Service Oriented Architecture
What it means for the Insurance Market...
Written By: Graham Smith, VP, AppLabs
Submitted By: Ashok Mani
AppLabs
Service Oriented Architecture has received much positive attention and has been deemed the solution to a multitude of technological business problems. However, it seems insurance companies are reticent to fully undertake it. Organizations are implementing isolated SOA projects but few have fully comprehensive strategies in place.
SOAs effectively build applications out of existing software services by one program or piece of functionality calling another. These functions may be provided locally, remotely, or via an external system. In an insurance environment, for example, an online claims system may use the services of a CRM system to get the address details and an external government database to get details of vehicle taxation, drivers. licenses or driving convictions. SOA allows these disparate applications and solutions to speak to each other.
So why is SOA so pertinent to the insurance industry? In the last five years, the insurance industry has undergone significant change. Reconciliation in the market was followed by a boom in the online insurance business. It has also seen lots of other competitors entering the marketplace . not necessarily insurance providers, but retail companies and other big brands, using their loyal customer bases to diversify into insurance. As competition heats up and customers become increasingly fickle and inclined to switch insurance providers, the pressure is on for insurance companies to keep costs down to keep premiums low.
However, the consolidation in the insurance marketplace has led to the prevalence of legacy systems, made up of disparate product engines and databases. These systems can be an inhibitor to the competitiveness of insurers as they make it challenging for companies to respond to changes in the market, or respond to changes in customers. demands with new products and services. They can make it difficult for companies to introduce new sales channels, such as directly selling insurance policies to their customer.s online or using aggregator sites, which offer consumers information on insurance deals. Old systems have to be linked together to deliver products in this way.
SOA can help insurance companies negotiate these obstacles by allowing these disparate systems to communicate with each other, enabling the systems to become much more flexible. This helps companies improve efficiency and can also help insurance companies formulate new services. For example, in an insurance company, there could be a requirement to build a new customer facing web application. However, an existing database of client information may exist on a mainframe. By using tservices cohesively, SOA technology makes it easier and faster to connect together different systems and technologies in a way which is seamless to the end user.
Geographic differences have emerged in the way insurance companies use SOA. In the US, for example, the trend is for companies to use these new services as a new channel to market . a way of reaching a wider customer base. The trend in Europe, on the other hand, is to use SOA for internal gain, to cut costs and drive efficiency in the business.
SOA can bring significant advantages. But are there any drawbacks? Well, there are risks associated with SOA, primarily because it is a new initiative, which introduces major changes to the way a company develops its applications. It will take time for IT professionals to adapt to the way SOA applications are developed and maintained, which is completely different from developing and maintaining bespoke applications.
Another risk with SOA is the issue of change control and SOA governance. If an SOA service changes, it could have an impact on a number of applications and therefore have a detrimental effect on the insurance company.s systems, whereas if you change a module within a single application, the impact is much smaller. The upshot of this is that SOA interfaces have to be well defined, documented and tightly controlled from a change point of view, thus requiring strict SOA governance.
However, whatever the risks inherent with a shift to SOA, the benefits associated with it will prove hugely beneficial to insurance companies. After all, what is more risky - developing a new quotation engine or re-using an existing one using SOA? The existing one may well be legacy based and lack a web front end, but SOA derives increased value from your previous investments.
Given the impact and change involved in implementing SOA, organizations have to identify and mitigate any risks head on. Invariably, this involves failsafe quality assurance and testing procedures around the architecture, to minimize the number of defects that could have significant impact on the bottom line. The problem is that testing becomes more intricate with SOA; the SOA environment makes software quality both more important and more difficult to achieve. IT organizations pursuing SOA find that they must rethink their testing methods and revise testing roles and responsibilities. However, if companies get the testing right, they will reap the benefits.
CIOs and IT professionals in insurance companies and other industries must not be wary of the rising SOA tide. Instead, they need to grasp the opportunity with both hands as it is their opportunity to demonstrate that IT is truly linked in to the business strategy. Through SOA, they are able to show that there are solutions to a lack of business efficiency, or they may develop new services that will impact the bottom line. As SOA can be risky, it does make CIOs more accountable. So to ensure that their business is performing and to stem any possibility of SOA disasters, CIOs have to ensure that sufficient resource is invested in testing.
For the insurance industry, SOA and the re-use of existing systems can bring significant business advantages. The advice is to approach SOA with caution and care and if properly executed, there is no reason why organizations should not drive new business and maximize existing investments.
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