The Perennial Legacy Systems Question: Restore or Rebuild?

In insurance, the question about the future of mainframe legacy systems is a perennial favorite. While most technologies only last a few years, legacy mainframe systems hang on as the core of many insurance operations.

But as insurance customers require more immediate access to information and services, many carriers are finding that adapting current legacy systems to today'sbusiness needs is a tall order. For instance, an insurance company that cannot quickly bring new products to market because of legacy constraints is at a disadvantage compared to competitors that can. The same can be said about a carrier that has trouble providing automated e-agent/broker services because of legacy limitations, while other competitors grab market share because they are easier to work with.

Regardless of the limitations that legacy systems have, the bigger question is what to do about them. Many insurers would like to move everything off of older systems and onto newer, lower-cost Web-based applications. However, realistically, that is easier said than done.

And in insurance, the reliance on mainframe-based data and systems is more acute than in other industries, and not only because of costs. According to Brian Anderson, director, ClientSoft, a Miami-based provider of solutions that extend legacy applications to the Internet, "studies show that 70 percent of corporate data resides on mainframe systems. Although nobody has an accurate number, the number is much greater in insurance, probably closer to 100 percent." Years of still-valuable-and useable-customer, sales and financial data reside on those systems, after all.

If those numbers are accurate, it is no wonder that insurance companies have been slow to retire mainframe systems, despite their limitations and high maintenance costs. And in today's climate of reduced IT budgets, do not expect insurers to begin moving off of legacy anytime soon. "In today's financial market, to move off of legacy to a completely new system is cost prohibitive," Anderson adds. "No one wants to get behind a huge project like that."

Rip & Replace Is Not an Option

Another reason why ripping out and replacing a legacy system may not be an option is that most full system replacements are bound to take well over a year to complete. "Most companies are not engaged in rip-and-replace projects for legacy systems for two reasons," says Cecil Bordages, vice president, property and casualty strategy and architecture, at CSC (Austin, TX). "One, the total cost of replacing an entire system is very high. Two, there is a laser focus on short-term return on investment," he says. "We no longer see IT getting approval for projects that are longer than 18 months. A rip-and-replace project will take three or four years at most insurers, and no one will commit the resources to do that."

John Stone, financial services practice director at Software AG (Reston, VA), a provider of enterprise data integration and management software and services, sees much of the same. "There was a time when insurance would bite the bullet and begin a complete systems replacement, but that was in a different era," Stone says, referring to a time with larger budgets and longer timeframes for project deliverables.

Richard Siemers, director, financial services, at New York-based consultancy Arc Partners, adds, "many existing systems are long in the tooth and are beginning to impact business processes. The 'big iron' is costing companies in more ways than one," he adds. "However, most do not want to open up the mainframes and replace them. We are seeing many companies extend the life of the capital that they have invested because it is hard to justify the huge capital investment and the time that would be required to replace an entire system."

Software AG's Stone adds, "Now, executives are looking for ROI in a year or less, so many are looking to put a better face on their existing systems to meet customer demands."

Enhancing Legacy Favored

William W. Wilson III, president and CEO of ClientSoft, and former CIO at Marsh, reports he is seeing insurance companies ignore replacement projects with potential long-term ROI in favor of smaller, short-term gains. "If you have a reliable policy administration system and you can reuse some of the functionality, the cost of reusing existing technology is a small fraction of what rebuilding an entire application would cost," he says. A systems enhancement "perhaps only would cost 10 to 15 percent of what a total systems replacement would cost."

In other words, insurance companies are looking to extend the lifetime of their existing legacy systems and enhance the functionality to meet business demands. "Today, we have to live with legacy systems," says Mike Shinya, chief executive officer of software and services provider Sherwood International (London). "It is not a bad thing. Legacy provides a robust, known, and manageable at some expense platform for administering the books. Companies are adding to and replacing parts of their legacy systems bit by bit," Shinya adds.

In order to take advantage of current legacy systems and gradually extend functionality to users, insurers need to do a number of things, including prioritize legacy pain points, gain "buy in" from senior management, and recognize that some legacy systems should be kept and that others may have reached the end of their lifetime.

"Sometimes the business pain is so great and the code is so old that there is no choice" but to retire a system, says CSC's Bordages. "It's a hard choice, but sometimes that is the only way to go."

Whether it is enhancing or gradually replacing existing systems, or in a few limited instances completely ripping out entire applications, insurance companies are turning to modern technologies to get the job done. XML, Web services, middleware and component-based development methodologies are all being employed as economically sound ways to get results. Here are reports from four insurers, that adopted unique approaches to solving their legacy problems.

PROBLEM: INADEQUATE LEGACY SYSTEMS

SOLUTION: RIP & REPLACE

COMPANY: ING Re

ING Re, the individual and group life reinsurance division of ING Group ($467 billion in assets), had many inadequacies with its existing legacy systems.

"Some of our mainframe systems were over 15 years old and we were having risk management problems-not to mention the systems were inflexible, so we could not revise existing products or generate new products," says CIO Larry Erb ,about the state of his company's administration systems in 1998. "We had to replace the system and there wasn't an option of attaching a front-end, Web-based tool. We were on an old IDMS platform that was no longer supported by the vendor."

Since the life reinsurance business is small, ING Re did not have many options for packaged applications. "There was only one product, but it was not mature, and custom-built solutions were too expensive," Erb says.

But before the reinsurer began the project, it still needed a solid business case. "The process was begun before the downturn in the economy," Erb says. "It may be more difficult to start this type of project in today's economy." Still, the company needed to show there was value in replacing its systems. "One of the drivers was unit cost reduction, or basically reducing the cost and head count needed to process a transaction," he adds. "We needed to be able to show that we could accept much more new business and the head count would remain the same."

Luckily a recent ING acquisition at the time, ReliaStar, introduced Erb to a vendor that provided component-based development tools. "ReliaStar was using tools from Wyde," a Paris-based component-based development tool provider. "If ING did not acquire ReliaStar, we may have never had the exposure to the tools." Wyde has a partnership with CGI (Montreal), an information services and consulting firm. ING Re decided to use tools from Wyde to first replace its individual life reinsurance systems.

ING Re developed a three-phase plan to replace its legacy systems. "Before we even thought about replacing the system, we needed to improve the quality of incoming data," Erb says. ING Re formulated the data into a standard format. The second phase was the replacement of the admin systems and the migration of data.

"The data transfer was the most painful process," Erb reflects. "We had the legacy data, and we had data coming in from clients daily. This part of the process took the longest."

The third phase, which the company is in currently, is using the data from the clients for better business intelligence, such as understanding risk by geographic location, a need that became more evident after 9/11, Erb says.

As for the future, Erb says that 50 percent of the components from individual life systems can be "re-purposed" for group life reinsurance. "The re-usability got us approvals a lot faster," Erb relates. ING Re's staff is almost completely using the new individual life systems, and Erb says the old legacy systems will be shut down in a few months.

PROBLEM: AGENT SERVICES

SOLUTION: ENHANCE/EXTEND

COMPANY: Kansas City Life Insurance

When Kansas City Life Insurance Co.'s (Kansas City, $3.8 billion in assets) field force began asking for more access to data, the individual life, annuity and group product provider realized it needed to upgrade its field-force services for its approximately 1,400 agents.

"We wanted to build a system where the field force could obtain data from the administration system, but we did not want to rebuild the entire infrastructure," according to Leslie Freund, CTO, Kansas City Life, adding that the 25-year-old system did a good job of administering products. "To replace the entire system would have required us to map all of the knowledge in the system and how the data is stored."

The carrier started to do some screen scraping to meet the users' needs, "but it was too cumbersome and it meant that we had to tie ourselves to changes that were made at the administrative level," Freund says.

To extend access from its mainframes to its agents, the carrier turned to ClientSoft, specifically using ClientSoft's ClientBuilder application to link the mainframe to agents. "ClientSoft has allowed us to build a lot of functionality on top of the mainframe," Freund says. The system "allows us to tie together our back-end applications."

Although the ClientSoft technology will not reduce Kansas City Life's legacy costs, the technology did meet its goals. "The funding for the project was based on improving performance and increasing the number of users," Freund says. "We were able to triple the number of users." Currently, "we do not plan to retire the administration systems."

PROBLEM: AGENT SERVICES

SOLUTION: ENHANCE/EXTEND

COMPANY: Unitrin Multi Lines Insurance

Unitrin Multi Lines Insurance, the property and casualty division of Dallas-based Unitrin, Inc. (more than $7.5 billion in assets), needed to offer better service to its more than 2,000 independent agents. Unitrin Multi Lines wanted to offer agents the ability to rate, quote and eventually endorse policies by extending the functionality of their legacy systems over the Internet.

To provide the functionality, "we looked at replacing the administrative systems with something new," reports Roger Buss, vice president, information technology, Unitrin, "but the magnitude of the work was too much. We focus on what matters to the agents. The agents do not care what our back offices look like as long as they have the functionality," according to Buss.

Unitrin turned to CSC, also the provider of its existing 20-year-old Series 2 policy administrative system, for help. "The iSolutions product from CSC is a Web front end that interfaces with their administrative systems," Buss says. "We were able to bring in iSolutions, add some features specific to us, and we renamed the product XSellARate." Unitrin also pulls in credit reports and residential home values from ChoicePiont (Alpharetta, GA) and Marshall & Swift Boeckh (Los Angeles).

To date, ROI on the project has exceeded expectations. "We have over 90 percent of new submissions coming through XSellARate," Buss says. "Uptake has far exceeded our expectations. Because we have been tracking by agency before and after XSellARate was launched, we are seeing that agents that are using it are sending us more business now than they did before," according to Buss. "XSellARate has turned around personal lines results," he adds.

One of the only challenges that Buss says Unitrin encountered with iSolutions was scalability. "We are one of the bigger customers for iSolutions and at first we has some stability issues," he says. "We have solved those problems and today we have over 3,000 quotes per day and the volume continues to grow."

Unfortunately, Unitrin still has the same maintenance burden from its legacy systems as it did before, Buss says. "The maintenance costs are still there," he says. "We have taken the rating modules from the mainframe to the front-end server so we can maintain the rate codes in one place, but the rest of the system remains the same."

PROBLEM: REDUNDANT SYSTEMS

SOLUTION: GRADUALLY REPLACE

COMPANY: RBC Liberty Insurance

Realizing that it had too many point-to-point applications, Liberty Insurance Services Corp. (LIS), the third-party administrator division of RBC Liberty Insurance ($6.8 billion in assets, Greenville, SC) that also handles the insurance carrier's administrative and information technology functions, needed to move to consolidate some of its legacy systems and applications.

"Due to the fact that we had acquired a lot of technology on a case-by-case basis, applications dominated everything but a central infrastructure, and architecture was not there," reports David Meehan, chief technology architect, RBC Liberty Insurance. "We also had high costs to support the applications, so we wanted to move to a hub-and-spoke architecture."

LIS formed a "Unified Environment" strategy that focuses on consolidating multiple systems and gradually retiring legacy applications, reports Steven Bryzeal, strategic application architect, RBC Liberty Insurance. "Our objective is to simplify the architecture to one application per business function," he says. "The core of the strategy is to move from seven legacy systems to one." Bryzeal adds that LIS' Technology Architecture Steering Committee (TASK), a joint panel of IT and business leaders, approves all decisions on architecture and spending.

Meehan says that by moving to a single system "we could save 30 percent on systems support" and that LIS is aiming to retire its mainframes in the next three to five years. "As we move off of the mainframe we increase costs, but not as much as the mainframe costs," he adds. "We can't live with the sins of the past. We are moving to a Unified Environment."

LIS is using the BizTalk server from Microsoft (Redmond, WA) as its integration server, or the hub for its hub-and-spoke structure, and is also trying to leverage existing applications, such as LIS company Genelco's Life+ Administration System.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio