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7/29/2019 Process Driven Modernization in Insurance White Paper
http://slidepdf.com/reader/full/process-driven-modernization-in-insurance-white-paper 1/11
Process DrivenModernization inInsurance
Jason Dokken, Principal Global Architect, InsuranceTIBCO Software Inc.
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P R O C E S S D R I V E N M O D E R N I Z A T I O N I N I N S U R A N C E 2
IntroductionInsurance carriers are poised to make signicant investments in information
technology (IT) during the coming decade – and TIBCO Software believes this
process has already begun. According to the Celent 2010 CIO Survey, carriers
are more optimistic than cautious, and are willing to spend on new application
development1. Despite re-investment being inevitable for 2010 and beyond,
without a new technology strategy, insurance business needs will continue
to evolve while IT legacy systems will hamper growth2. To ensure business
requirements are not hindered by legacy systems, carriers need a technology
modernization strategy that is business-driven, leverages existing systems, and
is systematic, rational, cost-effective, and sustainable.
This document describes a technology modernization strategy developed
by TIBCO Software that works particularly well for the insurance industry.
The strategy is called “Process Driven Modernization” or “PDM”. PDM is a
new methodology designed to unify two discrete areas – business process
management (BPM) and Application Modernization – as depicted in Figure 1
below.
1 2010 CIO Survey: Pressures, Priorities, and Strategies2 Kimberly Harris-Ferrante, Juergen Weiss, Steven Leigh, Maureen O’Neil, Joanne Galimi, Robert H.
Booz, Stephen Forte (2009). How to Build the Business Case for System Replacement in Insurance.Gartner.
Figure 1: Process DrivenModernization is based on BPMand Modernization
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PDM relies on the strengths of BPM to dene and manage business processes
related to modernization, and also leverages some approaches and ideas from
traditional Application Modernization – such as harvesting legacy IT assets and
utilizing an iterative and incremental approach. However, unlike traditional
Application Modernization, PDM focuses on a carrier’s business processes
– not on software and hardware. Traditional Application Modernization by
itself tends to focus too early and too often on technical requirements and
implementation details.
Insurers reap a number of benets with PDM, including the following:
• Reduce cost. According to Robertson and Condon, two senior insurance
experts – “the costs for implementing process changes within the BPM-enabled Claims organization can be about 5 times less and the project typically
takes one-fth to one-seventh of the time”.3 PDM’s ability to reduce cost is
especially true when compared with traditional Application Modernization
which tends to be highly labor intensive.
• Mitigate risk. PDM’s incremental, modular approach mitigates risk when
compared with a common approach used unsuccessfully since the mid 1990s –
typically referred to as “Rip and Replace”.4
• Increase business agility. PDM moves valuable business logic from
application code into models usable by business staff. Moving fromapplication code assets to model assets minimizes the dependency and time-
pressure on IT to make changes and enables business experts to more easily
implement changes dictated by the business.
• IT Investment protection. PDM implicitly increases opportunity for
automation and the re-use and leveraging of existing application assets, as
re-use is a core principal of the methodology.
3 Condon, M., & Robertson, B. (n.d.). Using BPM to Improve Claims Performance. Retrieved 03 14, 2010,
from condonconsulting.net: http://condonconsulting.net/uploads/BPM_TL_v27.pdf 4 Gentry, J. (2005, May 01). Is ‘Rip and Replace’ the Only Way to Deal with Legacy Systems? Retrieved
from ebizq.net: http://www.ebizq.net/topics/legacy_integration/features/5881.html
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This document explains the business case for PDM as it applies to the insurance
industry, describes why PDM is superior to other modernization strategies,
and walks through an insurance-specic business process example to illustrate
PDM.
Business Case or PDM in InsuranceOver the next decade, carriers face a common dilemma – how to modernize an
operational infrastructure that is dependent on IT legacy systems developed
between the late 1960s and the mid-1990s. Additionally, in many cases,
insurance systems are heterogeneous in nature, typically a result of mergers
and acquisitions that occurred in the insurance industry during this same time
period.5
Insurance markets and demographics are changing as well, requiring carriers
and their distribution channels to adapt and become more agile, which will
require carriers to adopt a modern platform for selling new products and
services to the market. While many insurance executives are creating new
ideas for selling, distributing, and managing their business, the underlying
monolithic application platforms typically supporting these innovative ideas
are not nimble enough to accommodate the initiatives. So what is the insurance
industry to do? If the “rip-and-replace,” IT system replacement strategy
previously referenced will not get carriers where they need to be, how will theyroll out new initiatives and remain competitive in gaining client wallet share?
AUTOMATION
Many insurance business initiatives focus on automation of business
processes – especially delegating mundane, repetitive, and error-prone work
to IT systems. Increased automation allows transactions to be conducted
electronically without the need for re-keying or manual intervention.
Automation also frees human resources to handle activities that add real value
to carrier’s top lines.
5 O’Donnell, A. (2005, February 21). Getting to One. Retrieved from Insurance & Technology: http://www.
insurancetech.com/distribution/showArticle.jhtml;jsessionid=FP3JOZRPJXIQ1QE1GHRSKHWATMY32JV
N?articleID=60402355&_requestid=399915
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PDM presumes that business process models are constructed and managedby resources having knowledge of the work to be accomplished – in this case,
insurance business analysts. As such, the business process models become
“business assets” and not “IT assets.” Until recently, such process models had
no connection with the operational environment. However, modern Business
Process Management Suites (BPMS), such as TIBCO’s iProcess Suite and
ActiveMatrix BPM, allow models constructed by business analysts to be further
enhanced by IT architects, resulting in operational systems – which provide a
better and more-efcient platform for increased automation.
TOP-DOWN TRANSFORMATION
PDM can reduce attention on IT cost reduction as the only measure of success,while at the same time increasing attention on top-line value. These results can
be achieved by improving insurance business processes, while modernizing
the technology infrastructure from the top down driven by business need. The
PDM methodology focuses rst and foremost on transforming and automating
the business processes of carriers, and incrementally moving those carriers
toward a more-agile enterprise architecture. Those architectures will evolve
organically and become the platform of the future for the insurance carriers.
PDM lets insurance business experts drive efforts to modernize systems,
while removing dependency on application developers to “program business
processes.” This concept is called model-dr iven development and is one of the key value propositions of PDM. The idea is to empower insurance business
experts to drive implementation of their strategic initiatives.
DECOUPLING PROCESSES FROM CODE
Besides a common desire to increase automation, insurance carriers share
something else – they all have well-dened business processes in functional
areas such as New Business, Renewals, Servicing, Loss Management, and
Accounting. Over the past 30–40 years, operation of these insurance business
processes has been dependent upon manual processes and numerous legacy
applications executing on aging mainframe and server platforms. In order to
modernize, it is necessary to decouple and untangle an insurance carrier’sbusiness processes from the systems which support them.
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With PDM it is the business experts who drive modernization, and this
“business-centric and model-driven” approach is a key underpinning of PDM.
An Insurance Example – First Noticeo Loss (FNOL)To explain PDM in more detail, let’s consider the Property and Casualty
insurance business process “First Notice of Loss” or FNOL. In the example,
business process modeling is used to decompose FNOL and identify its
discrete activities – ultimately enabling the modernization of this process.
In Figure 2 below, an FNOL process model is represented using the
Business Process Modeling Notation™ (BPMN™), and created using TIBCOBusinessStudio. BPMN is the acknowledged industry standard for modeling
and visually representing business processes, and is maintained by the Object
Management Group™ (OMG™). For a detailed explanation of the BPMN
standard, please see the OMG web site (www.omg.org) – or refer to the
technical version of this document.
Figure 2: First Notice o Loss(FNOL) represented using BPMN
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Figure 2 is a top-level view of FNOL and is not intended to represent the entire
process. One of the many benets of business process modeling is the ability to
decompose and visually describe large, complex processes and the underlying
IT systems – hiding and abstracting details when necessary. This allows business
experts to focus on the business problem and not the IT implementation details.
In reality, the FNOL process represented in Figure 2 could easily span hundreds
of discrete applications, executing across multiple servers and mainframes – all
contributing to the FNOL process execution. TIBCO has worked with a claims
processing system for a major U.S. P&C carrier that is composed of over 400
discrete applications executing across numerous legacy servers and mainframes.
PDM Empowers Insurance BusinessLeadersIs it possible to decompose, untangle, and modernize business processes
from the underlying IT infrastructure without using PDM? “Yes” – companies
are doing it every day. However, without PDM, when faced with rolling out a
new business initiative requiring modernization, business executives with little
detailed knowledge of their underlying IT assets are faced with the difcult task
of deciphering the connection between their business processes and the IT
systems that automate them. PDM provides a bridge between business and IT
whereby business experts can visualize this association – and with this additional
information are able to make more-informed decisions on how their desired
modernization initiatives impact their IT systems from a time-to-deliver and total
cost perspective.
Let’s suppose a carrier has allocated funds to modernize their FNOL process.
To do this, PDM rst requires a current-state model be constructed – preferably
using BPMN. Figure 2 represents the current-state FNOL process. Once the
FNOL current state has been modeled, and the details have been visually
analyzed, it can be obvious to insurance business experts there are a number of
areas within FNOL that can be optimized/automated/streamlined, including but
not limited to the following:
• The front end, specically how the FNOL message is delivered from Insured
and/or Agents to the Carrier
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• Several back-end areas:
o collecting FNOL Claim data
o direct entry of FNOL Claim data into the carrier’s Claim System
o receiving and processing inbound faxes, emails, and images from
agencies
o interaction with vendors that participate in claim servicing (police reports,
medical billing, repairs, car rental)
The business drivers behind the modernization initiative could include:
• How can we lower the TCO of our FNOL process?
• How can we better meet the needs of our insured and agents with animproved and streamlined FNOL process?
• How can we decrease the number of errors occurring when processing an
FNOL?
• Can we better leverage standards such as ACORD to improve our process?
• How can we add new input channels to FNOL?
• How can we increase automation in our FNOL process?
• How do we detect fraud as early as possible after FNOL?
PDM assists business experts in their analysis and process design decisions
by visually decomposing the process and allowing subcomponents to be
considered discretely. Moreover, with current and future state models denedusing TIBCO BusinessStudio, cost and performance simulations can be
implemented more easily.
PDM is Incremental – Reduces RiskContinuing with our example, let’s assume the initial focus will be modernizing
the back-end processes, and increasing automation. Furthermore, the carrier
wants to use ACORD standards to more easily interoperate and exchange data
with numerous third parties during the FNOL process.
Following the incremental approach of PDM, the business executives decideto implement the FNOL modernization initiative in phases. The initial phase
will focus on automating receipt and processing of inbound faxes, emails, and
images. The nal phase will focus on receiving transmission of ACORD-based
transactions directly from Agents.
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Using business process modeling as a tool to better understand the logical
modernization progression, the business executives are able to visualize,
discover, and engineer the transitions from “current state” to “desired future
state” of the FNOL business process. The desired future state for FNOL is shown
in Figure 3.
The future-state FNOL business process model shows the carrier adding
capability to receive ACORD XML directly from its agents. Using business
process models makes it easy to visualize and communicate the modernization
work required. Although not implying that implementation of the future-state
FNOL process will be trivial, PDM enables the business to more clearly dene
what is required, thus removing the usual dependence on IT to drive theinitiative.
ConclusionAs insurance carriers consider their strategic initiatives for upcoming scal
cycles, PDM should be given strong consideration as a foundational strategyfor modernization initiatives. PDM empowers business executives to drive
modernization using an approach that is business-driven, while minimizing
risk and cost using its incremental approach. PDM has a low barrier to entry –
Figure 3: Desired Future StateFNOL Process
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allowing carriers to begin moving down the modernization path without making
investments typically required by large-scale enterprise application deployments.
BPM, a key component of PDM, is a mature, standards-based methodology that
supports investment in models. The platform-independent models constructed
during a PDM initiative are managed and created by business people – and
therefore have a life span reaching far beyond the lifetime of hardware,
operating systems and programming languages. With PDM, models are the
focus of investment instead of application code. This empowers insurance
carriers to focus more on their business problems and less on the IT systems that
are currently holding them back.
Contact TIBCO at 1-800-420-8450 to schedule a consultation on your plan for Process Driven Modernization.
AcknowledgementsThank you to the following people who contributed input to this paper: Anita
Salinas, Shashank Srivasta, Mark Elder, Bob Turner, Mark Smith, Richard Soley,
Gerry Donlin, Ellen Carney, Bill Zambarano, Fred Cummins, Phil Harr, Justin
Brunt, and Paul Brown.
Jason Dokken BioJason Dokken has twenty-eight years experience in the software and information
technology industries working as a technology visionary, business and technical
leader, software architect, consulting engineer, and software developer - both in
the United States and internationally. Mr. Dokken is a Principal Global Architect
for TIBCO Software, focused on the Insurance and Financial Services markets.
Mr. Dokken previously served as Chief Architect for the U.S. Insurance segment
within EDS Applications Delivery. Before joining EDS, Jason was the President of
Dokken Software Incorporated servicing large clients such as Salomon Brothers,
GE, Dun & Bradstreet, ADP, Bell & Howell, Cedel Global Services (Luxembourg),
Fuji Films, Raytheon, Hughes Aircraft, Fitch, Lockheed, and IBM. Prior to creating
Dokken Software, Mr. Dokken worked as a software consultant a nd developer
for Precision Visuals and Bell Communications Research.
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TIBCO’s Insurance QualifcationsTIBCO has a long, successful history in insurance – 12 of the top 25 global
insurance companies are using TIBCO today, and three of the top three (based
on Fortune July 2009 global company list by revenue). With TIBCO, insurers
realize the following benets:
• Improve productivity and manage growth by modernizing claims, billing,
risk management, and underwriting processes
• Experience better customer satisfaction and retention
• Sell more insurance products, because customers are offered targeted
products they want to buy
• Minimize revenue loss, reduce costs, and realize incremental revenue with
improved policy administration and straight-through renewals
TIBCO Sotware Inc. (NASDAQ: TIBX) technology digitized Wall Street in
the ‘80s with its event-driven “Information Bus” software, which helped
make real-time business a strategic differentiator in the ‘90s. Today, TIBCO’s
infrastructure software gives customers the ability to constantly innovate
by connecting applications and data in a service-oriented architecture,
streamlining activities through business process management, and giving
people the information and intelligence tools they need to make faster and
smarter decisions, what we call The Power of Now®. TIBCO serves more than
4,000 customers around the world with ofces in more than 20 countries and
an ecosystem of over 200 partners. Learn more at www.tibco.com.
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