The Insurance Value Chain (Part 1)

Quick Architecture Takes

Harry Pierson's DevHawk Weblog — Sat, 11 Sep 2004 03:41:00 GMT

re: The Insurance Value Chain (Part 1)

Anonymous — Sun, 12 Sep 2004 22:03:00 GMT

This new approach to the Insurance Value Chain sounds very encouraging – even historical. The world’s largest software company is updating the construct of the Insurance Value Chain based on SOA concepts. Yes! I’m really looking forward to hearing about the plans for enhancements and next versions. This can be very positive. More power to you, Josh. Sounds like you want to do it right.

I’d like to offer my suggestions for the new approach. First, while I realize the whole point of the new approach is not to dwell in the past and to move forward aggressively, I think it would be interesting (at least, as a brief footnote in the history of financial services) to accurately illustrate this change and lessons learned, etc…

Until your blog posting, I noticed that Microsoft held contradictory positions in the insurance industry. On the one hand, supporting pure SOA-based efforts like WS-I and being the first to build/offer great SOA tools like InfoPath. This was signaling to the insurance industry it’s time to build SOAs. But, on the other hand, Microsoft was also talking up partnerships with third-party software companies who were leveraging Microsoft tools to build Web services only to cost effectively build and sale _pre-SOA_ software products and services (like insurance agency management systems) to financial service business-owners. The contradiction, of course, is that these pre-SOA products and services actually make it more difficult for financial service business-owners to start making SOA arrangements that Microsoft was also talking up.

The best way I’ve found to explain how pre-SOA products actually make it more difficult for financial service business-owners to start making SOA arrangements - is the economic theory of “transaction costs”. Since we’re focusing on the domain of financial services, my reasoning is applying economic theory to understanding this situation is probably the most real-world approach possible. What I learned was SOAs dramatically reduce transaction costs. Moreover, I learned that pre-SOA software products and services are “asset specific” and asset specificity increases transaction costs. So, the contradiction was Microsoft was supporting both decreasing and increasing transaction costs in the insurance service industry. Moreover, and this is where things gets very interesting, I learned that transaction costs actually determine the shape of businesses and technology determines transaction costs. Meaning that the shape of the Insurance Value Chain itself (and operations of organizations within) is determined by transaction costs - which itself is determined by technology. The current shape of the insurance value chain has been fine-tuned over hundreds of years based on paper technology. The current entities, roles, who the players are and what their operations are … actually what today defines what a successful financial service business is – is all determined by technology and it is almost all still based on pre-SOA technology. The question was - why was Microsoft partnering with vendors who are re-enforcing that old value chain model based on old technology constructs and at the same time leading the way for the use of SOA constructs which actually would change the shape of the Insurance Value Chain and the nature of work in the financial services? I mean, that’s a lot of chain yanking.

It sounds like Microsoft has resolved the contradiction. Josh, your postings are very encouraging.

OK, the next two issues then are:

1) What is the new shape of the (SOA-based) Insurance Value Chain?

2) What is the best strategy for enabling entrepreneurs to make the transition from the old to the new?

I’m looking at the PowerPoint slide from one of your presentations a year ago showing the diagram of the current Insurance Value Chain. I’m assuming you plan updating this diagram. Of course, we’re talking about a multi-trillion dollar global industry based on the shape of current value chain and the transition to an SOA based model is not going to happen overnight.

So, there’s got to be a transition from the old model to whatever the new model is which assumes the current model as a starting point. Given, the challenge is how to update things based on SOA with as little chain yanking as possible.

My suggestion would be, as early as possible, let’s everybody compare and contrast the old and new model. The old model we already have and everybody knows. What’s missing is a clean, simple view of the new SOA-based model of the Insurance Value Chain. My research leads me to recommend the Model/View/Controller (MVC) design pattern as the basis for the updated SOA-based model of the Insurance Value Chain. People need to see what the new model looks like and the MVC is what I’m imagining it looks like. A diagram with just 3 boxes connected to each other. All the old labels and relationships – gone and replaced by the metadata techniques and templates as you described in your posting below ‘Habit Forming and Architectural Excellence’.

Moreover, I’m still recommending the insurance industry leverage WS-I and form a workgroup and create the first industry specific WS-I Profile. That’s probably not going to happen unless there is some sort of universal consensus of what the new Insurance Value Chain is.

re: The Insurance Value Chain (Part 1)

Richard Veryard — Tue, 14 Sep 2004 12:58:00 GMT

If we are doing business geometry for an insurance company, we need to think about the insurance industry as an ecosystem. We can expect the pre-SOA ecosystem to evolve into some form of SOA ecosystem, although we may not have much idea which of the possible changes is going to happen first. An insurance company needs both to exploit the pre-SOA ecosystem, and to prepare for the SOA ecosystem. Therefore we need both an AS-IS model of the present ecosystem (largely based on pre-SOA technologies) and a TO-BE model of an idealized ecosystem (based on SOA).

re: The Insurance Value Chain (Part 1)

Josh Lee — Tue, 14 Sep 2004 18:11:00 GMT

Richard, great comments and I agree. In fact as you will see there will be some information provided for the "as is" architecture and how to migrate that to "tomorrow". Keep in mind though that many of the "as is" models are barriers to innovation in some way and need to either change drastically or go away before real innovation or the next steps can be taken. One of the great things that SOA can facilitate as it leverages web services heavily is that existing functionality can be wrapped using SOA concepts and messaging and interfaces can leverage "tomorrow" faster. I hope to be able to show how this integration theme can protect and extend existing infrastructure while providing leadership at the same time to solve business issues.

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