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Insurers Slow To Adopt Linux

With carriers operating older systems that are difficult to change, adoption of Linux and other open source software is slow.

With the appeal of minimal or no cost, one would expect that Linux operating systems—an open source version of Unix—would fit right into the cost-conscious insurance technologist's budget. And although some insurers are making use of Linux and other open source software, freeware is a long way from gaining the same broad acceptance by US insurers that it has in other industries, including securities.

A recent IDC (Framingham, MA) report notes that overall spending on the Linux operating environment is expected to increase from $80 million in 2001 to $280 million in 2006. Although dollars spent on Linux by all industries will grow at a compound annual rate of 28 percent, US insurers will be spending less on Linux, on average. "Of the top 100 insurers, less than 10 percent have embraced Linux," says Bill Pieroni, general manager, global insurance industry, IBM (Armonk, NY). "Even though Linux will bring cost savings, it doesn't make sense for many insurers to use because they have legacy infrastructures that don't lend themselves well to Linux."

Kimberly Harris, research director, Gartner (Stamford, CT), agrees. "Typically the US insurance environment is on the mainframe, and carriers are not going to spend money to re-architect and replace systems," she says. But that doesn't mean that Linux use isn't attracting some US carriers. According to IBM's Pieroni, two groups that are adopting the open source technologies are insurers with huge expense problems and those that are running extremely lean and looking to save more.

One company that is exploring its Linux options is Farmers Insurance Group (Los Angeles, $12 billion in assets). In order to reduce its total cost of ownership, thecarrier, currently using Linux operating systems on a limited basis to host Web pages for its e-business needs, is exploring the option of consolidating its Web servers onto the Linux platform, according to Sherry Porter, distributed systems manager, Farmers. In addition to Linux, the insurer is hosting Web pages on Sun Microsystems' (Santa Clara, CA) Solaris and IBM's (Armonk, NY) AIX.

Farmers began using the Linux platform a year-and-a-half ago. And at this point, says Porter, it looks as if the Linux consolidation project will be given the go-ahead. If the initiative is approved, Farmers will move its Web servers over to Linux sometime in 2003. Currently, the carrier is encouraging employee training on the Linux operating system.

Fusura, a Wilmington, DE-based online seller of AIG, Kemper and Prudential auto coverages, is also taking advantage of the benefits of freeware. In addition to use of open source technology for its source-code management and bug-tracking needs, the organization's developers are operating on Linux. According to Fusura's chief technology officer, Tom LaStrange, about half of Fusura's developers-who are given a choice to work on either Linux or Microsoft's (Redmond, WA) Windows-have chosen Linux for their desktop operating needs.

"A developer's choice of operating systems is based upon their personal preference," says La-Strange. "One may choose Linux because they have a Unix background." Although he has seen developers switch from a Windows environment to Linux, LaStrange insists that Fusura will not dictate the replacement of the more established platform.

"Fusura is all about picking the right tool for the right job, so we won't shy away from purchasing a product rather than obtaining one for free where it makes sense" says LaStrange. "If we find something that is free and just as efficient as something we would pay for, then that has some financial benefits."

Although companies such as Farmers and Fusura currently represent a minority of insurers, IBM (which has invested billions of dollars in open source technology), is banking on its acceptance. "With Linux its not a matter of whether it is going to occur, but when its going to occur," says Pieroni. "I am not saying insurers should convert of all of their systems tomorrow. But Linux is important, so it warrants some thoughtfulness." IBM is working with the vendor community on building open source, insurance-specific applications, and several large projects are under way, notes Pieroni.

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