A severe storm flung Dorothy and her dog, Toto, into a strangeand unfamiliar world. Glinda, the good witch of the North, toldDorothy the wonderful Wizard of Oz could get her back home. Glindaadvised Dorothy to follow–and stay on–the yellow brick road if shewanted to get safely to the Emerald City, where the Wizardlived.

Insurers, like Dorothy, also have found themselves in a strange,new world characterized by a seemingly never-ending financialcrisis, potentially more stringent regulatory requirements, and theobvious need to have a well-oiled enterprise risk managementcapability that takes all external and internal risks, includinginvestment quality, into its purview. Of course, insurers mustcontinue to meet the demands of their customers and producers,developing products and services that meet, if not exceed, marketexpectations. Instead of ruby slippers, insurers are turning to SOAto help them find their way home.

To better discern insurers' progress deploying SOA, FinancialInsights (an IDC Company) surveyed North American insurancecompanies that already have adopted or are in the process ofadopting SOA. The objectives were to determine:

o Reasons for adopting SOA.

o The nature of SOA initiatives.

o Challenges with SOA initiatives.

o Purchasing patterns of external SOA services.

Our Web survey of L&H and P&C insurers ran from Jan. 7through Feb. 6, 2009. Somewhat less than half of the insurers (40percent) had 2008 net written premiums (NWP) less than $250million, while a third had NWP of $1 billion or more. Of the almostthree dozen insurers that stated they were involved with SOA,nearly half (46 percent) said their SOA initiatives already were inproduction, while the remainder had SOA initiatives in a pilotstage (24 percent) or planned to invest in the next two years (30percent). The SOA initiatives in production range from being new(31 percent first implemented in 2007) to older (30 percent firstimplemented in 2001 or before).

Insurers clearly understand what is happening around them.Almost 60 percent chose as their top reason for adopting SOA theneed to support an ever-changing business environment to becomemore agile. Close behind (55 percent) as their number-two reasonfor adopting SOA was the need to enhance their internal operationalprocess efficiency and flexibility. The two options that werechosen least often by the insurers for adopting SOA were upgradingthe company's infrastructure (21 percent) and revenue growth (10percent). Agility is in and infrastructure changes are out are nowthe rationale for SOA.

We asked the insurance respondents which business departmentshave had involvement with SOA initiatives. From a list where theycould select as many as they wanted, underwriting (73 percent) andpolicy administration (58 percent) were the top choices. But giventhe need to keep customers satisfied–in a distressed environment ornot–claims (42 percent) should have been closer to the otherchoices. Going forward, insurers have placed marketing anddistribution at the top of their to-do list for their next SOAinitiatives after hopefully implementing more claim SOAinitiatives. (See Figure 1.)

Clearly, with SOA and its need to understand business processesas fully as possible, there must be deep and extensivecollaboration between the business departments and IT. Clearly? Weasked to what extent the percentage of SOA-related activities anddecision-making are led by IT vs. one or more of the businessunits. Almost two thirds of the respondents said the activitieswere 100 percent led by IT.

We asked to what extent business units have been activelyinvolved in the responding insurer's SOA initiatives. Half said ITcollaborated with the business users a moderate amount. A quarterof the respondents said IT collaborated with their business users agreat deal. Of course, the other 25 percent of respondents said thecollaboration was only minimal.

But SOA is more than architecture. SOA also is aboutunderstanding business processes to better decide whatfunctionality needs to be exposed as services–and at whatgranularity. We asked the respondents how detailed an analysis theyperformed on the business processes that were the focus of theirSOA projects. About a third said detailed, but half said onlysomewhat detailed.

With the lack of business involvement and the seeming lack ofdetailed process analysis, it isn't surprising respondents saidonly 10 percent of the implemented SOA initiatives have exceededexpectations. What is surprising is 55 percent of the respondentssaid their SOA initiatives have met expectations. We wondered whoseexpectations–IT or the business–were met. But we didn't have towonder for long. When asked whether their organization already hadderived business benefits from their SOA projects, half of therespondents chose the "duck-and-cover" response of neutral. Most ofthe other half of the respondents agreed or strongly agreed. Thatsaid, who took the survey? Only six percent of the respondents saidthey were from the business, while the overwhelming rest of therespondents were from IT.

We asked the insurers what challenges they have encountered.Given the lack of business involvement, it definitely shouldn't beshocking the one challenge chosen most frequently (respondentscould select all that apply) was resistance to change. The skillsshortage shown on the graph above refers to the shortage of ITskills required to support SOA initiatives. The lack of businessunderstanding refers to business not knowing what SOA is abouteither generally or the specific benefits this can provide to thecompany. (See Figure 2.)

But insurers answering the survey have gotten executivesponsorship. This challenge (not shown on the graph) was chosenlast among the list of 12 challenges provided in this question. Howcan insurance companies provide executive sponsorship withoutexpecting significant business involvement, including in theanalysis of the functional processes to be taken apart for the SOAdeployment?

Are these insurers purchasing external services to help theirfirms deploy SOA? We asked the respondents about their companypurchases of external services in 2008 and planned purchases in2009. For 2008, selecting as many options as they wanted from alist of seven possibilities, IT and business consulting serviceproviders were chosen almost 50 percent of the time. Not farbehind, and unfortunately not surprising, as the second choice (40percent), these insurers said they did not purchase externalservices. The third choice (36 percent) of these insurers waspurchasing training or education services.

The 2009 plans clearly demonstrated a shift in purchasingexternal services. IT and business consulting services still toppedthe list (48 percent). However, training and education servicesmoved up to the second position (36 percent). While the position ofnot purchasing external services slipped to third place (32percent), the insurers also stated plans to purchase customapplication development services (32 percent) as a tie for third.It's interesting what more experience with SOA deploymentyields.

The survey results highlighted both good and bad news. The goodnews is insurers are deploying SOA, particularly for underwritingand policy administration. It also is good news insurers arerealizing they need help with their SOA deployments because theyhave determined their companies do not have the requisite skillsin-house. The bad news is glaringly negative. Insurers must getbusiness significantly more involved in their adoption of SOA,specifically in upfront (and ongoing) collaboration and detailedprocess analysis. IT also must take on the responsibility ofeducating the businesses about SOA, including the benefits ofdeploying SOA and the reasons a successful deployment will takelonger than management wants or expects.

In this era of financial distress, governments and regulatorswill become more involved in the business of insurance. Producers,policyholders, and prospects will continue to ratchet up theirexpectations. Insurers realize standing pat with their legacysystems won't be anywhere near enough to succeed. But they mustsignificantly involve the business if they want to make the tripeasier to that gleaming Emerald City of agility andflexibility.