Process Driven Modernization in Insurance White Paper

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Process DrivenModernization inInsurance

Jason Dokken, Principal Global Architect, InsuranceTIBCO Software Inc.



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




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




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




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.




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




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




• 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.




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




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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©2010, TIBCO Software Inc. All rights reserved.

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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Process Driven Modernization in Insurance White Paper