SOA: Key Initiative Carriers Are Considering for 2007

Some people still are grappling with what service-oriented architecture actually is, but those in the know are excited about its future. SOA finds itself on the list compiled by TowerGroup of the top 10 technology initiatives for the insurance industry this year, and senior analyst Karen Pauli believes it deserves the top spot on the list. “SOA probably is the number-one focus we're tracking,” says Pauli. “Almost all of the carriers, to one degree or another, are involved.”

SOA discussion initially was hampered by a lack of understanding, according to Pauli. “It's one of those odd subjects because some people think it's an actual technology–like you can go to Radio Shack and buy it,” she says. TowerGroup views SOA as more of a philosophy. “It's a guiding principle and a way to create architectural formats and designs,” she explains, predicting SOA will be a huge factor in 2007 because of the business issues carriers have to deal with. “The number-one value [of SOA] is reusability,” she says.

For instance, Pauli points out if a carrier wishes to invest in predictive modeling for catastrophe management, it will sign on with one of the big vendors, which is a big-dollar expense. “In an SOA environment, that purchase then can be used by commercial lines, personal lines–all of the enterprise,” she says. “The cost gets spread out and makes total cost of ownership go down significantly.”

In addition to a cost management benefit, SOA also helps insurers with the critical issue of speed to market. “If you put [predictive modeling] in place for commercial lines, it is significantly quicker to roll it out for personal lines [with SOA],” notes Pauli. “You've already done the infrastructure work. Speed to market for competitive advantage is a gigantic issue for carriers. That's a huge win for the industry.”

Beyond SOA, Pauli also expects any issue dealing with security/privacy and governance will get major attention among insurance carriers this year. “All projects having to do with governance and compliance are critical to the industry and are definitely a focus,” she adds.

TowerGroup is not anticipating a gigantic jump in spending during 2007. “No one is delivering bags of money to the IT operations right now,” she says. With budgets staying close to last year, she is encouraging carriers to take a close look at their legacy systems and the applications they support. Maintenance of those systems and applications is costly, and Pauli believes insurers need to find ways to convert those technologies to something more efficient. “What we're hearing from executives is they can't put much more money into IT,” she says.

Ideally, though, carriers are studying the possibility of flipping maintenance dollars over to development by getting rid of old, clunky legacy systems in which the maintenance costs are astronomical. “That's where you walk back to SOA,” Pauli contends. “You talk about bringing in new technologies that are efficient and can be used across the enterprise.”

Touching on other industry concerns, the issue of alignment between IT and the business side will continue to draw attention, Pauli remarks but acknowledges alignment can be tough to achieve. She recommends IT and business step back and create a three-to-five-year enterprise business plan and a business architecture process to find the greatest pain points. “Don't try to boil the ocean,” she says. “Find the pain points, find the technology for that one solution, and follow the plan through. It takes some time, but the point is to get a plan.”

Because the divide between the two sides has developed over a long period of time, Pauli recognizes it can't be solved overnight. “All their lives, [business leaders] have been taught to write a proposal, let IT deal with it, and forget about it,” she says. “That's why all the big IT development projects went down the tube–there wasn't any communication.”

However, she is seeing a shift in attitude. “It's really happening, not just nice talk,” she says. One such example lies in the claims space. Pauli has been speaking with claims executives on the business side who thoughtfully can discuss technology solutions. “Five years ago, I would have put up anything that you never would get the claims guys to look at technology because they were so focused on claims being a human transaction,” she says. “Now, they are on board. It's a wonderful shift.”