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The insurance industry today faces tremendous pressures from both external and internal challenges. Heightened competition, increased regulation, and record catastrophe losses are prompting industry leaders to examine ways in which they can cut costs and increase revenues to stem declining profits. Over the last two decades insurers have seen their average rate of return dwindle from about 12 percent in 1984 to seven percent by 2004, while the total number of insurers serving the U.S. has fallen by 25 percent since 1990, according to research by ISO.

Responding to these challenges requires a long hard look at the IT systems that underlie – and in many ways define – the agility, speed and cost competitiveness of insurance business processes. IT is the ‘musculature’ of the business at an insurance carrier – almost every process depends on it. Introducing a new product or service, changing rating rules, integrating multiple channels, streamlining claims – all present unforeseen costs, delays and complexity when existing IT systems consist of a patchwork of ageing legacy, monolithic packaged applications, and proprietary integration.

The reality at most carriers is that critical customer and product information is spread across disparate systems; key channels for serving customers cannot act in a coordinated fashion, and many core processes are still performed manually. According to ACORD, a leading standards body in the industry, as much as 70% of all data entry consists of manually re-entering data from another system within the same organization. Far from enabling aggressive efforts to improve process or drive innovation, existing IT architectures are one of the biggest roadblocks to enhanced efficiency within the industry.

Efforts at enterprise application integration (EAI) have not improved things much. A recent study by Forrester showed that the average EAI project takes 10-20 months to complete at a cost of over $6.4 Million, and more than 65% of these efforts are late or over budget. The enormous cost, proprietary lock-in, and inflexibility of tightly-coupled interfaces make EAI a far more expensive, lengthy and unattractive proposition than is typically justified.

Service Oriented Architecture (SOA) solutions offer insurers a way to change the game permanently. An IT architecture consisting of modular, loosely-coupled SOA components that leverage legacy systems and interoperate using open standards can address two of the largest challenges within insurance IT: cost-effective integration of disparate systems both internal and external to the business, and the flexibility to quickly change business functionality to improve performance.


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