Business IT Alignment and SOA governance

Congratulation Bryan Mjaanes on successfully implementing SOA program at Zurich Insurance .

There was one slide that I really liked that in my opinion captured the Business IT Alignment problem quite well.




The diagram explains quite beautifully how the information flow and feedback mechanism's work for SOA governance. The link from Enterprise Architecture / SOA to Business Process in my view represents the two constituents in the Enterprise that need to be aligned and in my experience this link is generally the weakest link in the picture. What I have seen in Failed SOA cases is that the shadow IT(part of Business) will end up using SOA tools and technologies (webservices etc) and solve their business problem and keep on shouting to the world that they implemented an SOA architecture. See diagram below , This generally happens when the SOA program does not have a senior management buy in and the Enterprise Architecture group is really a figure head and not very powerful.

Why did SAP buy Business Objects?

Recently I ran into a client who had made a significant investment in Business Intelligence infrastructure and a decision support system. This Insurance Carrier had 8000 reports in their portfolio. Yes once again the number is 8000 ?? Needless to say that one of reason I was engaged was to rationalize the reports(besides fixing other problems they had like Data quality)


I work in the Information Management space and have come to realize that 80% of our work is in getting the infrastructure for decision support right (i.e focussing on ETL , Data Quality , one version of truth etc). A successful project's end point is generally the ability for the Business users to get the information they are looking for accurately.This measure of success traditionally has focussed most of the BI players and consultants to be technology centric and tools heavy on the plumbing aspect for data.


So where does SAP(NASDAQ:SAP) and Business Object's (NASDAQ:BOBJ) fit in? With the aquisition SAP now gets the capability to be more than a core business transaction processor. i.e with the intersection of its industry knowledge and the BI knowledge from Business Objects , it can now enter into the relatively new market of Business Health Monitering and Business Benchmarking (not sure if this is a standard term-just coined it). Its future software will probably be able to analyze the business outcomes against indstry norms and suggest remediation (example - Your billing cycle is 10days while in your industry it is 4 days , you can fix it by doing X Y and Z). OR it might be able to proactively moniter the health of your business taking the Enterprise view in context (Example - For the insurance carrier reserve level for the Auto LOB has gone below the norm of X , but the Claims ratio in Commercial LOB is looking good so overall reserve level should not change for the enterprise).

SAP gets a chance to deepen the relationships it has with its customers by adding the business outcomes offering and broaden by penetrating into the Business Objects Legacy contacts.

I expect the Business Objects aquisition to have the effect of 1+1 = 4. The deal is not accretive and on strictly financial terms dilutes EPS and growth rate and hence the resentment from Wall Street on the deal. But then Wall Street was never expected to be a thought leader in how the markets are going to evolve.

I also think that Business Objects and SAP are a good cultural fit. Business Objects and SAP are both leading edge Web2.0 players in their areas (Refer here and here) and hence understand the overall direction of the consumer.

Why is SOA more important in the Insurance space

I was at the ACORD LOMA 2007 conference and there were a lot of sessions on SOA explaining all the great things we know about SOA.

A point that I felt got missed in the conference was that "SOA is even more important in the Insurance World today as say compared to other verticals"

One of the biggest challanges facing Carriers today is "Legacy Modernization". Carriers want to achieve Straight through processing but it is probably a 100Million investment and atleast a 2-3 year plan to do that.

In the mean time you also have pressures from the market to get your website going (enable realtime functions like InsuranceID Card printing , Update Garaging Address , Add Vehicle , Add Driver etc). The question most carriers face is that - Will the investments I make for my website upgrade go waste as there is a seperate initiative for upgrading my Policy Admin system going ?

--- > Enter SOA
The Hub and Spoke Arcitecture of SOA promises to decouple your front office applications from back office systems. This becomes a very strategic advantage for present day carriers as most of them have a roadmap of upgrading there backoffice systems and also have market pressures to get new front office applications and with SOA the two initiatives do not need to be tightly coupled.

I also hear a lot about "How do I get the business to sponcer an SOA program". So here is one more reason (added to the list here) .

SOA will enable business to get what they want earlier. IF they want an upgraded website and also Straight through processing , the only way to get that is using SOA

Out to Acord Loma Conference

I am off to the ACORD Loma Conference . My Employer (CapGemini) has a very big presence at the event.

CapGemini thinks it has a very good story to tell about
1. Smart Insurance Enterprise and
2. Smart Insurance QA organization.

I Agree..

Having being directly involved in the Insurance QA solution and having addressed unique challanges in QA for insurance systems , I think CapGemini has a diffrentiator in the market place. To my knowledge I have not seen any other Vendor provide a solution that ventures into the above area's beyond a recognition of the problem.

See you at ACORD LOMA(I should be in the CG booth) and I promise to blog about QA and Test Data Challanges in Insurance in coming weeks.

Irony in the insurance space

Here is a list of top 5 adwords on Googles adsense program (sep ,2006 information)

$82.92 - austin dwi
$78.01 - school loan consolidation
$76.54 - college loan consolidation
$74.93 - car insurance quotes
$74.78 - auto insurance quotes

The $ cost is the CPC (Cost Per Client for 1000 page impressions)

Car insurance and Auto insurance are number 4 and 5 in the list and yet most of the business done in the insurance space is via traditional agents. Isnt this a classic case where the demand exists but the carriers just resist selling direct for reasons listed here

Another irony I noticed is that when I searched on car insurance on google , the first link I get is of Allstate insurance which is an Agent driven carrier to the core. If allstate has to spend advertisement dollar for market capture and also continue on its traditional agent driven model who long will it be when people like Geico take over there market share ?

Internet Statistics for online Insurance Sellers

Here is something interesting I found about internet statistics(from compete.com) for Sellers of Personal Auto on the web.

1. 21st Century Insurance - Regional Personal Auto Carrier selling Direct only
2. Progressive Insurance - National Carrier (with Direct and Agent Channel)
3. Geico - National Carrier selling direct only
4. Insweb - Online Insurance Agent
5. Insurance.com - Online Insurance Agent

Interpretation:

a) Geico and Progressive clearly take the cake for number of unque online visitors. So there is something to be said about Geico advertisements on TV.the caveman campaign seems to be paying off.

b) Insweb on the other hand relies purely on Internet advertising (google , yahoo etc). I had expected 21st.com to have more traffic as compared to Insweb. But to my surprise Insweb did better. So Internet Agents are not as far behind as I had thought.

c) Note that I compared various players in the Internet Channel (Direct and Agents). Let me see if I can get a similar charts for the travel industry comparing Delta /United and travelocity / expedia

d) The Avg time per visit probably maps to how long does it take to quote a policy.

Why is P&C Insurance Business Environment agent based?

Personal Auto is as commoditized product as it gets in the Insurance space. It always surprises me that this space still endorses an agent driven non internet model.

We still have large carriers like State Farm , Nationwide ,Liberty Mutual , Farmers , Mercury Insurance , AAA and a significant number more driven completely by traditional agent channels. In fact my understanding is that policies sold via the agent channel account for 70% of all policies sold in US.

While there are a few direct Insurance carriers like Geico , 21st Century and esurance, there are not nearly as much as I would have expected for a simple product like personal auto.

Also note that internet driven agent channels like insweb , insurance.com are not as successful as compared to such agents in the travel industry like Travelocity and expedia.

Here is my take on why it is this way.
1. Canabalizing the Agent Channel
The official reason you get from Carriers to not go to Direct Channels is that they do not want to canabalize their existing agent channel by offering lower prices over the web.

Selling via online agents like insweb and insurance.com is still OK for these carriers as the internet agents get the commision.

This story line is really a case where once the mould of traditional agent channel is broken this story will no longer be told. This happened in the travel industry and is now also happening in real estate in a different manner. We have to see what form does it take for the Insurance Industry

2. Technology readiness of the insurance carriers :
Internet Channels really work well if you can close the deal in one interaction. ie. you come in to the website , get a quote , make a payment and you are ready.

The reality of the technology capability of insurance carriers is that most of them do not have straight through processing capabilities. These carriers generally are not able to complete the full transaction of quote ---> buy ---> Policy in one transaction. Because of their batch job based nature of systems , these carriers generally have a different system doing quoting and a different system doing policy binding and issuing. As a result of this they run into scenario's where the premium calculated by the policy issueing system is different from the quoting system.I have seen numbers to the tune of 15% to 20% quoting failures in large P&C carriers that lead to premium change.

While these kind of failures are easy to manage in a human agent based environment they certainly do not fly on the internet.

3. Hype is ahead of reality
With the .com boom in later 90's there was a lot of hype about things moving completely to the web and eliminating the middleman. With the success of travelocity and expedia in the travel industry people expected same to happen in the Insurance industry. A bunch of companies like insweb and insurance.com came online with a lot of speculation on the markets and aggresive market capitalization timelines.

These companies did not do as well as the market had expected . In general the hype in the .com era was ahead of the reality and that is the reason we had .com burst. As a result of the .com burst the traditional insurance carriers embraced the agent model even more and went about a route of telling the world that the agent is their relationship manager with the customer and they would always use agents. Smart carriers like progressive insurance continued their dual channel strategy and went about selling direct and agent. (It is a case study of how they are able to sell via both the channels by using technology that makes life simpler for the agent and better underwriting giving compelling rates to the demanding customer)

Most of the carriers continued with the agent strategy and did not really embrace the direct channel.

This led to the classic chicken and egg problem where customer who want to buy the policies on the web do not have enough choice and carriers are not moving towards a direct channel because they think there are not enough customers for internet channels.

What lies ahead
The above being said websites like insweb and insurance.com are still in business .Progressive direct is growing faster compared to it agent channel. So the way I look at the industry is that the move to internet channels is eminent. I cannot predict the timing for this to achieve critical mass , but it will happen when carriers upgrade their technology and allow accurate quotes over technologies like webservices and SOA.

Note that the word I use is "internet channels" and not "direct channel". Internet Channels in my view include Internet based agents and direct sellers.

Internet Channels is where the future lies. There will be online agents that act as a Auto Insurance shopping malls and there will be direct carriers selling on the web. The difference in the two channels in price is probably going to nominal. Just like the travelocity.com charges $10 over delta.com for a flight but still does excellent business as a result of the choice it gives to the customer. Note if travelocity started charging 15% of the ticket value as commision no one would come to their website.

The way the agent model evolves for the insurance industry is what is to be seen.

What is a Business Rule - Part 2 Three Cases

Following my earlier blog entry regarding what is a business rule. I thought about elaborating this further by describing three cases of rule development.

1. Case 1 : Sure shot rule

Consider the following requirement:

The Work Allocation of the claims file happens based on the following set of rules.

If the type of Policy is a personal auto with no driver on the policy below 25 years of age and the claim amount if less then $1000 the allocate the claim to a claims rep

If the claim amount > $10,000 allocate the claim file to a supervisor

If the insured vehicle was parked in open parking lot allocate the claim to claims rep and notifying the supervisor. The claim has to be approved by the supervisor

………………
………………


The above set of rules describes allocation of a claims file to a role in the claims organization of the insurance carrier. This is a clearly a business rule set that needs to be in the BRMS tool. These are a set of rules that the business is interested in knowing about, viewing and potentially maintaining. This is a classic case of why someone purchases a rule engine.


2. Case 2 : Grey Area

Consider the following two requirements
a) Verify that the claim number or the policy number entered by the user on the screen is a valid number. If the number is valid then create a Claims file in the system with the information provided. If the claim is invalid then notify the customer to re-enter with a valid number

b) If a customer has as an excluded driver on the policy then shown the driver exclusion screen.

Requirement 2a) above is really business process requirement and describes how the system needs to be implemented. This is a scenario where some business users of the carriers organization might be very interested in knowing about it while others might not care about it at all saying that all that they care is that the claims file should be created and going to detail of error conditions in business process is not their problem.

The rule text could potentially be something like the following if we choose to write this as a rule in BRMS tool.

If
The claim number entered is “valid”
Then
Create a new Claims File
Else
Re-Enter the claim



Case 2b) is a screen navigation rule, generally implemented by the technologies used in developing the screens – example Structs web framework OR Flex based UI tool. But I have also seen cases (in large P&C carriers) where the architect has chosen to implement such rules in the BRMS tool.

In my opinion , these decision’s really boil down to the guidelines I had described in my earlier blog. There is frankly no right or wrong answer in this case. It is joint decision of the organization.


3. Case 3: Not really a business rule

Consider the following functional requirements
a) The Date entered by the user should be in the format dd/mm/yyyy
b) If the premium displayed to customer is less then the current premium paid then display the premium in Bold Green with blinking text.

These are clearly not business rules and should not be maintained in BRMS tool.