Building the Service-Enabled Insurance Enterprise
Today’s interconnected, globalized economy was founded on links forged by information systems. In recent years though, the strain of new demands, faster business cycles and rapidly evolving next-generation technologies have begun to take a toll on the insurance industry’s traditional approach to IT infrastructure and application development.
Recently surveyed insurance CIOs largely agree that sprawling policy administration systems are outdated and running on expensive-to-maintain technologies. However, the task of unwinding large legacy systems is so daunting that few have attempted to do so. Decades of expansion, mergers and acquisitions have only compounded the levels of IT complexity and redundancy. Meanwhile, new entrants to the market, unburdened by these large IT legacy estates, are progressively taking market share from established players by introducing new, innovative products and serving customers through new social, online and mobile channels.
This changing market is influencing the way companies formulate and execute fundamental business strategies. Enabled by technology, insurance companies are shifting their IT focus, looking for ways to spend less to maintain legacy systems so they can redirect resources to more innovative uses, such as improving efficiency, accelerating new product launches, streamlining business processes and, perhaps most important of all, staying on top of changing consumer behaviors and expectations and meeting the needs of a dynamic workforce.
The change we’re describing isn’t just the next phase of IT modernization. It goes further than that. Recent trends — including the consumerization of IT and the rise of the as-a-service economy — have given insurance companies a new perspective, offering them a new way to address their legacy IT challenges, reach new markets faster and compete more effectively against data-driven, tech-savvy new entrants. In fact, many market leading insurers are already on their way to becoming service-enabled enterprises (SEEs).
The Service-Enabled Enterprise
As new technologies have come and gone, investments to update an insurer’s IT estate have largely resulted in more infrastructure, more software and an associated rise in complexity and total ownership costs. Think of the data centers, work-group servers, mainframes and more, purchased with expensive working capital, housed and operated all over the world. It’s all a complex mixture of enterprise class third party and bespoke systems. Add to that a long list of custom-developed and specialty applications developed over the years. Multiply that by a variety of business lines, software versions and regional adaptations, and the result is a sprawling IT estate. The resources and expertise needed to manage and maintain this extensive IT landscape only adds to the overall challenge.
Companies that have already started their SEE journey are finding a more elastic, frictionless infrastructure that is inherently mobile, agile and distributed which, combined with a new approach to application development, helps them significantly trim IT maintenance costs and raise their innovation quotient.
In an SEE-powered organization, the application of information technology mirrors the simplicity of the consumer experience. Applications are natively mobile and distributed easily and automatically throughout an organization based on policy, security and their stage of development. They are often built on top of, or incorporate, other services offered by other companies. That capability rests on an infrastructure that operates like a utility: scaled up or down according to business need and consumed based on the use and success of that application.
The exact structure of an SEE will differ from one insurer to the next, but comprises some common elements:
The SEE runs on the cloud, as do many of its core applications. In this environment, applications are external, cloud-driven, natively mobile and run on an elastic infrastructure that enables them to be continuously updated and seamlessly distributed.
Companies will transition their own workloads to the cloud and blend cloud platforms with existing infrastructure. The enterprise will operate over a mix of public, private, hybrid and community clouds from a variety of providers such as Amazon, DXC BizCloud™, IBM, VMware, Rackspace and more. Insurers will choose specific clouds for specific purposes, using cloud management software to manage a mix of private and public spaces, controlling for cost, performance, compliance, security and other aspects important to the industry.
A significant portion of today’s applications can be transitioned to a cloud-based environment using modernization techniques. Complex legacy core systems may also require reengineering to take advantage of new technologies such as mobility, and to make their data available to the advanced analytics of big data applications.
The real breakthrough in applications comes as a new generation of insurance apps is developed, specifically crafted for this new model. Blending development and operations, integrating internal and external services, automating advanced testing, and distributing applications by a centrally managed app store are all elements that are driving distribution costs to near zero and cutting the development time of new applications from months and years to days and weeks.
Stakeholders in the insurance value chain, including policyholders, agents, and adjusters, all operate in an “anywhere, anytime” world. Applications in an SEE are designed to run natively on smartphones, tablets, and an increasingly diverse set of emerging devices including wearables. The software is mobile-aware and leverages location awareness and other device-specific capabilities to reimagine the end-user experience.
The liberation of information may be one of the least understood and most impactful aspects of this transformation. Every application consumes data and produces data. In the typical insurance IT environment, that data is scattered across countless infrastructures, architectures and applications. In the SEE, data is unlocked for companies and consumers to use in new and important ways. Furthermore, through ecosystems and the broader API economy, insurers can expand their reach to incorporate data they acquire through partners and data they earn from customers in exchange for value-added services.
Ensuring the integrity, privacy, security and availability of applications and data in this type of environment involves new challenges. The outside-in philosophy that underpins a service-enabled enterprise requires, by definition, enterprise walls to be permeable. The fortress approach of old no longer works. Instead, securing data and applications means ensuring that they are in the right place, managed by the right policies and controls, and actively monitored. Security is stringently maintained, and controls are consistently applied with a discipline that may be lacking, absent or only partially implemented in a traditional IT environment.
The Journey to the SEE
Building an SEE doesn’t happen by clicking a button. It’s a journey. That journey moves the enterprise from large investments in fixed infrastructure to a utility infrastructure that scales up or down according to application need and business demand.
Insurers typically go through four fundamental stages to drive down maintenance costs and spur significantly higher levels of innovation.
The first step is establishing an elastic foundation — a hybrid cloud infrastructure — to put the right applications on the right infrastructure at the right cost. This first, critical step should be done with contestability in mind and governance and automated policy enforcement in place – both enabled by an enterprise cloud management platform.
Many companies, even those resistant to the idea of cloud-based technologies, already operate on cloud infrastructure without considering it part of the core infrastructure or because business units have provisioned cloud services on their own. For example, there might be teams within the business who are working on application development projects and using Platform as a Service (PaaS) development and testing environments that are not governed by IT. Add to this mail and collaboration platforms, storage platforms and document sharing, and you see how quickly multiple environments can creep in. The objective of the SEE approach is to enable this level of consumptive innovation and business agility without compromising consistency and overall brand integrity.
The next step is to lay out the Application as a Service roadmap. This entails application portfolio planning — determining where the value points are in an application and the business case to take that application into the future. This stage determines which apps can be moved into a cloud environment, and which should be targeted for replacement through a combination of consumption (SaaS) and new development (DevOps).
Next is establishing a new development-operations capability to enable a continual innovation framework. This gives an insurer the ability to drive application development to deployment in much shorter cycles. Applications can be deployed experimentally in a secure context within an enterprise at very low cost to determine their value. Small departmental applications can be deployed at manageable cost, delivering highly targeted value to enterprises. In the SEE, applications can be developed, distributed and deployed for customers, partners and employees at very low cost, to meet very specific needs and deliver value immediately.
The final stage in creating an SEE is connecting to the innovation ecosystem occurring outside the enterprise walls. This happens when companies begin building new capabilities on top of services offered by partners to deliver new classes of applications to other businesses and consumers. For example, geospatial, mapping and real-time traffic technologies are being combined in myriad ways to create new value-added services for personal auto policyholders. As carriers adopt an omnichannel approach to distribution (including self-service/direct models), SaaS based digital marketing and engagement services will help drive customers and prospect to the carrier’s website.
The rapid move insurance companies are already making toward the SEE underscores its readily apparent value: cost savings, innovation spending, improved competitive advantage and more value for consumers. This change also marks an important shift in the relationship between IT and the business, allowing the two to become more closely aligned in strategy and purpose than ever before.
The emergence of the service-enabled enterprise marks the most important transition in information technology of the past few decades. It is the full realization of the combined power of connectivity, mobility, democratized data and ubiquitous computing power that is about to unleash a new leap forward in innovation and value for the enterprise and for society.