Renewing legacy systems incrementally has proved the best option
for City firm Limit.
According to Jim Davies, director of information systems for the
Liability Division of Limit: "Large replacement projects are very
risky and unless the risk/ reward ratio is very high, we believe
it's better to go for incremental change."
The company has undertaken a series of tactical projects that
have allowed its legacy systems to continue to meet the needs of
the business, even as it has experienced several structural
upheavals.
Limit is a leading provider of capital to the Lloyds of London
insurance market. It handles annual premium income of £800 million
and employs 750 staff worldwide. Its liability division, which has
125 staff in six locations around the world, looks after the
company's non-marine business. This includes underwriting risks
such as employers' liability, professional indemnity and public and
product liability for large companies.
Limit has viewed new systems with caution, because of the
long-term nature of its business. "Claims tend to arise a long time
after the risk is undertaken," explains Davies. "For instance,
hazards to employees are often not apparent for many years. From an
IT point of view, that means we have to keep a lot of historical
data so that we can manage claims and track trends underlying our
profit-and-loss performance."
With the company's history stretching back to 1974, it has 25
years of open-item historical data, most of which is still used on
a regular basis.
Investment decisions are also complicated by the fact that the
insurance business is highly cyclical, with rates tending to go up
and down on a three-year cycle. According to Davies, that means
it's never a good time to invest. "When things are going well, why
bother? When they're bad, people don't want to invest." On top of
that, the business is seasonal, with most policies being renewed in
January and July. Any system implementations have to be carefully
planned around these periods of high activity.
Within these constraints, Limit has needed to undertake four
major systems projects since 1994 - and in each case, it has
plumped for renewal rather than replacement.
The first project involved moving away from systems based on
Data General MVS minicomputers, a Data General dialect of Cobol and
a proprietary database. "We were seeing poor performance and high
maintenance costs, while we had limited access to modern tools and
were finding it hard to integrate these systems with PCs," Davies
explains.
"Rewriting all the applications would have cost us up to £2m and
it would have been difficult to plan the introduction of new
systems to fit in with the twice-yearly peak in renewals."
Using tools from Transoft, Limit was able to migrate its
existing applications from a proprietary version of Cobol to an
open systems version running on Unix against an SQL database. The
result, says Davies, was that Limit "avoided around £1.5m in
transition costs, was able to preserve its existing business rules
and could offer improved performance while cutting maintenance
costs - without a major upheaval to the business".
Improved access to its data through SQL also helped Limit during
its negotiations with the newly restructured Lloyds insurance
market, over how much money Limit would contribute to a fund to
bail the market out after the losses of the early 1990s.
"Because we had access to quality information in a timely
fashion, we were able to show that our estimates of our reserves
were more actuarially responsible than those originally made by
Lloyds," Davies explains.
"That helped us negotiate a more realistic contribution to the
fund which was several tens of millions less than Lloyds had
originally demanded."
The second headache Limit faced was the millennium bug, with the
company needing to decide whether to replace or remediate 1.5
million lines of Cobol code. Prompted partly by internal political
considerations, a tactical decision was taken to remediate the
existing system, again using tools from Transoft.
Davies explains: "We were working against the background of a
merger with two other Lloyds syndicates, and there was a desire to
move to a single platform for all of them. Choosing a new system
just for our division would not have been seen as a good move at
that time."
The third challenge was to merge the liability businesses of the
three Lloyds syndicates into a single operation. Once agreement
from the "names" who comprise the syndicates was obtained, the IT
team had just three months to make it happen.
It was not possible to rewrite or implement a new system in that
length of time, so Limit used Transoft's middleware to pull data
for renewal business from two of the systems - which were developed
in Powerhouse and Visual Basic - into the third, Cobol-based system
which was used by the largest of the three merging businesses.
Limit was already using component-based technology to wrap its
core Cobol functionality for use alongside graphical Visual Basic
elements, so this proved relatively straightforward. Work is now
ongoing to integrate historical data from the systems.
Finally, Transoft's middleware has been used to improve the
service offered to Limit's channel partners, which deal with
non-Lloyds brokers. Partners now use a simple front-end developed
in Visual Basic to request quotes, which are calculated using the
existing functionality within Limit's Cobol system. The same sort
of approach has allowed Limit to deliver a Windows interface at low
cost on the desktop using thin-client technology.
In short, says Davies, a strategy of incremental renewal and
legacy refreshment has allowed Limit "to support a process of
continuous improvement and adaptation at minimum risk. I believe we
have saved at least £2m in conversion costs and spent less than
£400,000 in transition costs.
"We have been able to keep our total IT costs down to less than
£10,000 per seat, while achieving a high degree of openness and the
option to port to most flavours of Unix and NT," says Davies.
Renewal rather than replacement
The problem: how to support evolving business needs and
take advantage of new technologies in an industry averse to
big-bang investment and high-risk projects, and whose seasonal
nature imposes tight deadlines for implementations
The solution: application of a range of legacy
transformation and middleware tools from Transoft
Limit's solution allows it to:
- Minimise the risks associated with IT projects and deliver
system developments quickly and cheaply
- Maintain access to historical data and ensure complex rulesand
procedures are preserved
- Increase the openness of its systems and their ability
tosupport new business activities