Many insurance companies rely on disparate technology solutions to quickly bring products to market, process claims and service customers. But the homegrown and customized legacy systems on which many companies have built their businesses often are not flexible enough to quickly address market demands. By adopting service-oriented architecture, insurance companies are successfully distributing existing systems across the enterprise in a more cost-effective manner.
Since customized legacy solutions tend to be hard-coded and operate independently among departments, they create silos of information. To make matters worse, a single insurance carrier has invested in multiple independent solutions to conduct billing, claims, even underwriting processes. "Insurance companies are constantly trying to mine data to see where the customers' needs are, bundle products and service their policyholders," says Shane Tulloch, CEO, SEEC. The Pittsburgh-based company provides service-oriented business applications for insurance and financial services. "IT needs to be the backbone of these operations. If existing solutions cannot be adapted to support this business, insurance carriers have a serious problem," he says.
A New Solution
As competition across the North American insurance industry heats up, companies realize they need to reengineer their processes and expand solutions across the organization if they want to compete. Thus, carriers are looking for solutions that will break down silos, reuse data and business logic, and deliver "one view of the customer," says Vijay Chavan, worldwide head of insurance and financial services at insurance technology solutions vendor Majesco Mastek (Edison, N.J.).
While costly, cumbersome point-to-point integrations were historically the only option, Web services are emerging as a favorable alternative. According to Boston-based research firm Celent, through standard, platform-independent protocols, text-based messaging and data transfer formats, Web-based services actually expose an application or data on one computer to requests from other applications on another computer.
Web services are gaining more attention thanks to growing interest in service-oriented architecture (SOA): a collection of self-contained services that communicate with each other and perform business processes through defined description languages or standards. This architectural strategy is a services layer, or interface, that enables companies to leverage data and transaction capabilities of existing systems across an enterprise. "Legacy systems are historically built to be batch-oriented," says Prasad Kunchakarra, chief architect for consulting firm Primus Solutions (Clarksville, Md.). "As companies wrap [SOA-based] interfaces around legacy systems, they can remodernize their legacy systems" and allow users to access data on existing back ends with Web-based front ends.
And the benefits are plentiful. "SOA automates the functionality of legacy systems without disrupting the depth of the core application," says SEEC's Tulloch. "It is a fast, flexible way to connect business components and create automation." Open, Web-based interfaces are also speeding up implementation time. On average, implementations take roughly 30 days. Once SOA platforms automate historically manual processes, "companies can reduce their costs by 25 percent," says Majesco Mastek's Chavan.
While Web services and SOA are being slowly adopted across the insurance industry, "a majority of carriers already use it somewhere in their IT infrastructure," says Matthew Josefowicz, manager of insurance group, Celent.
For example, SOA is helping one unnamed insurance carrier to interconnect the disparate systems it collects through mergers and acquisitions. "We were burdened with our own legacy systems as well as those we inherited. Now we need integration among those systems," says a company executive who requested anonymity. "To de-commit to these applications is an expensive proposition," since a significant amount of capital was invested into these systems over the past 30 years, he adds.
After exploring how SOA could be an effective and cost-efficient means of systems integration, the company began evaluating where to begin. E-business operations became a top priority.