Insurance companies must harness
service oriented
architectures (SOA) if they are to remain competitive in a
changing market,
financial services analyst TowerGroup has
concluded.
The research firm has carried out a study of the US insurance
industry that has highlighted the need for firms to move to an SOA.
It gives plenty of lessons for UK IT directors, said Mark Gorman,
strategic research adviser for insurance at TowerGroup. If
anything, the UK is probably more in need of SOA than the US, he
says.
According to TowerGroup, an
SOA lends itself to the insurance industry, which relies on
legacy systems made up of disparate product engines and
databases.
Legacy IT systems do not allow insurance firms to respond
rapidly to changing consumer demands with new products and new
routes to market. They also make it difficult for insurers to
improve the buying experience of customers and agents.
"From our perspective, the insurance industry is a mixture of
independently developed internal proprietary systems or those that
they have purchased from other suppliers but which they internally
modify," said Gorman. "These systems limit their ability to respond
to various pressures in the industry."
Gorman said although the insurance industry in general already
used some web services, it was missing out on
the benefits of a full SOA.
"If we are talking about web services in the insurance sector we
are seeing it a lot more. But if we are talking about SOA as a
paradigm of how companies control and deploy technology to achieve
business needs, then the insurance industry is a bit slow," he
said.
"We believe that SOA provides promise and hope for the insurance
industry. There is an opportunity to leverage investment in
technology in order to meet business needs."
Mergers and acquisitions, which require firms to take on and
integrate different systems, have exacerbated the splintered nature
of IT systems in the insurance industry.
They are making it challenging for insurers to introduce new
sales models, including selling direct online and using aggregator
sites that offer consumers best price guarantees. Old systems must
be linked together to enable products to be delivered in this
way.
David Howard, director of enterprise solutions at
IT services company Unisys, said the insurance market has
changed and businesses have had to adopt new technology quickly to
remain competitive. Unisys works in the insurance market with a
particular focus on the life and pensions sector.
Howard agreed that legacy systems are rife in the insurance
sector, which makes fast access of the right information difficult.
He said one insurance company and customer of Unisys had 20
different customer databases.
"When we started to look at deploying within insurance
companies, what we saw was a huge amount of legacy systems," said
Howard. "If you have that level of complexity in your back office
it is very difficult to keep people trained and keep records up to
date."
He said the need for SOA had increased as competition forced
insurers to adopt more innovative forms of competition.
"Insurance companies are more often going direct with policy
offers, and as a result need websites and call centres. As soon as
you go into this model where there is a lot of competition, the
cost of delivering the policy is critical because you can reduce
prices if you can reduce costs," Howard said.
"Insurance companies are also using aggregators, such as
Confused.com. Insurance companies have to link into this or they
will not get the business." He said in the past the insurance
industry had been slow, but with the advent of the internet and
more competition in the general insurance market, they have had to
change quickly
Peter Hambling, head of IT group at Lloyd's insurance market,
said the company is actively investing in SOA.
All businesses can benefit from growing their technology on a
single enterprise architecture, rather than multiple legacy
systems. This will allow them to implement services when commercial
business drivers enable it, he said.
But standards are essential if the insurance industry is to reap
the full benefits of SOA. Lloyd's is an active participant of
Acord, an association that works to establish standards for the
insurance, reinsurance and related financial services
industries.
Lloyd's contributes both as a board member and by donating
resource and intellectual know-how, said Hambling.
"Standards will help the systems of brokers and insurers to work
together, for example. Standards are pivotal to enabling the
effective electronic interchange of information within insurance,"
he said.
Paul Gould, chief architect at
Norwich Union Life and Pensions, which embarked on its SOA
strategy in 2002, said his experience had shown him that standards
can work. "As a result it is possible to get some supplier
independence," he said.
He warned that businesses taking the SOA route must have a
strict business objective and must put in place systems of
governance.
"You should only do it if you have a committed business outcome
to achieve and not just invest in infrastructure just in case you
use it in the future," he said.
"Without governance you cannot make it work. If you do not
really manage it and it is compromised, it stops being possible to
re-use what you have done."
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Acord >>
Unisys >>
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