Though more marathon than sprint, insurers are indeed in a race to glean as much as they can from a graying IT workforce possessing increasingly rare skill sets and a vast amount of institutional and system-specific knowledge.
Considering the stakes, carriers need to make tactical considerations, including shifting internal staff and outsourcing certain functions, in order to maximize the effectiveness of these workers.
Concurrently, many insurers view this generational shift as a strategic opportunity to refresh their technology stacks. With the industry competing for a new generation of technology workers eager to work with the latest technologies, the importance of these efforts is hard to overstate.
Aging is not easy on man, woman or machine. Whether it's a carrier's legacy infrastructure or the increasingly graying heads tasked with maintaining those systems, the signs of age are evident.
With the baby boom generation inexorably moving toward retirement age, insurers face a brain drain of unprecedented proportions, but also the opportunity to reinvent their technology stack.
"It's not uncommon within insurance IT groups for more than half the group to be within 10 years of retirement," says Matthew Josefowicz, director and head of the insurance practice at New York-based Novarica, noting the long-term nature of the problem has helped delay its resolution. "The average tenure of a CIO is three to five years, so 10 years may seem like a lot of time, but as a strategic issue for insurance companies it is a very serious issue."
Eric Bulis, SVP & CIO at New York-based SBLI USA Mutual Life Co. says the graying of the IT workforce has several major implications for insurers.
"In some organizations it may speed up efforts to migrate off legacy systems if leadership has been able to create a value proposition that justifies the initiative in addition to just the people challenge," he says. "The graying of the workforce should not be the sole reason."
In addition to speeding legacy migration, Bulis sees two other primary impacts from an aging workforce. "One, it is speeding up the outsourcing of the support of those systems versus truly confronting the aging issue in their organizations," he says. "Two, it is finally pushing senior business and IT leaders to create and execute comprehensive and deep succession plans for those key resources in their organization - the SMEs that care for these older systems. I would like to think that most leaders are taking a blended and balanced approach that considers and incorporates the most appropriate elements of all three opportunities in a way that is custom to the needs of each organization. One size does not fit all."
To be sure, implications of this demographic shift are profound for insurers. While many front office, customer-facing applications have been modernized, legacy systems and languages persist in the back office.
What's more, legacy system knowledge and expertise is not being refreshed in the workforce gene pools, notes Cornelius Valenti, IT communications manager for Warren, N.J.-based Chubb Corp. "They are not teaching 'old' technology like COBOL in schools," he says. "We have to find ways to replenish these skills now and into the foreseeable future."
As VP and CIO of Atlanta-based Bankers Fidelity Life Insurance Co., Sanjeev Singh is also keenly aware of the ramifications of the coming retirement wave.
Singh agrees the aging of the workforce is putting a premium on legacy migration efforts, noting that in five to seven years, many of the people on his staff will be retired.
"On the back end, we have staff maintaining legacy systems, and they have been here for 20, 25, even 30 years," he says. "The challenge is to get the systems replaced while they are still here."
Yet, despite a variety of new tools available to ease migration, it remains a challenging and time-consuming process, says Craig Weber, SVP at Boston-based Celent. "Carriers have a lot of trouble," he says. "It's a very manual process-slogging through code to extract logic buried in the system. It's hard to make a clean-sweep approach away from legacy even after you have decided to do it. It's a process, and it's going to take time."
For Singh, one of the more obvious challenges is in extracting the business rules out of his company's existing system. "That's where the pain points are," he says.
To bring the proper resources to bear, CIOs have options ranging from re-deploying internal staff to utilizing third parties, and Singh has utilized a mixture of both, using strategic outsourcing in order to enable his staff to focus on legacy migration. "I am currently using outsourcing on the front end," he says. "The question is: How much can you replace?"
Valenti, too, says carriers must make the most of the time they have left with aging workers. "There are things we can do to maximize the use of remaining available Boomer time and talent," he says. "To do so, we have to better understand and accommodate the aging workers needs, and we are engaging them to help us learn."
Singh is confident he saw the retirement wave coming far enough ahead to take corrective action. "I think, in our case, there's enough time."
Weber, too, thinks carriers have ample opportunity to prepare. "This is a train wreck that we've seen coming far enough ahead to address it," he says. "This is one of those calamities we've seen coming for a long time. The only question is, does it get here this year or five years from now?"
Another way carriers can address a looming of scarcity of IT workers is through outsourcing.
An insurer can opt for outsourced help for a continuum of services from basic application maintenance all the way to purchasing a fully managed service. With an aging workforce placing human capital at a premium, some carriers will outsource basic jobs such as programming and data entry, preserving more experienced workers for higher-level tasks that demand understanding of the business, such as project and program management.
Weber says such hybrid approaches are common throughout the industry. "For many carriers, that may mean reallocating their in-house staffs to development and pushing maintenance out to third parties, including offshore," he says. "This trend has been going on for sometime, but I expect it to ramp up considerably."
However, Weber cautions carriers against viewing outsourcing as a panacea for staffing issues. While a CIO can find an available pool of COBOL programmers in India, getting said programmers to work well in a company's unique systems environment is a challenge. "India may be replicating skill sets for legacy maintenance, but that's not a long-term solution," he says, noting that freshly minted programmers and analysts, irrespective of country, want to work with newer technologies.
Mark Lees, director of marketing at Falls Church, Va.-based Computer Sciences Corp., says the graying of the population may be an initial factor as to why a firm may look to outsource some of its IT operation. Lees says that legacy language experts are now more apt to work for IT services providers than for your average carrier. Accordingly, many insurers are looking for help to migrate applications from legacy languages such as COBOL to more modern languages such as Java.
Once viewed primarily as a vehicle for labor arbitrage, companies are now viewing outsourcing as a transformational play, Lees says, noting CSC's extended IT services contract with Zurich-based Zurich Financial Services, which is based on transforming the company's existing data center environment into a highly flexible and virtualized operation. "One of the problems people are having with their legacy applications is that they are inefficient in their use of the underlying infrastructure," he says. "Even though it may take some money to modernize the app, you may get a cost benefit on the other side by changing your infrastructure profile."
Josefowicz cautions that outsourcing has it limits, adding that the issue with an aging workforce may be less about the wholesale loss of particular skill sets than the gradual loss of specific, institutional knowledge. "The issue around legacy systems is only partly a technology issue; it's more of a legacy application issue," Josefowicz says. "If you have a system that's been in production for 30 years, it's very hard to extract all the information from people to use it. That's something the graying of the workforce impacts dramatically."
The Big Picture
The aging of the workforce is also engendering contemplation about larger architectural issues. Weber counsels a broader approach, saying carriers have to address the challenge of a graying workforce in the context of overall IT strategy. "Most carriers are looking at transition planning from an HR perspective, but you have to overlay that against a technology strategy," he says. "It's a solvable problem, but you have to break it down into component pieces and start from an understanding of where you are."
Valenti says Chubb has many technology rewrite projects underway, but will have to continue to support legacy technology for the foreseeable future. "In this sense, we still have to fit the workers we have to the technologies we currently have," he says. "However, as we strategically replace technologies, in a limited sense this can begin to shift to fitting the technologies to the workers."
At Bankers, Singh says he is considering options such as the expanded use of service-oriented architectures (SOA) and cloud computing.
Weber says that SOA can, in theory, give a boost to legacy migration efforts but it is not a final solution. "Web services can help, but you always end up with projects that require you to do a deep dive," he says. "You may be able to insulate yourself from that legacy code, but it lives on, and requires the occasional tweak."
Indeed, even if a carrier has decided to plunge full steam ahead into a legacy replacement project, the IT team still has its work cut out for it. Josefowicz says that a carrier about to be swept by a retirement wave should be thinking about how they are going to document the systems before those most familiar with them walk out the door.
"Most insurance legacy systems are poorly documented," he says. "There's a good deal of tacit knowledge that people built up by talking to people that actually built the systems or just accumulated over the years by working with them. That's very difficult to replace."
Weber says that CIOs need to make systems documentation a high priority. "Those 4-inch binders sitting on a programmer's shelf don't get upgraded until they have to be. That's unfortunate. Some of the knowledge that you need should be in system specs and accessible to someone who wants to replicate that functionality."
Insurers also need to stimulate dialogue about retirement, Valenti says, reassuring workers that talk of retirement is not tantamount to disloyalty. "We had to look at the totality of our challenge to begin risk mitigation planning related to looming retirements and the shrinking IT workforce," he says. "We also have to work to remove the normal reluctance people have to talk about retirement because we need that openness in order to plan."
The current macroeconomic environment may staunch the flow of workers into retirement, but this is only a temporary reprieve, Weber says. "One of the many unhappy outcomes of the market crisis is that people's 401k accounts took a beating. That provides a little counter-pressure to the disappearing skills, but it does not change the bigger picture."
As such, insurers will have to find innovative ways to create incentives for workers considering retirement, including having them continue to contribute part-time as consultants, or allowing them to work remotely. This last option may be especially important to insurers away from major metropolitan areas that will feel the impact of a graying workforce more acutely than their urban counterparts. "There's a potential for remote employees to level the playing field. We're seeing a lot more insurers being comfortable working with remote employees, especially on the technology side," Josefowicz says.
Indeed, geography plays a role. "When you are looking at skills that involve working with COBOL or assembler, individuals with those skill sets will still be available for a long time to come, but may not be just in your hometown. You may have to go further a field to find the right people," Weber says.
For some insurers, finding the right talent has as much to do with the economy as it does geographic location. "Being in a major metropolitan area is a mixed blessing. It's good when times are tough, it's bad when things are humming," Josefowicz says. "During the Wall Street boom, it was very tough for insurers in New York to attract technology talent. Today, after the layoffs from banks, they have the pick of the litter."
A New Generation
Irrespective of location, one challenge facing insurers in attracting a technology workforce is the perception among younger workers that the systems the industry uses are hidebound. Employing new technology can help lure new, young workers into IT, Valenti says.
"While insurance companies as a whole are not normally deemed to be on the 'cutting edge,' we have a culture of success in our IT area that has proven to be very attractive to potential candidates. We believe it is important to focus on critical 'generational' research in order to be the employer of choice.
Insurers also need to acknowledge that younger generations look at work and careers very differently from previous generations, Valenti adds.
"We have extensive "generational" training classes, a telecommuting option, and a major initiative to implement a social networking platform at Chubb. We even had a group of college interns who were with us in the summer of 2009 help determine many of the requirements for the platform," he says. "In order to attract and retain these new generations, companies have to come to grips with their views and expectations and accommodate them to some extent."
Is There Hope In the Clouds?
An Increasingly viable option for carriers to offset the impact of an aging workforce is to utilize cloud computing. Sanjeev Singh, VP and CIO of Atlanta-based Bankers Fidelity Life Insurance Co., says he is considering moving some IT functions to the cloud in order to focus his internal resources on other efforts.
Singh acknowledges that the implications of such a shift are so profound that proponents of cloud computing need to get buy-in from the business side before proceeding down that path. "Being in IT, there are tools that I may think work well from a technological standpoint," he says. "But because of the nature of the business, people are not ready to jump to cloud computing."
Indeed, while use of a SaaS or cloud model is already common in areas such CRM, payroll and agent licensing, it is virtually unknown in the areas most vulnerable to a graying workforce - core systems - and adoption elsewhere in the enterprise may take awhile. "When it comes to core systems, people are still hesitant," he says, noting that for these models to take hold, proponents need to address concerns around privacy and regulations such as HIPAA. "It's an educational process, a slow process."
Craig Weber, SVP at Boston-based Celent, adds that the relief afforded carriers by shifting some functions to the cloud may prove illusory.
"We believe strongly in the cloud, but you rarely end up with a pure distributed solution," he says. "Mostly you end up with a hybrid situation with some things in-house and some residing in the cloud, and you have to reconcile that. If you are replicating functionality using legacy code it doesn't matter if it's running within your four walls or in India. The cloud solves other problems but, probably not this one."
This article can also be found at InsuranceNetworking.com.
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