically."
Enterprise Standards Framework
Speaking in his capacity as chairman of ACORD's (Pearl River, N.Y.) Standards Committee, Kellington spoke about the body's ongoing work on a new enterprise architecture ACORD Standards Framework that takes the novel approach of building on commonalities that exist across all segments of the insurance industry.
The ACORD Standards Framework, Kellington explained, "is not just messages, it's about [an] insurance capability model, about what insurance carriers do throughout the whole lifecycle of insurance, and what areas should be automated from a processes perspective."
In developing the framework, ACORD will focus, Kellington added, "on high-grain processes that occur, [and will] develop an enterprise process model around that, then look at a data dictionary that would be needed to support those messages, and then have a data model that drives that dictionary."
"At the end of the day," Kellington concluded, "what ACORD and its member companies are working on is developing a model that will take us into the next decade."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio