A thought-provoking recent Insurance & Technology article, The Rocky Road of Modernization, examines top challenges that insurance companies face today in replacing and modernizing existing core systems.
The analysis raises salient points around the importance of a customer-focused approach and operational efficiency to effective, modern IT strategy for insurance firms. The article outlines possible IT strategies for effective change, including the assertion that, “Systems produced today” are “better able to handle the modern … environment.”
This reflects popular opinions about older IT systems and the value they can deliver to insurance companies. But it may be a misperception. More often than not, the most prudent path to IT modernization does not lead to new systems, but to better leveraging existing IT assets and applications. For insurance companies embarking on IT modernization initiatives or evaluating whether it makes sense to do so, there are a handful of considerations to keep in mind.
Don’t rush to rip and replace existing IT systems
When organizations set out to rip and replace their so-called legacy applications, removing a decades-old working system can be difficult. Even if the effort succeeds, a lot of money is spent for very little in return. What replaces it is -- fundamentally -- merely a like-for-like equivalent. Yet extensive budget, resources, and upheaval are consumed on this venture.
And in reality, the viability of system-wide replacement carries considerable risks that often exceed modernization of existing IT assets. Swapping out one system for another compels the organization to cope with significant changes, including functional equivalence, data integrity, user acceptance, training, hardware, and software commissioning, among others.
The new system is untested, the system being replaced is undocumented, and the possibilities for errors are huge. Studies undertaken by industry commentators and analysts talk about failure rates of between 40% and 70%, depending on the nature of the project, where implementations are excessively late, over budget or just never delivered.
So what motivates an organization to rip out perfectly good business applications and replace them with new code that may or may not do exactly the same job? It may be the result of a false assumption that sticking with the same systems will not enable the company to meet future needs, or a surface-level diagnosis of what the IT and business challenges are.
Before rushing to rip and replace existing IT systems that in most cases are highly capable and future-proofed, insurance company CIOs and IT decision-makers must gain a deeper understanding of the scope of the problem and employ a pragmatic approach to fixing processes -- without jeopardizing existing services or adding to the IT backlog. An optimal starting point is focusing on the backlog at a systemic level. Isolating and planning backlog busting projects is facilitated by new incarnations of application knowledge technology, and smarter tools for making application changes.
Understand the enduring value of COBOL
The I&T article notes that older systems are “expensive to operate” and rely on “outdated” skills, such as COBOL programming. True, COBOL is one of the oldest programming languages around, brought into the world by Grace Hopper in 1959 -- but it is far from outdated and one could argue more essential than ever in enabling insurance companies to innovate and modernize mainframes and existing enterprise applications. Even today, COBOL powers 70% of all business transactions -- everything from ATMs to point-of-sale systems and the filling of healthcare prescriptions. Currently, 250 billion lines of COBOL support today’s core business applications -- with 1.5 million new lines written every day.
Critical insurance applications running COBOL are, from a maintenance perspective, easier to understand and manage than equivalent languages. In terms of available skills, most developers in 2014 -- with their knowledge of Integrated Development Environments (IDEs) such as Eclipse or Visual Studio -- can easily pick up COBOL, the latest versions of which also work within these environments. Furthermore, today’s COBOL applications can be deployed onto modern architecture and platforms such as cloud, Web, and mobile without the risks and costs usually associated with rewriting applications.
Beware of “hidden” technical debt
For insurance company CIOs and IT decision-makers evaluating the upfront and ongoing costs associated with modernization projects, it is easy to assume that systems produced today are less expensive to maintain due to the programming languages that power these systems.
Take Java, for example. While it performs well for mobility requirements, it can lead to higher “technical debt” -- the Gartner-coined term that defines the eventual consequences of poor system design, software architecture, or software development within a code base. According to CAST Software’s CRASH report, the estimated technical debt of Java is $5.42 per line of code, compared to $1.26 per line of COBOL.
Those planning to implement a modernization project should assess risk, cost, competitive advantage, and time to implement as key considerations. Reusing current working, trusted systems, then defining appropriate strategies to modify them, requires lower-scale change that delivers value improvements quickly, but without undue risk of assuming high technical debt. Interestingly, the same reuse strategy helps tackle issues around compliance and IT backlog, concerns which also weigh on the insurance sector.
Additionally, it is important to note that modern COBOL development tools enable organizations to address application performance gaps (in Web, mobile, and cloud) with lower enablement risk than alternative rewrites to Java or repackaging.
The market expects insurers to be cost-efficient and -- naturally -- risk-averse. Embarking on a modernization strategy based on reuse is a low-risk route to better customer service and operational efficiency. Sticking with the programming language that has successfully underpinned the core application since it was created is not “outdated,” but forward-thinking and ultimately common sense.
Paul Averna is Vice President, Enterprise Solutions, at Micro Focus, a leading global provider of application modernization software. View Full Bio