In the film The Godfather Part III, the character of Michael Corleone laments, "Just when I thought I was out, they pull me back in." Some CIOs might be saying the same thing about their legacy systems. Just when they thought there was nothing more that could save a legacy, service-oriented architecture (SOA) comes to the rescue.

Chad Hersh, senior analyst in the insurance practice at Celent, believes insurers would have found some way to continue using legacy systems even if they had never stumbled across SOA. "We don't always know how, but they find a way," he says.

"What we're seeing right now is another last-minute Hail Mary to come through and extend legacy longer. Nobody was expecting this," Hersch continues. Either replacement is not cost-effective because conversion costs are so high, or carriers are unable to get the business logic out of the older system. "Over time the carrier eventually will have to replace these things as [the systems] die a slow, painful death," he says.

Mark Cyphert, a partner in Deloitte Consulting, suggests the first sign of trouble insurers must look for with their legacy systems is their inability to be responsive. "An event occurs such as a regulatory action, and the organization can't move quickly because of IT," he says. Another example comes when an organization decides to enter a new market or introduce a new product. "Someone comes in with a new idea to help maintain a competitive edge, and fingers get pointed back at IT as a reason the company can't remain competitive," he says.

The cost associated with making a change can be exorbitant, points out Cyphert. In addition, carriers have found themselves paying a premium for skill sets that are in short supply. "The organization also finds itself unable to take advantage of some of the best-of-breed technology because it doesn't easily integrate with core systems," he says. "You're on an older platform than everyone else."

DECISION TIME

KaMMCO is a small medical malpractice company insuring physicians and hospitals primarily in the state of Kansas. The carrier developed a legacy system in-house that was DOS based, written in a language called Clipper, and offering access to dBase databases. "It served us well, but it had limited reporting capabilities," says Andy Grittman, KaMMCO's CIO. "We wanted a system with a Windows look and feel."

In 2003, when KaMMCO decided to replace the legacy system, the initial plan was to write its own software program in-house, according to Grittman. The programmer who wrote the legacy system still was working for the carrier, so the company looked at investing in some new tools to write the new application.

Having someone on staff who was experienced in writing programs was a plus, but Grittman realized if you have all that knowledge wrapped up in one person who eventually will retire, the company is in a precarious position. "We were going to bring on some additional programmers, but even then they wouldn't have had all that knowledge of the legacy system and how the system worked," he says.

KaMMCO is a member of the Physician Insurers Association of America, and through Grittman's contacts there, he knew Delphi Technology had a product called OASIS that specialized in medical professional liability. "We thought it was more than we could afford, but we asked [Delphi] to do a demo as a justification for why we should develop our own package in-house," says Grittman. "Once we saw the demonstration, we realized quickly this was a very good product and it would take us years to write our own software to be as comprehensive as the OASIS product was." With the change in direction, KaMMCO checked further into the packaged software market before deciding to purchase OASIS.

Joe Cardenas, CIO of Employers Direct Insurance, believes the decision to move off a legacy system has to be a business need. In the case of Employers Direct, the focus was on the claims system. "When we first formed the company five years ago, we started out with an older legacy system we knew we could get up very fast," he says. "We also knew almost from day one we would outgrow the claims part of the system very quickly. As soon as we got the system up, we began planning a replacement."

Cardenas happened to be familiar with the older system from a previous position and felt the company could get its operations going in a matter of a couple of months, which is the reason the carrier chose it. "It's an old system that goes back to the days of Wang Computers," he says. "It was ported over into an AS 400. Since the [previous owner of the used system] was in essence shutting down, it was available at a reasonable cost. As a startup, we had to watch our pennies."

Employers Direct went through a long process looking to replace the claims function. "We looked from the standpoint of an architectural view more than a feature view," says Cardenas. "It's harder to change your architecture." What has helped extend the legacy system in the policy area is Employers Direct is a workers' compensation carrier. "In our situation, we write relatively few policies, but we cover a lot of claims," he says. "Although the system is a bit ugly on the policy and accounts-receivable side, it suffices for now."

TECHNOLOGY CHANGES

Rising costs and flexibility were two of the drivers Assumption Life had to contend with in dealing with its legacy systems. Customers, both agents and policyholders, were looking for more information, and the legacy systems the carrier had in place were not built to deliver that kind of information to a flexible environment such as the Internet, according to Derrick Smith, director of IT at Assumption Life. "Having old legacy systems made it quite a challenge even to consider doing anything on the Web," he says. "It would have been a huge effort, if it was even possible."

To deliver more to its customers, Assumption Life determined changes needed to be made with the technology. Among the issues the carrier put into its technology plan were setting standards for the type of database platform the carrier wanted to be on; what operating system platform it would use; what development tools to work with; and what sort of reporting infrastructure needed to be put in place.

One dilemma Assumption Life had to face was the question of build, buy, or change the platform. The carrier ended up doing all three. "We rebuilt some of the systems themselves using things such as .NET tools; we bought some systems [from Skywire Software] to replace older systems; and there were a couple of systems that really were old, which we felt we were unable to change by rewriting, so we did a platform change," says Smith.

INTEGRATING DATA

KaMMCO didn't have any serious data integration problems switching from the legacy system to OASIS, indicates Grittman. Having the programmer who wrote the legacy system still on staff meant there was someone available who was knowledgeable about the carrier's data, where it resided, and the structure of the database.

KaMMCO did a full data conversion into the OASIS system. The programmer wrote code to output the data to a format Delphi wanted. The code then was sent to the vendor, and Delphi would import it into its program, generate a list of errors, and send the list back to KaMMCO. "When we went through the data, we realized when the legacy program first was written, we were capturing a minimal amount of data, but as the company started using the legacy program, we realized we needed to capture more," says Grittman. "Things got added on, and the data prior to 1994 was not very complete. We decided we were going to convert data only back to 1994."

Configuration also was a huge issue for KaMMCO. "We had users from particular departments work with our business analyst who is a member of the IT department to look at screens in the OASIS system and figure out whether Delphi had certain fields and what those fields meant to us," says Grittman. "We also had a good attitude when we went into this. We realize when we are buying enterprise-level software we need to be open to changing some of our internal processes. If OASIS had a better way of doing something, we were open to that, so we could better work with the software."

Integration was a major task, as well, with the new claims solution Employers Direct purchased from Guidewire. "You are talking about a modern technology [working with] a very old technology," says Cardenas. "You also are talking about an environment where there's a mismatch of the data models. Any time you have that, you are going to have some issues."

The Guidewire system had a sophisticated rules engine built into the product that is simple to operate, which made integration easier. "We're able to do some of the rules changes, and the concept is to move the line between where you have IT traditionally handling everything on the system to opening that up and allowing the business to operate it," he says. "We have changes to this system that are done by IT, and changes to the rules by a cooperative team of business and IT. That's one of the key differentiators because it enables you to change system behavior through the rules system. Something that would have been a multimonth project if you had to change the base code can be executed quickly. Having the business doing part of the work allows more intimacy between the IT and the business side."

REPLACEMENT STRATEGY

Companies need to have a legacy replacement strategy, but Hersh cautions you can't just pull the plug and shift everything. It has to happen over time. "The virtualization strategy makes it a more rapid process, but in the grand scheme of things, it's going to be one piece at a time," he says. "It's a long road, but even if it takes you 18, 24, 36, or 60 months to get off the legacy systems, you get incremental benefits. SOA is a big part of that because you can wrapper an application and then start to move off component by component. You don't wrapper it to extend it; you wrapper it to ease the transition off the legacy systems."

Replacement activity is increasing, Hersh observes. "The ease of SOA and virtualization along with automated conversion tools really are helping to push things," he says. "At the same time, carriers are looking to replace a lot of core systems, which is facilitating that increase in pace to get off of legacy."

The longer a carrier waits to retire its legacy systems, it's likely going to be some sort of event that creates the need, points out Cardenas. "There are a lot of legacy systems that have difficulty becoming SOX compliant," he says. "That typically entails a tremendous expenditure in order to move into that world, so I think you'd have to think twice before making that kind of investment [to keep] your [legacy] system. You need to look to see whether you have other choices. It's wise to do the planning upfront."

SOA presents a framework or a path forward to being strategic about how and where you make your investments in the legacy systems, maintains Cyphert. "SOA is a proven reference architecture," he says. "SOA has been adopted quite well by most of the solution providers and a lot of the larger insurers as a path forward."

The maturity of SOA also has improved in the past three years, reports Cyphert. "Technology solutions providers said it was a direction they were headed, but [early on] I'd see a number of different definitions for it," he says. "Today, we can get five people in the room, and four and a half of them will have the same definition [for SOA]. That's a good thing."

Because the industry has alignment around a definition, Cyphert predicts SOA will be around for a while, and people will make technology investments based on that direction. "I think there have been frameworks in the past that helped people establish a technology path forward," he says. "SOA has been well defined, it's been readily adopted, and it does a nice job of incorporating technology and business views into a technology solution. It doesn't solve personnel issues per se, but it gives you a path forward to address the areas you have where your issues lie. The beauty of SOA is you don't have to bite off the whole thing."

NEW CAR FEEL

Of course the beauty of dumping the legacy is the carrier has a modern system that can be upgraded often. "Not only do we have a new car, but we are keeping it factory serviced so we can take advantage of new services, which makes it a better product for us," says Grittman. "We are able to make better informed decisions on rates, trends, and everything else than we were able to do with the legacy system.

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