transformation of legacy landscape in the insurance world

8
Transformation of Legacy Landscape in the Insurance World Transformation of Legacy Landscape in the Insurance World www.niit-tech.com Ritu Gupta NIIT Technologies White Paper

Upload: niit-technologies

Post on 07-Nov-2014

407 views

Category:

Technology


2 download

DESCRIPTION

Evolving business models decrease the distance between customers and providers. The need for direct and easy communication and the transparency between the two increases, and products silos are curtailed. The insurance industry is struggling with a multitude of applications that require extensive maintenance and have mediocre capabilities. This white paper aims at helping organizations understand the issues involved in effective management of the existing legacy systems.

TRANSCRIPT

Page 1: Transformation of legacy landscape in the insurance world

Transformation of Legacy Landscapein the Insurance WorldTransformation of Legacy Landscapein the Insurance World

www.niit-tech.com

Ritu Gupta

NIIT Technologies White Paper

Page 2: Transformation of legacy landscape in the insurance world

CONTENTSIntroduction 3

Legacy Systems 3

Challenges Associated with Legacy Systems 3

Legacy Transformation 3

Advantages of Legacy Transformation 3

Transformation Challenges 3

Conclusion 7

About the Author 8

About NIIT Technologies 8

Page 3: Transformation of legacy landscape in the insurance world

Insurance industry is undergoing a phenomenal transformation.

The continuous sluggishness of top line growth is steering the

industry towards newer business models and requisite

technologies to support them. Time-to-market, though a

perpetual need, has today become a real imperative for

businesses to break through this stagnation. Bringing the

consumer closer to the business, providing facilities to easily

access information, transact, and ensuring continual commitment

from distributors are some of the key growth factors that drive this

industry. To support this business change, the underlying IT

landscape is also undergoing a rapid transformation. The legacy

landscape in particular, is rapidly changing as these platforms are

inherently constrained and unable to support business

simplification and enterprise-wide data interpretation,

Insurance companies have typically been among the earliest

adopters of automation. In an industry where almost all the

participants offer identical products, providing better customer

service is undoubtedly one of the most important differentiating

factors to gain competitive advantage. IT capabilities, be it

mainframes, client-server, multi-tier or other emerging

technologies, have automated all insurance processes and

information available at finger tips. In this race towards

automation, insurance carriers have become heavily dependent

on proprietary, homegrown systems. Traditionally, applications

were developed around specific lines of business, thereby

leading to incredibly siloed systems and processes.

Large-scale consolidation within the industry has further

complicated the issue, with a large number of disparate systems

basically performing the same task. Besides, from a technology

perspective, most of these legacy systems are poorly documented

and irregularly updated. Systems are unable to cater to the needs

Introduction

A legacy system is an old method, technology, computer system, or

application program that continues to be used - typically because it

still caters to the users' needs, even though newer technologies or

more efficient methods of performing the task are available.

Legacy Systems

A few of the typical challenges faced by organizations using legacy

systems are enumerated below:

• Legacy systems which have been developed in the past using

older technologies do not just include the software and the

hardware but also processes and procedures (policy-centric and

customer-centric, bureaucratic, fast and easy to use) that are

difficult to change

• These systems become repositories of business knowledge that

is not available anywhere else

• These systems are business-critical and are maintained not only

because of the information repository but also because it is too

risky to remove them

Challenges Associated withLegacy Systems

3

of emerging business models. Evolving business models decrease

the distance between customers and providers. The need for direct

and easy communication and the transparency between the two

increases, and products silos are curtailed. The insurance industry

is struggling with a multitude of applications that require extensive

maintenance and have mediocre capabilities.

This white paper aims at helping organizations understand the issues

involved in effective management of the existing legacy systems.

Page 4: Transformation of legacy landscape in the insurance world

“Most legacy systems are written in COBOL [code], and

nobody teaches in COBOL anymore. The maintenance of

legacy systems is going to get tougher as this generation

that knew that language moves on into retirement. There's

significant risk in the older systems, as the employees that

maintained them retire or move on, taking their

operational knowledge with them. Every company that

has these large systems eventually is going to have to do

something with them.”

Robert Fullington, EVP and CIO of Life of the South

(LOTS), Jacksonville, Florida (USA)

4

In a typical legacy system set-up, some distinct or identifiable

features can be noticed:

• Hardware: Mainframe or mid frame based

• Application Software: Usually written in obsolete programming

languages

• Application Data: May have large instances of redundant,

incomplete and inconsistent data

• Business Processes: Software structure and functionality may

not support enhancements/ changes

• Business Rules: May be implicit and embedded in the system

software

• Support for Software: Since software is maintained in-house,

suppliers may no longer be in business, or may not support the

system

• People: The resources/ users who were associated with the

system may no longer be working or alive (in some cases); thus

constraining the knowledge about such systems

These inefficiencies have forced insurance players to clearly define

and implement legacy transformation strategies.

Legacy transformation is the process of bridging the gap between

legacy and strategic architectures. It is cost-effective, time-efficient

and risk adverse.

The transformation process consists of understanding and

documenting the existing system; decomposing the application

into data; presentation and processing logic; creating and

extracting reusable components; and if desired, converting the

legacy code into Web compatible languages.

Legacy Transformation

Advantages of LegacyTransformationTransforming a legacy system offers organizations a number of

distinct advantages including:

• Reduced operational cost

• Usage of current business processes and modern technology

• Minimal dependency on resources associated with legacy

systems

• Comprehensive documentation of system with complete

knowledge of processes

• Ease in deployment and enhancement of functionality

Transformation ChallengesOne of the key challenges in legacy transformation is data and

business rules management. Both involve significant participation

of resources managing the data and the code, in-depth

understanding of the processes along with the rules that govern

them and the associated data. Only then synchronous transfer of

data and rules to the end state system(s) is ensured. While it may

be relatively easy to access data, getting access to system

specific knowledge like the embedded business logic and the

associated rules is the real challenge. In fact, even with respect to

data, comprehending system specific knowledge is a major task.

Most legacy applications in the insurance industry have

substantial data related issues like inaccuracy, incompleteness

and redundancy. Information pertaining to business rules and logic

defining the processes and data is typically available either in the

form of documents or through the users’ expertise. A typical

scenario that legacy transformation programs confront is the lack

of documentation (or minimal documentation) and inability to

access or translate system experts’ knowledge into usable

information. Experts leaving the system (retired/left), paucity of

communication, or lack of cooperation by the experts as they feel

threatened by the transformation program are some of the

challenges with respect to the documentation of the knowledge

from the experience of the experts.

Thus for the success of any transformation, it is imperative to have

a robust knowledge management and code comprehension

framework. The transformation team needs tools to extract system

knowledge from the code, structure to ensure effective knowledge

transfer from the experts, templates to record the extracted

information and transferred knowledge, and a learning plan to

ensure that all the system knowledge is imbibed by them.

Page 5: Transformation of legacy landscape in the insurance world

Developments in legacy transformation tools and techniques

provide businesses the opportunity to review their legacy portfolio.

When the requirement is to transform a single legacy application, the

choice of direction is decided by the quality of the application and

the availability of off-the-shelf products to replace it. Generally one

(or more) of the following four alternatives can be used by insurance

companies to deal with legacy transformation.

1.Leave the Application as isThere are some cases where there is no requirement to change

the existing application. For example: The insurance company

might no longer offer a particular product and the policies currently

serviced may all be near maturity. Hence the company can decide

to continue with the existing application without investing more on

these lines of business or the systems handling them.

2.Modify or Upgrade the ApplicationDepending on the need and the extent of the change desired, the

insurance company may decide to either modify the features of

the existing application or upgrade it to newer technologies for

better service. Some of the initiatives that an insurance company

can take include:

a. Web enabling services:

This activity involves re-engineering the interfaces and

screen components without disturbing the existing legacy

database (non-invasive). It is usually a preferred alternative,

if the insurance company is having budgetary constraints

and intends to appeal to a wider audience and enhance

service levels.

Transformation StrategiesTransformation Strategies

Most transformation programs last for a period of 2-3 years.

During transformation, an organization may face lack of

knowledge continuity due to changing organizational priorities.

This leads to reallocation or attrition of resources. Knowledge

institutionalization, through a resilient knowledge management

framework, can once again play a significant role in reducing

dependency on the knowledge repositories, by transporting an

expert’s knowledge into it. This repository, supported by a strong

competency building framework, can ensure that the new set of

resources become productive quickly, thereby reducing the

impact of reallocation or attrition.

Another challenging area in insurance legacy transformation is the

data itself. As mentioned earlier, insurance data on old legacy

systems is infested with inaccuracy, insufficiency and redundancy

issues. Understanding and then transforming this data clearly into

the new system is any transformation team’s nightmare. Even

though all organizations face the same challenges, they tend to

throw different sets of data transformation issues. An iterative

approach to data transfer can play a pivotal role in ensuring that

the lessons learnt from resolving issues in earlier iterations can be

effectively utilized in subsequent iterations. Also, since the amount

of data to be converted is huge, the usage of tools that enable the

process of transformation is extremely important. Typically, a large

number of off-the-shelf Extract Transform Load (ETL) tools have

been positioned to address the same. In this case, the

transformation rules are complex, since these tools have been built

with data warehouse as their final destination.

In case of data migration, the rules need not be complex, as

transformation is aimed at cleaning the data and not transforming

and drawing business intelligence out of it. Thus, it is usually preferred

that simpler data conversion tools are used for this purpose.

Another recommended method for data conversion is “Policy Life

Cycle Mirroring” – in this method, based on the history of all

transactions in the source system, a new policy is processed in the

target system if it allows backdating of transactions.

5

Page 6: Transformation of legacy landscape in the insurance world

6

3. Replace Existing ApplicationInsurance applications need to change over a period of time. The

reasons for the change may include regulatory changes, updates

to products terms and conditions. Existing applications may not

be in a position to handle all such changes and hence require a

replacement; either through a bespoke development or through

an off-the-shelf product. Also, if there has been a merger or an

acquisition where the businesses being serviced are the same,

the insurance player(s) may embark upon consolidating the two

businesses and thus the underlying applications as well. In such

business consolidation scenarios, the organization may decide

either to transport the requisite functionality of one (or more)

application(s) to the other or replace one (or more) application(s)

with a new functionally and technically richer application.

4. Retire (shut down) an ApplicationThis option is chosen when the company decides to exit a line of

business and all the associated policies have matured. For

example, certain policies that were specifically designed for a

specific purpose/ business segment may no longer be sold or

serviced (World War II soldiers!) and hence they are no longer

needed. Or a company may decide not to offer a product

specifically designed for a state/ target segment that it no longer

wants to service. Maintaining these applications would be a

superfluous cost and hence need to be shut down. Retiring is

one of the most difficult options to exercise, considering its

impact. Multiple processes (to access the application) have to be

redesigned, certain data may have to be preserved for as long as

the company exists, and then there are regulatory needs that

mandate some reports. This option results in decommissioning of

the application. It is also a future step for option one (where the

legacy application is supporting a closed book of business and is

being maintained as it is till the last policy matures) and last step

for option three (where one or more applications are getting

replaced). Once an application is shut down, it is

decommissioned and all its requisite repositories (business rules

and/or data) are transferred either to another application(s) or to

an archival system.

b. Componentization and Integration:

The existing application is untouched. However, the business

rules and the processes are converted into Component Object

Model (COM) objects with better functionalities and on-premise

deployment with straight-forward integration into existing

applications. It is generally adopted by insurance companies that

are in a rapid expansion mode, through mergers or acquisitions.

All the above options lead to consolidation and/ or

decommissioning of some or all of the legacy applications.

Decommissioning is the practice of removing a service

(application/ database/ platform) while retaining access to the

business-critical data stored within the system. Post

decommissioning, a legacy system is deemed unfit for

performing the regular operations. The data residing in the

decommissioned system may or may not be migrated to the

target system. In either case, continued access to the data is very

critical. By decommissioning redundant, unnecessary or

technologically obsolete systems, companies achieve tangible

benefits. At the same time, there are certain issues such as:

• Companies typically decommission�systems or applications to

reduce the infrastructure costs and mitigate operational risks.

Some scenarios where decommissioning has been frequently

recommended is when a business is thinking of selling/ exiting

a division or line of business

• Mergers and acquisitions bring with them older/ redundant

systems

• Inability of existing systems to accommodate newer

technological demands

• Scarcity of resources having knowledge of legacy systems

Consolidation, on the other hand, is the process of identifying

similar processes in discrete systems and integrating them into a

process that represents almost all the features in these systems.

Consolidation results in generating powerful set of tools and

features that enable users to have a unified view of information

stored in multiple systems and locations. Consolidation also

enables insurers evolve new systems to provide scalable,

consistent, and reformed data that can be used by enterprise

applications and business processes across various administration

systems. Typically, consolidation involves decommissioning of one

or more system(s).

Based on client’s requirements, an appropriate strategy to transform

legacy applications has to be devised. These strategies depend on

issues like transfer of assets with/ without data, database and

interface compatibility, transition support, post transition training etc.

Page 7: Transformation of legacy landscape in the insurance world

Certain specific needs, an organization may have, to transform

legacy applications have been listed below:

a. Replacement of the legacy system with a new system

b. Enhancement of existing functionalities

c. Decommissioning of the system

However, the core elements of strategies are components of data

and business rules. If the data is relatively clean and policy history is

not maintained as live data, “point in time” data migration is

recommended. However, if the data is plagued with inconsistencies,

redundancies and the system allows backdating, “recreate from

issue” or “policy lifecycle mirroring” (wherein all the transactions

from policy issue to date are recreated through an alternate source

of input), it is more suitable for active policy conversions.

Many insurance companies still depend on legacy systems to

handle key processes like claims and policy administration. These

applications are reliable and are capable of delivering what they

were originally supposed to deliver. Hence most companies are

reluctant to take-up any replacement activities. Certain issues like

(a) limited technical support, (b) inflexible business rules, (c)

Conclusion

7

over-burdened databases, (d) hard to learn interfaces, (e) difficulty

in integration and, (f) high maintenance costs are some of the

issues that insurance companies face with their legacy systems.

Despite these drawbacks, insurance companies have been

apprehensive about replacing their legacy systems due to costs

and risks involved.

However, the escalating competition, ever-increasing expectations

from customers and regulatory mandates has prompted many

players to consider transforming their legacy applications.

Legacy transformation usually takes two standard

modes—consolidation and/ or decommissioning. It would not be an

exaggeration to state that a successful legacy transformation is all

about successful data and business rules migration from original/

source system(s) to new/ target system(s), ensuring that the

interests of all concerned parties (users and managers of old and

new systems) are addressed. The key ingredients to achieve this

objective are knowledge acquisition from the system using tools and

templates; knowledge acquisition from experts using knowledge

transfer structures and templates; knowledge institutionalization;

and iterative data transfers using appropriate tools or

methodologies.

Page 8: Transformation of legacy landscape in the insurance world

Ritu Gupta heads the Insurance practice at NIIT Technologies’. She has over 17 years of

experience, including 11 years in insurance domain and about seven years in management

consultancy.

She has been instrumental in setting up of Vantage Center of Excellence at NIIT Technologies.

She has a post-graduation degree from the Indian Institute of Management, Bangalore.

About the Author

NIIT Technologies is a leading IT solutions organization, servicing customers in North America,

Europe, Asia and Australia. It offers services in Application Development and Maintenance,

Enterprise Solutions including Managed Services and Business Process Outsourcing to

organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and

Government sectors. With employees over 7,000 professionals, NIIT Technologies follows global

standards of software development processes.

Over the years the Company has forged extremely rewarding relationships with global majors, a

testimony to mutual commitment and its ability to retain marquee clients, drawing repeat

business from them. NIIT Technologies has been able to scale its interactions with marquee

clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into

extremely meaningful, multi-year "collaborations.

NIIT Technologies follows global standards of development, which include ISO 9001:2000

Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information

security management certification. Its data centre operations are assessed at the international

ISO 20000IT management standards.

About NIIT Technologies

A global IT sourcing organization | 21 locations and 14 countries | 7000+ professionals | Level 5 of SEI-CMMi, ver1.2 ISO 27001 certified | Level 5 of People CMM Framework

NIIT Technologies Ltd.47 Mark Lane,London, EC3R 7QQPh: +44 20 7002 0700Fax: +44 20 7002 0701

Europe

NIIT Technologies Pte Ltd.31 Kaki Bukit Road 3#05-13 TechlinkSingapore 417818Ph: +65 6848 8300Fax: +65 6848 8322

Singapore

NIIT Technologies Ltd.Corporate Heights (Tapasya)Plot No. 5, EFGH, Sector 126Noida-Greater Noida ExpresswayNoida – 201301, U.P., IndiaPh: +91 120 399 9555Fax: +91 120 399 9150

India

NIIT Technologies Inc.1050 Crown Pointe ParkwayAtlanta, GA 30338, USAPh: +1 770-551-9494Fax: +1 770-551-9229

Americas

D_0

7_04

0412

Write to us at [email protected] www.niit-tech.com