A services-oriented architecture could serve as the grounding for an insurer's successful long-term information-technology infrastructure, or lure it into a multimillion-dollar trap, analysts said.
The disagreement among the experts surfaced at a time when many insurance technology managers are considering major upgrades to their computer systems, the oldest of which date more than 30 years and are expensive to maintain.
SOA, done right, can greatly increase the efficiency and profitability of insurance companies, according to Chuck Johnston, senior director of insurance strategy solutions for Redwood Shores, Calif.-based software company Oracle Corp.
Indeed, financial-services companies that have implemented it say that, while the initial investment is expensive, the returns are well worth it. Fireman's Fund and Allstate Financial, for example, revamped their technology infrastructures.
Many other carriers are considering SOA as a long-term blueprint for their IT infrastructures.
But Judy Johnson, principal solutions architect, insurance, with Jersey City, N.J.-based service provider Patni Computer Systems, said there is a danger of companies believing in the latest technology buzzword when, in fact, the industry needs to fix the systems it's already using.
"The issue isn't architecture and pieces," said Johnson. "The issue is that we've got lots of things wrong."
Dozens of carriers are hobbled by "broken" computer systems built on outdated architectures, and are now a quilt of platforms and applications grafted together over the past 20 years. As a result, some insurers spend millions just to maintain inefficient systems.
SOA would do away with all of that, said supporters. It is designed around a modular core that makes it easy for companies to adopt future technologies. In the long run, this is a much more efficient way for companies to structure IT architecture rather than replacing systems every decade or two, according to SOA adherents.
Johnson is not convinced. In fact, she said, companies that succumb to the technology hype might be "on the cusp, as an industry, of doing something really stupid."
These carriers are in danger of being swayed by consultants, vendors and even chief information officers, who all stand to gain by pushing carriers to adopt SOA, as opposed to fixing what they already have, she said.
A poorly implemented SOA project only leaves carriers with dozens of disparate "buckets" of data in different parts of the corporation unconnected to one another, like Lego blocks that don't fit.
Whether a carrier chooses a radically new architecture or whether it chooses a more restrained approach, no insurance company today can survive without reconsidering its IT, said Matthew Josefowicz, managing director of the insurance industry practice at the consulting firm Celent LLC. "Technology is not the answer but it's going to be part of the answer."
No carrier can become more competitive without somehow improving its systems, whether it concern workflows, Web-based portals or applications, or whether it concerns the deeper underlying architectures on which features, functions and applications rest, he said.
With the insurance industry coming off one of its most profitable years ever in 2006, and surveys over the past year finding that robust technology infrastructure spending among carriers is expected to continue at least through the end of 2007, tens of millions of dollars in IT spending are at stake.
Josefowicz and Karen Pauli, senior analyst in the insurance practice at research firm Tower Group in Needham, Mass., said that carriers have had a robust first half in 2007, and that that's good news for IT spending into 2008. And the quieter the 2007 hurricane season, the more carriers will be able to spend on technology in 2008.
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August 1, 2007
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