IT central to Allianz plans

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1 April 2005 | 0

Thanks to events in Saipan last year, the adage ‘fail to prepare, prepare to fail’ became part of everyday language, but it’s a mantra that has long been familiar to anyone in IT.

World Cups may only come around once every four years but business is an ongoing concern and for the technology that underpins that, it helps to have a view not just of the here and now, but what the future holds.

Allianz Ireland, which provides property and casualty insurance, has been working from a strategic IT plan and a blueprint of its architecture that was put in place almost five years ago. Both elements are reviewed annually with major updates every four years. This blueprint has allowed Allianz to put in place an infrastructure that can handle current and future needs, keep careful control of its costs and anticipate developments in a methodical way.

‘The risk you run of not having a blueprint is that you can have discretionary purchases or elements introduced into the infrastructure which may be incompatible, lacking interoperability or interchangeability,’ says the firm’s head of IT Karen Forte. ‘That in a sense is for the here and now but also for the future allowing migration to new technology to be managed in a controlled manner.’

 

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Sitting at the heart of the firm’s business in Ireland is an application called Insure 90. It handles much of what Allianz provides, from quotation, new business and renewals to account management, claims handling and reinsurance. ‘It’s very much the traditional bread and butter of property and casualty insurance administration,’ says Forte. ‘At this stage our application is one of a kind. It was bought originally as a package but we have invested 350 man-years of customisation so there isn’t one like it and what we’re doing is extending the useful life of that application as the business drivers dictate.’

Insure 90 has historically run on an IBM AS/400 and will do so for some time to come, says Forte. She offers additional reasons to retain the AS/400: total cost of ownership, the investment that Allianz has made to date and the fact that the in-house IT department has good AS/400 skills. ‘The cost to change would have been significant, had we decided to jump from AS/400, say for argument’s sake to Unix.’

Desktop upgrades

Prior to the blueprint’s formulation, Allianz had been an OS/2 site, but the company concluded that the mid-tier server platform wasn’t going to deliver its long-term future objectives, from a business and cost of ownership standpoint. As a result, the insurance provider migrated to Windows NT and at the same time all green screens in use were jettisoned in favour of PCs, whose users are emulated to the AS/400 as they need. This gives them access to the main system as well as the processing power to run local applications or traditional client/server productivity tools such as Lotus Notes for e-mail and collaborative working or projects.

‘We didn’t have to refresh the entire population, so we took the high end users and replaced their PCs with what would have been state of the art at the time,’ Forte explains. ‘Then using Citrix, we cascaded the older PCs — used for emulation and e-mail — towards the users who needed less powerful computers. So that helped a lot in terms of refresh costs and that’s our strategy, that we extend the useful life of hardware as long as is reasonable.’

Citrix is a useful mechanism for delivering applications to desktop users but the product also proved ideal for supporting users in Allianz branches around the country. ‘Through Citrix you have a lot more control over the desktop in terms of standardisation, and also visibility of what an end user is doing, so for troubleshooting, it collapsed the response times to problem resolution,’ says Forte. ‘It’s the remote users who benefit from that strategy.’

IT requirements

Allianz has more than 950 end users and the in-house IT department, which numbers some 60 people, supports all of the systems employed by those users. Staff in the IT department are evenly split between development and technical services. The latter group fulfils helpdesk, desktop and technical administration needs. Allianz Ireland serves the 32 counties. It has a very large business unit in Belfast, with close to 150 people and the rest are based in six branches around the country, in addition to its Dublin head office.

Workers in the operational unit of the business need access to the policy administration system, the workflow engine and the imaging system in order to deliver a business transaction. They each have an electronic in-tray, with feeds coming to it from a number of sources.

Insurance has traditionally been an industry with a heavy reliance on forms, but paper doesn’t flow around Allianz any longer. Documents are scanned at the point of entry into the group and made electronically available to the knowledge worker. That has obvious implications for data storage, but as Forte points out, ‘you don’t have to physically retrieve documents that can be misfiled and misplaced and prone to destruction through the accidental spill or tear. [By scanning] it’s consistently filed and your seek time is always the same’.

Under the blueprint, the insurance firm implemented a storage area network; cost again was a factor but this infrastructure also offers standardised backup and recovery options. ‘Your opportunities for disaster recovery are enhanced by having a single storage area network,’ Forte observes.

Allianz moved from Token Ring to Ethernet for speed and future proofing reasons. ‘You could only drive your network at 16Mbit/s on Token Ring, whereas you have the option of 100Mbit/s Ethernet as the entry position and you can increase from there,’ says Forte. ‘That was driven out of increased business flexibility requirements regarding LAN-based applications performance needing a performant network.’

Evolutionary model

The blueprint has put Allianz’s IT infrastructure on an evolutionary path to the future rather than a revolutionary one. Any evaluation of applications or services opportunities are viewed against that backdrop.

‘We have quite a methodical approach to the definition of cost/benefit analysis [CBA],’ says Forte. ‘Ideas are initiated in the business. We work very closely with them to define the scope of the project, to give indicative costs. They already have an idea of the business benefits. They are articulated into a format that is consistent across all projects so you can compare like with like.’

Interestingly, Allianz follows up any projects it undertakes with the same eye for detail that is found at the beginning of the cycle. ‘I think not many organisations do this — they’re probably very good at the CBA — but we also go through quite a rigorous post-implementation review to determine whether the benefits as outlined actually got delivered to the business,’ says Forte.

‘What I’ve noticed over say the past three years is that the payback period which might have been anything from three to five years previously is shortened now. We’re looking at payback periods that are 18 months to two years and I think that’s reflective of the need to get a return quite quickly because of the uncertainty that there is in the broad economic climate.’

‘What the governance model allows us to do therefore is evaluate and assess projects critically and objectively. It does put quite an onus of bureaucracy on to the business and we are trying to refine that over time, because the objective is not to be bureaucratic it is more to show a discipline and a rigour in the methodology where projects get assessed. So that at the end of the day Allianz gets a bang for its buck in terms of the IT investment. Because money is scarce, you want to make sure you get real value for money out of every proposition.’

Build or buy?

When it comes to procuring technology, the rule now in place at Allianz is: ‘buy where you can and build where you must’. Forte explains: ‘we’ve decided on occasions to build rather than buy, but we do have a philosophy of buying. You get upgrade benefits, you get access to expertise and you don’t find yourselves therefore hugely dependent on a small number of people for discrete skills. We want to be able to optimise the skill mix using a combination of internal and external resources’.

This has an impact on the resources that Allianz can allocate to keeping the system up to date. For that reason, it entered into a partnership agreement with an Indian software-development house based in Bangalore, to supplement its in-house development team.

This deal came about following the year 2000, after which there was a pent-up demand to undertake more development work on the policy administration system. A tightening local market meant that potential employees and contractors were in short supply. Plus, working with Insure 90 involves a particular set of legacy skills. In addition, Allianz wanted a development resource that it could turn on and off as required.

‘Certainly some of the projects we were expected to deliver on in 2001 could not have been delivered without this ramp up/ramp down capability,’ Forte enthuses. ‘You’re looking at a three-month period when we were delivering a significant amount of man days and where quality needed to be high and we were very satisfied with what was delivered.’

When large projects come along, Allianz’s team oversees the analysis and specification, the outsourced developer writes the code and does the unit test. When the code comes back, it passes a quality-assurance process and is then sent to a user acceptance test team which is not part of the IT department. ‘They’re the final gatekeepers with regard to the quality of the code,’ says Forte.

Allianz renewed its contract with the Bangalore firm in 2002 and 2003. Forte professes herself open to the idea of selective outsourcing where the benefits are clear. ‘In IT, we’re not wedded to the idea of owning all the metal and the provision of all the services,’ she says. ‘Quite frankly if the cost of ownership suggests that somebody else is better placed to do this, and there is clear movement from fixed to variable cost, well then I’m sold on the idea.’

A side benefit emerged from the process; a documented system was produced for staff from the Indian company who came to Ireland for a 12-week knowledge acquisition phase.

As this development was intrinsically linked to AS/400 and the Insure 90 policy administration system, it fell under the category of ‘build’ rather than ‘buy’, even though it was outsourced. However, looking to the future, Allianz’s approach has been to buy where possible.

Over the last couple of years Allianz has taken an external print engine out of Insure 90 because it found a package that can perform this function better. ‘So regardless of the future of Insure 90, this printing investment will survive,’ Forte says.

Insure 90 also had a fairly limited workflow and document-management capability, so this has also been taken out of the original application. ‘These are all wrapping functionality around the core administration system but extending its useful life by integrating and interoperating with it,’ says Forte.

Moving to the Web

In common with many insurance firms, Allianz has had to make the Internet a delivery channel for its products. This initiative, whether business-to-business or business-to-consumer, offers the proverbial ‘holy grail’ — that is, customers who deal with Allianz and whose business goes straight on to the back-end system with no human intervention. ‘The systems make the decisions and because it’s rules-based you’ve defined how the calculations work and it allows you to go for volume commodity business,’ says Forte.

This gives rise to integration issues: because the consumer or insurance broker only needs a system that runs a browser, the applications need to be designed for server-side computing. On the plus side, Forte notes that the move to the Internet age has sped up the business transaction process. ‘Historically applications like Insure 90 were very much green screen based, it might have taken you 20 to 25 screens to complete a business transaction. With GUI enablement through a front end, you can do that maybe now in two.’

For the middleware needed to make the browser talk to the backend system, Allianz again stuck to its ‘buy’ strategy. ‘That was a standard messaging application that was available,’ says Forte. ‘When we were looking at application packages, we go through quite a rigorous evaluation process and we would be very much in favour of the market leader rather than some esoteric, little known application that’s been devised by a couple of guys in a garage. For all the issues that entails — support, future proofing, investment in new releases, functionality, how much influence you can have in the direction that package takes — we take all those aspects into consideration when we’re doing an assessment of a package.’

Business issues

All of this must ultimately relate to how Allianz conducts its business. According to Forte, there are two main types of claims: property damage and personal injury, and one is very different from the other. ‘Insofar as you can say underwriting is commodity or complex, similarly with claims, property damage is relatively straightforward, easily understood. Personal injury is complex, fraught, long tailed, very large complex issues pertaining to individuals needing medical opinion and external professional advice.’

Forte says that the latter have limited suitability for automation, because they rely more on the involvement of knowledge workers and less on hard and fast rules. The more rules-based a process is, the more easily IT can be applied to it. ‘Where there are all these variables, we’ve been able to give limited support, because always these come down to the judgement of experienced individuals. At the end of the day, it’s negotiation-driven and, I think, thus it will remain.’

As for what the future holds, Forte confirms that Allianz has Linux in its sights-in common with many organisations-although the firm’s approach is best described as ‘wait and see’. ‘We would say that we’d be mad not to look at Linux, but the problem is that it hasn’t reached critical mass in any serious way in a commercial financial-services entity,’ says Forte. ‘I suppose the first one to jump will bear all the pain and we’ll all stand back and watch and then we’ll all follow suit.’

Forte is very clear about why Linux is up for consideration: ‘I think the reality is, that people are hurting because of the changes in Microsoft licensing arrangements and it behoves all of us to stand back and look at alternatives,’ she declares.

Weighed against that argument is the responsibility for a large user base and the support issues that go with it. ‘You can’t be foolish about it either, there’s no point in going for what is relatively bleeding edge technology when you’ve got issues such as day-to-day availability for nearly a thousand staff, just because you want to walk away from expensive licensing issues. Not only have the applications got to be resilient and reliable, but you in turn have to be able to support those effectively.’

Future moves

More pressing considerations will be on the agenda before long. According to Forte, there has been a lot of movement towards the adoption of XML by the insurance industry in the US and where it leads, Europe is likely to follow — at least, when it comes to IT. ‘I think we would be more actively engaged with [XML] over the next while [than with Linux]. Not in the next three-to-six months but say in the next year or two.’

Moves within the Allianz group will also impact on upcoming IT projects. The company is embarking on a drive towards reducing the time to make financial results available, aiming for as soon as possible after the original data has been gathered. ‘Allianz globally is pushing really hard to try and get this standardised approach so we may need to go a particular route as a consequence,’ says Forte.

‘We’ll have visibility on that towards the end of this year, which would generate a project for us as and when that decision is made.’ For the most part however, Allianz Ireland has retained a good degree of autonomy from its parent. The IT blueprint that it formulated applies to Ireland only. ‘If you look at the nearest operating entity in the Allianz family, it is Cornhill and we have a very different profile to their architecture,’ Forte points out. ‘While we can talk and we have interoperated at a systems level for one discrete area of the business, we don’t have a need to be joined at the hip.’

As long as operating entities deliver the economic value-add objectives set for them, how best to deliver that on the ground is a decision left to those at the coalface. That said, Forte is not phased by possible global initiatives that Allianz may choose to embark upon. ‘We’re quite comfortable with that because as I said, we don’t feel this compunction to own the metal of the infrastructure, so we will take views on how best to deliver that and work within a mixed delivery mechanism.’

Forte prefers to reveal the firm’s annual IT budget in percentage terms rather than as an absolute figure. Every year Allianz Ireland sets aside close to 1.5 per cent of gross written premium (GWP) for IT. This compares to an industry average in the region of 2.7 per cent.

Forte prefers to view this as a source of pride rather than a financial straitjacket. ‘I think it’s indicative that the projects we’ve undertaken to drive cost down have been successful,’ she says.

‘The only future concern is that if the GWP line dips, that percentage obviously would no longer hold. In absolute terms it has been holding pretty much and I think that’s given us the flexibility to do the type of things that we’ve done.

‘We have consistently invested year on year over the past number of years which I think means that you don’t have this boom-and-bust type approach where you’re swinging up and down the depreciation and investment cycle, which some companies do. They take capital investment breaks and then they have to pick up their skirts and run in order to catch up with their counterparts and that’s difficult for organisations to mobilise and ramp down. It’s much better if you can have a certain level and threshold of activity so that you’re constantly evolving, not convulsion and revolution.’

This is not to say that the IT department gets to embark on every project it would like; some are deferred, others take precedence because they may be driven by considerations such as industry legislation.

Forte accepts this as the ‘cut and thrust’ of working in the industry — playing with cool technology comes a distant second. ‘We’re much more about being aligned with the business and helping the business case than we are about “toys for the boys”.’

10/07/2003

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