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Why insurers need enterprise architecture

An enterprise architecture makes sense of the challenges facing insurers today.
Freda du Toit
By Freda du Toit, Chairman and co-founder of Kgali Investment Holdings.
Johannesburg, 13 Jun 2008

Few, if any, market sectors are in need of change as much as insurance, an industry known for its conservative approach, with resulting slow rate of change.

However, legislative pressures have made industry players aware that they are entering an era where change is required to survive and remain competitive - but how best to approach these changes is a question most companies still cannot answer.

Processes evolving over 300 years and automated half a century ago have proven stubbornly resistant to modification, even as it becomes patently clear that these processes are on the one hand hindering the potential for change, and on the other costing insurers millions in direct costs and opportunity cost.

One of the reasons for resistance to change is that no one executive in an insurer has a view of the entire, enterprise-wide process; the way business is conducted. A second is that because no one can view the entire process, no one can instigate change or drive the company to a future, desired state. A third is that the business cannot gain a cohesive view of all the technology which allows the digitisation and ultimately execution of the strategy.

The high costs attached to current processes and their support IT systems mean a big percentage of investors' fees are absorbed to pay for them, a fact which has manifested in unhappy policyholders, negative publicity and a range of punitive rulings from the Pension Fund Adjudicator. In recent months, it has become clear that insurers have intent to change this, but they are still looking at traditional methods which in the past have proven not to effect the savings required.

The best way for an insurer to address these challenges is to embrace the discipline of enterprise architecture.

Freda du Toit is executive director at SDT Financial Software Solutions.

The best way for an insurer to address these challenges is to embrace the discipline of enterprise architecture. Since 1996, thousands of companies which have gone this route have been able to move ahead of their competitors. They are more agile, more easily able to define and model their current and future state, and they can both make sense of IT and bridge the traditional disconnect between business and IT.

An enterprise architecture helps make sense of many of the challenges facing insurers today:

* It helps the organisation define, describe and depict its purpose and competitive positioning.

* It helps answer strategically critical questions such as "Where is the business going and where does it need to go?" The strategic direction of the business, and the interests of all stakeholders are the over-riding consideration here.

* It helps define and model the business architecture. This should embrace the purpose and mission of the organisation, its principal offerings, and the people, skills, processes, plant, machinery, compliance requirements and resources needed to fulfil the business mission. This can be done outside the limitations of today, something many people still find uncomfortable and difficult.

* It defines the current and future architectural states, with the roadmap to bridge the two states.

* Critically, it reveals the processes through which business is conducted. In this stage, broken, repetitive, inefficient, duplicate and redundant processes are revealed, and in almost all cases it will be for the first time.

* Along with the process definition and modelling, the enterprise architecture will reveal the process owners, their roles and responsibilities and the ideal associated technologies needed to fulfil the processes.

* It is at this point that the business will need to review existing technologies and consider a future, ideal technology state. This aspect of the enterprise architecture has seen many organisations save millions as they discover and are able to retire redundant systems, unused software licences, duplicate servers, inefficient applications, and systems running in the world known as "Shadow IT".

* Only at this stage does the decision of the appropriate technology to serve the needs of the business need to be made. In cascading order, the insurer will have created reference and operating models for the business, the information that supports the business, the data that drives the information, and the application that fulfils the processes and pumps the data. As an afterthought, almost, the insurer can decide what technologies to use in support of the other four architectural layers.

The enterprise architecture then forms the foundation for execution in the organisation - aligning all projects, including but not only IT, to the strategy of the company - allowing all resources to be focused on achieving the future.

In the broadest of brush strokes, this is the argument for an enterprise architectural approach to insurance. In coming Industry Insights, I'll explore the topic in greater depth.

* Freda du Toit is executive director at SDT Financial Software Solutions.

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