Defined by its open communication standards, SOA promises to dramatically reduce integration and development costs in the long term, though there may be a short-term cost associated with the initial conversion.
Due to the economic slowdown, these short-term costs were a factor in 2009, resulting in a reduced interest in converting legacy policy administration systems to SOA, according to Kimberly Harris-Ferrante an analyst with Stamford, Conn.-based Gartner. Insurance companies, depending on investment income, were particularly hard hit, she says, and their interest in big technology projects was subdued as a result. "As we go into 2010, we're starting to see a lot of these companies start back with these projects," she says.
Newfound Agility
The largest U.S. firms have already to migrate away from legacy systems to modern standards, and are now building on the progress they've already made.
Boston-based Fidelity Investments Life Insurance Co., for example, began the transition to SOA in 2006 in its annuity line of business. "We were on an old legacy system, and it was hard to build new products on that system and release them to the market quickly," says Shawn Pate, the company's VP for software development.
After evaluating the alternatives, the company chose Oracle's policy administration system, which separates the business rules from the application layer, allowing business users to create new rules and processes without writing new code. Fidelity was one year into the configuration process when the company decided to release a new product - and the old system couldn't handle it. "The only place that had the functionality and features that we needed was within the new system we were building," says Pate.
So the migration process was put on hold while Fidelity rolled out the new product, Fidelity Growth and Guaranteed Income, which took less than nine months to configure and was released in the fall of 2007. Previously, new products took up to 12 months to roll out, she says. Since then, Fidelity went back and finished migrating its old products and retired the legacy platform in the summer of 2008, and the benefits of having an SOA-based platform are already being felt, she says. For example, the most recent product launch took just four months. "We've been able to leverage the architecture of the new system so we can [improve processes, such as inputting regulatory changes quickly,] and configure new products and bring them to market in record time."
In addition, the new platform enables easier integration with multiple channels, Pate says. Accordingly, real-time data exchanges are now done with SOA Web services standards. Fidelity will continue working to roll out SOA standards throughout the middleware level in 2010, she says. The company is using a strategic approach, doing the work a bit at a time. "We're looking to take pieces of those changes as we do other projects throughout the year," she says.
Oracle's Policy Administration System is also at the heart of the new SOA initiative by Marsh Inc., a New York-based broker and business process outsourcing firm that serves U.S. and global insurers. Marsh began rolling out the new system in the fall of 2009, with the first customer expected to go live on the platform by September 2010.
Don Cahalan, managing director and president of employer benefits at Marsh Global Consumer, says the SOA-based system quickly brings new customers on board. "Once you have your framework in place and have built your product set, the additional products come at incremental speed," he says "Instead of quarters or years to bring products to market, it's weeks to months."
Migrating policy administration from a legacy system to the new platform will be even quicker. "With the Oracle platform we're building, because of the SOA in the application, moving over that book of business will actually shrink to three weeks' worth of work on the actual conversion," adds Ted Hughes, SVP of IT at Des Moines-based Marsh U.S. Consumer, noting that Marsh will be better able to seamlessly integrate multiple products for customers, he says.
Best of Breed
The U.S. market is the furthest along, experts say, because many companies have adopted a best-of-breed approach to their technology deployments, which creates integration problems that SOA helps solve. "The underlying reason was that the U.S. market started earlier, so vendors have had more time to emerge with better and more modern point solutions," says Donald Light, a senior analyst at Boston-based Celent.
According to a Celent survey of CIOs, about 40% of all integration with external data sources was done with SOA this year, Light says. And when it came to internal integration, he says, more than half was done with SOA. By comparison, outside the United States, the rates were 25% to 50% lower.
For many firms, one of the side benefits of SOA is that it becomes easier to integrate policy administration systems with third-party billing platforms, Web access portals for staff, agents and customers, and even mobile applications. This is particularly true outside the United States, where the need to integrate best-of-breed products from multiple vendors is not as urgent.
In the UK, best of breed integration issues aren't as significant as in the United States because insurance firms tend to use end-to-end systems from single vendors, or build their own platforms, says Celent analyst Catherine Stagg-Macey. However, the UK does have another type of integration issue - multiple distribution channels.
"The UK has one of the most complicated distribution markets in all the world with the number of channels where you can get insurance," she says. "At the post office, at the supermarket, at the car dealership, by yourself on the Internet. And then you've got the aggregators, who wind up commoditizing and driving the prices down."
Be the first to comment on this post using the section below.