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Virtualization: Does It Have A Positive Impact On Insurance Operations?

By optimizing computing resources, virtualization can lower infrastructure operating costs while improving business agility and speed to market.

Q: What is virtualization? How can insurance enterprises benefit from the computing concept?

A: Scott Murphy, Robert Frances Group: Virtualization is a concept and a way of doing business, not a specific product or a tool. Virtualization needs to be looked at from all parts of a company's data processing systems. Virtualization can enable an insurer to drive down total cost of ownership (TCO) and improve speed to market for applications while allowing the IT organization to become more efficient and effective.

A: Jerald Murphy, Robert Frances Group: Virtualization is essentially making many resources appear as one. That is, one physical computer can appear to be several computers to the people and applications using it. It can also work the other way around -- one application can actually run at the same time on multiple computers. In practice, most people call this grid computing. Virtualization also applies to storage and computer networks. The concept is important to insurance companies because virtualization allows different applications to share the same computer. When you can share physical resources, insurances companies can save a lot of money.

A: Jack Wilson, Amerisure: Virtualization is an overarching business strategy that removes the necessity to be in any physical location in order to perform business functions. Business can be performed wherever there is an Internet connection. This is a very broad strategy that not only includes servers and workstations, but also soft phones, document imaging, virtual meetings -- anything that removes the need to be in a specific physical location to execute a business function.

There are a number of positive impacts of virtualization, depending on how you've implemented it. We chose to centralize all the complex components (servers, data, software) and have very simple components at the user end (thin clients or an Internet connection). We eliminated PC workstations and their associated maintenance and update needs. All user sessions run on a Citrix (Fort Lauderdale, Fla.) farm back in the data center, where they can be monitored and tuned. We standardized the set of software we supported, and all updates and services packs are applied to the Citrix farm, and everyone always has the exact same set of software. All data is stored and backed up in the data center; nothing is on hard drives to be lost or stolen.

As part of the standardization, we eliminated redundant software, including databases and operating systems. Help desk calls went down dramatically, and support resources could be used in other areas. Our overall cost of ownership dropped dramatically, especially when we can extend what would have been a normal three-year refresh cycle with the PC to a seven- to nine-year cycle with the thin clients.

A: Bogomil Balkansky, VMware: Virtualization addresses many challenges, including optimizing computing resources, maximizing uptime and having the flexibility to meet business needs. Our insurance customers typically faced server sprawl, needing to host each business application on a separate server. Instead, with virtualization, the isolation property of virtual machines means applications can share server resources without conflict. [Virtualization] enables IT to think about their physical hardware as one large pool of resources that can be dynamically managed in real time. By creating a single pool of storage, network and computing resources that is easily managed, companies are seeing lower TCO, increased flexibility and responsiveness, and increased capabilities, such as disaster recovery and facilitated desktop deployments.

Q: What are the potential benefits of virtualization within the insurance industry?

A: Murphy, Robert Frances Group: At Nationwide we have seen the benefits of virtualization in lower infrastructure operating costs while providing faster IT services to new and existing applications. Test, reporting and back-office environments were the first to be examined for virtualization. But as the various products, tools and support improve, we have moved mission-critical applications to our virtual environments as well. One of the biggest challenges has been changing the mind-set of business units that feel they must have control of their own environments and cannot share resources.

A: Murphy, Robert Frances Group: There are three key areas of potential benefits: space, time and money. Fewer systems deployed results in lower capital costs. If companies can put 10 applications on 10 machines onto one or two machines, not only is that less money spent on computers, but the amount of money spent on electricity to power and cool these boxes goes down, freeing up precious data center space as well.

Virtualization makes the most sense today for nonmission-critical business applications that are used by internal employees. Since virtualization is still maturing, most companies are not yet willing to bet their business availability on virtualization. However, since most insurance companies have hundreds of applications deployed, there are plenty that are good candidates for virtualization. IT executives in insurance companies should look for routine applications that are running on standalone systems that run at 20 percent or less CPU utilization. When finding systems to consolidate on one virtual platform, insurers should combine applications that use similar databases and similar operating systems to minimize complexity.

A: Balkansky, VMware: The following benefits are particularly important to the insurance industry:
•1) Flexibility -- applications can be provided with the resources needed at a moment's notice. The infrastructure can respond at the speed of the business.
•2) Drastically lower TCO due to higher server utilization and a reduction of physical servers and operational costs.
•3) Reduced downtime -- zero-downtime hardware maintenance without waiting for maintenance windows. Also, virtualization means deployment is a file copy, not an imaging or reinstallation process; an error in one virtual machine is isolated from others, allowing for simple clustering and hot backup.
•4) Dramatically lower costs and simplicity for disaster recovery strategies because there is no need for expensive hardware redundancy.

Q: Does virtualization have a downside? What are the risks for insurers that virtualize IT resources?

A: Murphy, Robert Frances Group: Virtualization adds a layer of complexity to infrastructure, and complexity is the enemy of effective management and security. Additionally, if companies do not get a lot of consolidation, it might not yield the savings companies expect that it would. A 5-to-1 server consolidation ratio is typically required to make the additional cost of adding a virtualization layer pay off financially.

Adding a layer of complexity also increases the areas where systems can be attacked. Therefore, insurers should have very mature security policies, processes and technology to minimize any risks associated with adding virtualization.

A: Wilson, Amerisure: If there is a downside to virtualization, it is that by centralizing the key components, care must be taken to make the components redundant and recoverable (or use a coprocessing model). But if done right, virtualization also plays very well in business continuity or disaster recovery scenarios by allowing users to work from anywhere they can connect to the Internet.

Q: How is the concept of virtualization evolving, in terms of technology capabilities, pricing, etc.?

A: Murphy, Robert Frances Group: The technologies associated with virtualization are quickly evolving. Pricing can be an issue, especially for the start-up of any new virtualization concept when you don't have any guaranteed customers or use. As the competition increases, I would expect the market to drive down prices and make it more affordable for insurers.

A: Murphy, Robert Frances Group: The concept of virtualization is evolving from taking one computer and making it appear to be many computers, to virtualizing any information technology resource. As virtualization becomes more generic, and as management tools evolve to make it easier to implement virtualization, the cost of virtualization will go down and the efficiencies to be gained by virtualization will increase.

Vice President, Technology Solutions,
(Columbus, Ohio)

Jerald Murphy
Senior Vice President, Director of Research,
Robert Frances Group
(Westport, Conn.)

Jack Wilson
Enterprise Architect,
Amerisure Mutual Insurance
(Farmington Hills, Mich.)

Bogomil Balkansky
Senior Director, Product Management,
(Palo Alto, Calif.)

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio

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