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Managing the Legacy Landscape in the Insurance World Ritu Gupta NIIT Technologies White Paper

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Managing the Legacy Landscape in the

Insurance World

Managing the Legacy Landscape in the

Insurance World

www.niit-tech.com

Ritu Gupta

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CONTENTS

Introduction 3

Legacy in Insurance

3

Persistence with Legacy systems

4

Legacy Landscape Management 5

Conclusion 6

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Legacy in insurance industry is an established reality. By virtue of being one of the early adopters of new technology, the insurance industry has seen the era of monolithic mainframes. Although there have been many technological advances, the insurance industry still remains one of the most intensive and largest users of mainframes and mid frames. While mainframes continue to provide significant benefits in terms of reliability, availability and security, the aging legacy systems are plagued with a number of problems:

• Limited technical support • Inflexible business rules • Over-burdened databases • Hard to learn interfaces • Difficulty in integration • High maintenance costs

• Inability to respond to regulator driven reporting requirements • Too many changes in the original system logic

• Inability to respond to competitors owing to higher product launch time Due to each of these factors, unresponsive and rigid legacy applications negatively impact operational efficiency, resource utilization and time utilization of insurance companies, creating cost pressures and increasing compliance risks.

However, the fact is that insurance companies will continue to depend on these legacy applications. It is therefore imperative to identify ways and means of reducing the cost of ownership of these applications, and enhance their effectiveness and efficiency. To accomplish this, the maintenance teams handling these applications need to have a strong hold on the functional, technical, and process details of the application. This ability, however, is challenged by the absence of proper documentation, a dynamic workforce and skill shortage.

Introduction

3 Legacy systems are integrated with new knowledge management and competency development systems to centralize the management, maintenance, and use of information

a) Knowledge Management (KM): KM ensures that the complete

knowledge of the system embedded in the thought processes of individuals and in the code, is extracted, documented and institutionalized

b) Competency Development: It ensures that the resources

maintaining these applications have the requisite levels of technical, functional and behavioral skills, not just to maintain them, but also to identify and implement performance tuning and productivity enhancement mechanisms.

This thought paper attempts to look beyond the known set of hindrances faced by insurance companies owing to their dependence on legacy applications. It also discusses two essential imperatives knowledge institutionalization and competency development that can help organizations efficiently manage their legacy applications.

Insurance companies use legacy systems to manage applications that handle:

• Marketing channels • Customer service/claims

• Actuarial calculations/reinsurance management

Market Channel Applications

These applications were mostly used for monitoring the productivity of marketing/field personnel and estimation of the commission payable to them. As commission calculations are complex and need to be paid for decades in case of lifetime policies, it was one of the earliest processes to get “automated” in the insurance world. Thus legacy is common in channel management portfolio of insurance IT.

Legacy in Insurance

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Legacy systems persist because of the expense, effort and potential risk of business interruption associated with the movement of data and key business processes to more advanced and contemporary technologies. There are numerous reasons why insurance companies persist with their existing systems. Some of them are:

Persistence with Legacy systems

1. Repositories of Processes, Rules and Data

Legacy systems have been continuously involved in processing policy holder information, creating repositories of insured data, policy information and the operational processes in vogue. The information pertaining to various processes/ practices that guide the business rules are “hard to find”. In such cases, the data used may not be available anywhere other than in the legacy systems. This has kept many insurance companies from re-engineering or replacing legacy applications with newer applications built on latest technologies (both hardware and software). The risk of losing information in embedded business logic, business rules and underlying data is a big deterrent for insurance companies.

2. Reliability of Applications

Many insurance companies still depend on legacy systems to handle key processes. These legacy applications are reliable and capable of delivering what they were originally supposed to deliver. Hence, many insurance companies are reluctant to undertake any replacements related to these business critical systems.

3. Poor Understanding of the Existing System

It is difficult to find complete specifications that mirror the functionality of the entire legacy system. This may be due to unavailability of the original system designers, and insufficient documentation.

In such cases, it is best to resort to the available documentation. However, in most of the instances the available system documentation is incomplete and does not include the details of all the system changes. Replacing a legacy system is dangerous since businesses face the risk of losing vital business knowledge embedded in these systems.

4. Expensive to change

Changing from legacy systems to new systems involves huge resource overruns due to the following reasons:

• Various parts of the systems may have been developed by different teams, resulting in lack of a consistent coding style • New programs may have been added or interfaced with other

parts in an adhoc manner

• The level of system documentation available may not be adequate, increasing the amount of time required to comprehend, assess and make changes to the system

These applications have interfaces with both external and internal systems (like Point-of-Sale (POS) data entry, commission management, accounting, agency management etc.). Hence, altering these applications may impact all/any of these systems. Typically, front-end processes like agent communication, illustrations, marketing, and training support within the channel management space have been ported into newer technologies; Back-end business processes like agent set up, agency monitoring and commissions’ management continue to reside on legacy systems.

Customer Service and Claims applications

These applications are the core components of an insurance company’s operations. They are the storehouses of policy and claims data, and the pivots on which the entire insurance organization’s business strategy is developed. The need to maintain this data over an elongated period of time, repetitive data driven processes, and complex business processing rules that underpin the two sets of applications warrant early adoption of automation. In recent times, the largest part of the aggressive insurance legacy landscape is accounted for by these two sets of applications. They interface with almost all applications (except the actuarial applications) in an insurance company. The competition warrants insurers to offer better and faster services to their customers. However, insurance companies still need to manage existing legacy applications for as long as the policies issued using such legacy systems are in force and not terminated or ported to other customer service/claims systems.

Actuarial/Reinsurance Management Applications

These applications are one of the most important information assets of an insurance company. Data within these applications is used for designing various products, performing claims analysis and meeting regulatory requirements. They form the “heart” of the insurance company’s strategy. The valuations and modelling requirements of the actuarial department almost mandated early adoption of automation.

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2. Knowledge Institutionalization

Since no system documentation is ever really complete, the previous/ongoing projects, collaborative efforts and communication carried out during the modification of the legacy system needs to be maintained in an environment where they can be readily accessed. Most importantly, the practice of knowledge management needs to be institutionalized, as the efforts yield rewards over a period of time. A knowledge institutionalization mechanism should ensure that comprehensive, indexed, and easily accessible knowledge of the system resides in the repository and is periodically updated. It should also have a training management system with an assessment mechanism to ensure that new members coming on board has good understanding of applications before embarking on any maintenance activity. The insurance industry should concentrate on the underlying idea that knowledge should not get lost due to resource movement and new resources should be made knowledge-rich within predefined and short timelines.

3. Competency Development

Knowledge of applications alone cannot ensure successful operational excellence and cost reduction. To be able to achieve this objective, the maintenance teams need to have a specific set of technical, functional and behavioral competencies. This demands the creation of a competency development framework that details various competencies required by the role holder. The assessment criteria measures and creates a development program that generates competencies in staff members across levels.

Only a fully competent team having adequate knowledge of the applications and the processes underlying them will be able to continually improve system performance and productivity.

5 Legacy systems are inherent, inescapable and here to stay. It is,

therefore, important to enhance existing applications to correctly reflect the changes in business processes and rules. There is also a need to reduce maintenance costs of these applications through effective performance management, storage management, and CPU time management.

NIIT Technologies believes that other than the traditional application value enhancement methods, insurance companies need to strongly focus on knowledge acquisition, knowledge institutionalization and competency development to extract value from investments made on legacy systems.

1. Knowledge Acquisition

Knowledge exists in embedded business logic, business policies and rules formed over a period of time from the data extracted from business operations.

Knowledge can be acquired by following the Top-Down and Bottom-Up approach. In the Top-Down approach, knowledge from the original designers of the existing system is documented to provide a complete picture of the legacy system. The Bottom-Up approach helps in gathering knowledge when original designers have missed out on certain areas or when the original designers are not around and the system documentation is incomplete or has been lost. In the Bottom-Up approach, tools may be used to extract and document the business logic underlying the various applications.

These created documents, thus, form the basis for future legacy support/ maintenance activities.

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In an environment where the market demands high speed delivery of products and services, the insurance companies’ legacy systems are slowing them down. Legacy systems are not easily adaptable and hence require extra effort to integrate, upgrade, and test them. The cost of maintaining legacy systems is more than the cost of maintaining new technologies as the latter is far more flexible and user friendly. However, legacy systems are rich goldmines of knowledge and processes, which are not available anywhere else. Hence, maintenance of legacy systems is an alternative which most insurance companies use, despite the heavy costs involved. Managements believe that the cost of maintaining a legacy system is less than the cost involved in replacing them with state-of-the-art technology due to the risks involved.

Conclusion

Maintenance of legacy systems in the absence of proper documentation and non-availability of resources with requisite fundamental knowledge base is a nightmare.

A robust knowledge acquisition engine, coupled with strong knowledge institutionalization can go a long way in helping the support and maintenance teams to comprehend the business functionality within the legacy applications, enabling them to create a modernized application in a relatively smaller time frame. Maintenance of legacy systems enhances Return on Investment (ROI) made in the hardware and software systems.

By focusing on these aspects, the insurance legacy landscape management team can become more effective and efficient; thereby reducing the Business as Usual (BAU) costs while enhancing system flexibility.

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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

D_18_120413

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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 8,000+ professionals, NIIT Technologies follows global standards of software development processes.

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