Terms of Replacement
For George Hanrahan, the choice was clear. The vice president and CIO of Western United Life Assurance (WULA; Spokane, Wash.; $1.7 billion in assets) was saddled with an obsolete, VAX-based cluster of systems for which his IT group had provided sole support since the early 1990s. Facing a high cost of ownership and inflexibility in responding to market demands, Hanrahan chose to replace his legacy systems.
"Mainframes will always be around for very high-end insurance shops that have hundreds of thousands or millions of policies, but as a small-to-medium-size annuity company, we need something more affordable that would bring us greater speed-to-market," Hanrahan says. He specifically wanted a Web-based offering on a standard software platform that would obviate the task of training IT staff on proprietary technology. Having studied several client/server-based options, WULA decided on AdminServer's policy administration system, which Hanrahan had up and running in July for all 16 of its annuity lines of business (see case study, page 33).
Among the benefits of AdminServer's .NET architecture and rules-based functionality is the system's ability to put new product tasks in the hands of the business rather than IT. Since implementing AdminServer, Hanrahan says, "We have come up with a half-analyst/half-programmer who does most of the work on the business side, reducing costs." He adds that the new system's ability to replicate and modify products is "phenomenal."
Even where the choice is not as clear as it was for WULA, carriers should increasingly find legacy replacement a compelling option, opines Chris Doggett, AdminServer's CEO. "Legacy systems are getting more and more expensive, and the staff to work on them is literally dying off in some cases," he says. "At the very least, companies should consider [a] sort of baby step on a newer technology to give you the time-to-market that's critical to issuing competitive products."
Whatever steps they're taking, insurers are indeed concerned about the speed at which they can issue products, affirms Ed Blomquist, an analyst with Datamonitor (New York). Time-to-market is the leading concern with respect to policy admin moves, especially in the life insurance industry, he says. And while insurers are still preoccupied with cost-cutting, "Some recent research we've conducted indicates that they are now shifting their focus back to growth, and trying to get a little ahead of the business cycle."
But that doesn't necessarily equate to a replacement strategy, at least not the kind of end-to-end model for which Hanrahan opted. The type of solution that worked for WULA is likely to be prohibitively costly and time consuming for larger carriers, according to Blomquist.
The feature of WULA's approach that more carriers are likely to share is the focus on standardized technology, but implemented in such a way as to leverage legacy assets. This can take the form of a legacy "wrap-around" - or "surround" - which allows for data integration between legacy and other systems. Its drawback, Blomquist says, is that "It still doesn't eliminate the hard-coded legacy systems and limits the ability to incorporate new applications and technologies."
A better option, according to Blomquist, is an enterprisewide component-based integration approach, which involves standardizing the back office and establishing a middle tier in the IT architecture. Applications are then moved from the back office to the middle tier, where they can be swapped out as necessary. "This provides the benefit of wrapping - from a data integration standpoint - across the applications, but it positions the company for potential application replacement and true straight-through processing as well," Blomquist asserts.
By following such a path, carriers are able to blur the line between extension and replacement. Rather than simply multiplying the complexity of legacy systems on a dead-end path - as typically is the case with a wrap-around strategy - implementing a standardized architecture supporting components amounts to embarking on the road to replacement.
The Hartford's personal lines IT organization started down that road in 2001, owing to a divisional project directed at improving speed-to-market, according to Keven Busque, chief information officer, personal lines. "The project was about taking a hard look at the pain points the business was dealing with, which was the inflexibility and cost of putting a new product in," he says.
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
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