In January, the FTC handed out fines of $25 million tomanufacturers of weight-loss pills for hyping their products withclaims that were too good to be true. In the marketing of businesstechnology, however, there's no government watchdog, so it's up tothose in charge of IT to uncover the truth.

Certainly, one of the most-hyped technologies in recent yearshas been service-oriented architecture (SOA). The good news forinsurance IT truth-seekers is, as carriers' real-world work withSOA and its supporting concepts has grown, the hype surrounding SOAhas begun to diminish. Additionally, that work has given credenceto one of SOA's key claims: Insurers can use it to increase theirspeed to market.

“Companies are indeed able to bring products to market morequickly given the agility SOA provides” by allowing the reuse ofservices for as many business processes as possible, says JohnAndrews, president of software development market research firmEvans Data.

The insurance industry has been moving forward quickly with theadoption of SOA, including using Web services and adoptingstandards, according to a recently published study byTowerGroup.

“We're seeing clear movement and progress toward aservice-centric [IT] portfolio that allows insurers to focus on themost effective way to deal with functional and businessrequirements,” says Mark Gorman, strategic advisor for TowerGroup'sinsurance practice.

Gorman maintains this work is critical to meeting the evolvingdemands of the insurance industry. “Insurers are looking to make'opportunity investments' [in SOA technology] that increase thespeed at which they can bring new products to market,” he adds.“We're also seeing an orientation toward 'innovation investment,'where companies try to identify and leverage SOA as a disruptivetechnology that can revolutionize the business and give them aclear competitive advantage.”

SOA: 2007

The concepts of component-based design that underlie SOA aren'tnew. “It's only now that SOA is really practical,” claims RonaldSchmelzer, senior analyst and founder at ZapThink, an advisory firmfocused on SOA. Yet even with its history, SOA often is surroundedby confusion regarding what the term actually means, particularlysince explanations tend to be couched in tech-speak.

To clear the confusion, let's start with the definition from theSOA reference model that information standards group OASIS releasedin August 2006: “Service-oriented architecture is a paradigm fororganizing and utilizing distributed capabilities that may be underthe control of different ownership domains.”

Once you get past the inclusion of the overused word paradigm,this definition actually is quite useful. The key word is“capabilities.” SOA is a method of getting things done usingwhatever capabilities you have, wherever those capabilities reside,and in whatever fashion those capabilities can be organized orcombined in ways that deliver the maximum benefit to theenterprise.

The journey to SOA therefore starts by changing your thinkingfrom how to build systems to how to get business done mosteffectively. “People want to jump right into WSDLs, XML SOAP, andWeb services” when planning an SOA, says Michael Kronenwetter, vicepresident of technology management at Pennsylvania-based healthinsurer Highmark. “Instead, you should be discussing your businessgoals, your process methodology, and your corporate culture.”

This is particularly important because SOA is not limited to aparticular technological approach. “When we surveyed carriers, wehad the initial hypothesis they were moving from the mainframe toWeb services” in their SOA projects, Gorman says. “But [they all]said no; they were going to leverage what they had in place bysurrounding [legacy code], externalizing functionality, and reusingsystems wherever they could.”

“Companies have been able to build SOA right on top of theirmainframe environment if they so choose, and the technology we usetoday will be different from what we will use five years from now,”says Schmelzer. “The key to SOA is the 'A.'”

HAVING A PLAN

The build-out of SOA is going on feverishly in the insuranceindustry, reports Gorman. “Most of it is going on well under theradar,” he says. “The thought leaders are focused on it, but mostaren't talking publicly about it.”

Highmark formally began its SOA initiative in 2004, which arosefrom a strategic information systems plan. As Highmark worked tomove forward with an SOA framework and methodology, the companydiscovered it first needed to take a step back.

“As we started to talk to our information systems areas aboutgetting to an SOA capability, we realized we hadn't thought out howto translate our business processes themselves to the componentlevel,” Kronenwetter recalls.

For the next two years after completing the strategic plan,Highmark staff members worked on several parallel tracks related tothe SOA effort. They began to develop the technical understandingof SOA and an SOA methodology in IT; they determined what systemsshould be refreshed, rebuilt, or acquired; and they used IBM'sWebSphere Business Modeler to optimize process design. “We'vealready seen the process-modeling activities bring business and ITcloser,” Kronenwetter says.

Prior to working on its formal SOA plan, Highmark already haddeveloped a number of XML-based services–which Kronenwetter terms“generation 1″ components–such as an insurance coverageverification service the company currently extends to medicalproviders. What Highmark didn't have was a good way to locate andmanage those components for effective reuse and speed ofdeployment. Therefore, the company deployed Logic Library's Logidexregistry/repository system, which today manages all the componentsthat exist in its environment.

The next step in Highmark's SOA development will be to deploy anenterprise service bus and a process choreography engine, usingBPEL output from WebSphere Business Modeler.

“We left the technology piece until last,” Kronenwettersummarizes. “We looked first at how we were going to drive our SOAfrom the business down through process modeling, then from thebottom up through technology enablement. This year, we arebeginning to roll that methodology out through some pilotprojects.” The largest SOA-related project on its slate is arearchitecting of Highmark's claims administration system, whichthe company expects will take several years.

INCREMENTAL GAINS

While Kronenwetter indicates Highmark is not in the “valuerealization” stage of its SOA efforts, he stresses the company hasseen benefits from its work with SOA technologies to date.

“Just by using 'generation 1' services specifications andcapabilities, we've realized a fairly significant value in gettingchanges to market quicker. Particularly in the last year and ahalf, we've also been able to derive value from the reuse ofcomponents and by being able to deploy standards-based componentsto new processes more quickly,” says Kronenwetter. “The next stepthis year is to take those specifications and determine how to makethose services more extensible using WSDL, SOAP, and Web servicesstandards.”

Highmark's approach mirrors the trend in the rest of theindustry. According to an Aberdeen Group study from 2006, mostcompanies committed to SOA are building composite applications todeliver value to line-of-business units while the SOA isconcurrently under development. In that study, 52 percent ofrespondents said the need for faster implementation was a driverfor the development of those applications.

Among the many speed-to-market benefits being targeted byinsurers, bringing new capabilities to the distribution channeltops the list. “Insurers are trying to interface better withexternal partners, suppliers, and agents, even more so than using[SOA] to create a type of infrastructure that can drive products tomarket faster,” Gorman says.

That has been the philosophy of Swiss Re, which is looking togrow its book of commercial lines P&C business in the numerousspecialty markets it targets. “We do want to bring products tomarket faster that are more relevant to customers, but what we'realso trying to do is increase the efficiency of the distributionchannel to allow [agents] to produce more business with lessadministrative effort,” says Michael Rubin, senior vice presidentof technology in Swiss Re's commercial insurance business.

Swiss Re also wants to facilitate cross-selling of products byagents, but complicating the effort is the host of differentquoting and policy administration systems the insurer runs thatsupport its niche-focused underwriting strategy. Additionally,having just completed a five-year replatforming project,modification of those systems was out of the question. “We likewhat's in our existing platform,” Rubin explains. “We have strongcontrols and good transparency, but those systems don't have thesimplicity of use we want for our agents.”

In its e-Submit project, Swiss Re used Insurity's Studio toolkitto put a Web-services wrapper around quote and underwriting systemsto expose them to agents via its agent portal and to make thosesystems accessible for future services connections. The firstsystems targeted, supporting professional liability, were scheduledat press time to be online by the end of January.

Creating standardized integration to these systems also hasenabled Swiss Re to change the nature of the development process.“In the past, when we launched a new front-office system, we usedto have an equal front- and back-office team. Now, the linksalready are there to the back-office systems, and we can focusinstead on creating the front-office systems knowing everythingdownstream is in place,” Rubin says.

As a result, the first e-Submit deliverable was completed ineight weeks but would have taken six months in a non-SOA approach,Rubin reports. He expects the speed of future deployments toincrease similarly by orders of magnitude over traditionaldevelopment approaches by reusing services and leveragingnonsequential development methodologies.

SOA AND BPM

Speed to market is an important objective of reusing andcombining services within SOA to create new systems and support newproducts and processes. However, speed without control leads tochaos.

“Agility is great, but the concern is you can create somethingthat is nonfunctional,” says Miko Matsumura, who is chair of theSOA Adoption Blueprints Technical Committee at OASIS and vicepresident of SOA products at integration vendor WebMethods. “Forinstance, you could create an insurance package that actually iseconomically nonviable for business reasons or had some regulatoryproblems. Making sure agility fits within the realm of constraintis a key success factor.”

Therefore, business process management (BPM) is a concept thatshould be connected to the SOA effort. BPM starts with theprocess-modeling activities described earlier and culminates withthe systems put in place to orchestrate and govern both businessand IT development processes.

Within BPM, rules engines give carriers the ability to automatethe constraint mechanism rather than slowing down the developmentprocess for manual review. Matsumura illustrates the relationshipwith an anatomical analogy: The architecture is a “skeleton” thatprovides the structure, and the business rules are the ligamentsand tendons that coordinate activities. “Power in a coordinatedfashion is what really defines agility,” he says.

Rules engines are a staple of automated decision systems in useat many insurers, such as in underwriting and claims fraud, as wellas in business workflow and task routing. Now, carriers also arelooking to extend rules engines into the development process.

For instance, HealthMarkets, which is in the process offormalizing its SOA, is looking to its Business Rules ManagementSystem from Haley Rules to play an important role in thatdevelopment.

HealthMarkets began using Haley Rules in 2002 in connection witha quotation system for agents, called Digiquote, in order to ensureagents were issuing quotes in compliance with state mandates,licensing restrictions, and company-specific objectives. Byseparating the business logic for this control from the quotationsystem, the Haley system already allows HealthMarkets to makechanges and create new rules quickly in response to regulatorymandates or new product development.

“We can make business rule changes within minutes that used totake a change management process,” says Chris Robison, vicepresident of IT for the Agency Marketing Group atHealthMarkets.

The Haley system gives HealthMarkets a shared business rulerepository that will reduce duplicate business logic throughoutmultiple applications. “Utilizing a business rules engine haschanged my outlook on architecture,” Robison says. “A few yearsago, we used to adhere to pure object-oriented development, andevery object would have to know how to talk to every other object.Today, we are building adapters as bridges that can translate arules engine product into a rating engine product, and that way youcompletely 'black-box' your SOA services or all your systemcomponents.”

COSTS AND BENEFITS

If a carrier truly envisions SOA as a way to meet itsspeed-to-market and other business objectives, SOA needs to bebusiness driven. “You need to understand what it is you want fromSOA, what the method is you will use to get you there, and then getall the constituencies on board with that vision,” Kronenwettersays.

“When we started our research, we thought we'd find SOA was 70percent technology and 30 percent business. Instead, it was theopposite,” Gorman maintains. “Insurers were most successful whensenior business and IT leaders worked together to establish astrategy that the company would work toward SOA whereverpossible.”

Getting business first to understand and then support SOA iscritical because building services to be reusable typically carriesa greater upfront cost. “This has been one of the biggestinhibitors to the adoption,” Andrews says.

For instance, if the development of a reusable service costsmore upfront, can the increased cost be justified, and whatdepartment's budget should be tagged with the difference? Or if onedepartment pays to develop a service that is later used by another,should the second department reimburse the first?

“Solving the challenges of implementing technology are not easy,but they are easier than the challenges of changing business modelsand business mindset–getting the organization to transcend itsline-of-business focus and to take an enterprise view of its ITassets,” Gorman asserts.

A long-term view is critical. “Once the initial set of servicesis in place, the benefits of being able to modify and changecomponents and systems more quickly as the business process changessignificantly improve,” Andrews says.

He also points out companies are becoming more adept at SOAdevelopment. For instance, Evans Data found upward of 40 percent ofdevelopers working with SOA report being able to complete a typicalSOA development within three months–more than twice as many asreported being able to do that a year ago. Over the last two years,the total number of companies with more than 40 Web services inproduction has doubled, according to the Evans Data study.

“Companies have gained greater experience in how to implement[services], plus there are more tools and frameworks available nowto assist in the development and deployment,” which will impact thecost problem positively, Andrews says.

Carriers committed to SOA believe that speed-to-market benefitsoutweigh any increased costs. In fact, Gorman argues the industry'smovement toward SOA is inexorable. “The thought leaders and marketleaders are focused on defining a business architecture that can bethe basis of both the technology services and the technologicalarchitecture that should be built,” he says. “The motto among SOAleaders in the industry today is, 'Think big,' even if they startsmall.” TD