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Transforming IT in the Insurance Industry

Posted by Tim R on March 12, 2021



Traditional enterprise architecture (EA) has given the impression of creating documents from an ivory tower, not always accountable for the business outcome. Transformed EA, on the other hand, sees CIOs asking, “How can you deliver on my business outcomes?”

In this episode of Unleash IT, we speak with Kalpesh Sharma, Director and Principal Enterprise Architect at Capgemini, about IT transformation in the insurance industry. In his 20+ years of experience in the field, Kalpesh has watched the industry evolve from being project-driven and siloed to product-based and integrated.

“I have always been passionate about solving business problems with the right technical solutions, leading to quantifiable business outcomes,” Kalpesh said. 

What does Kalpesh see as key priorities for the insurance industry as it accelerates transformation — and what can EA do to help? 

Business capability modeling

For EA, business capability modeling is the foundation of any organization’s IT landscape. Kalpesh believes that a solid business capability map covers four essential aspects when transforming IT:

  1. Reducing operational costs
  2. Increasing revenue 
  3. Faster time to market
  4. Innovation

However, in reference to a previous conversation with Tim Terrry from Sargento, host André Christ asked Kalpesh if it is possible for EAs in the insurance industry to reduce IT costs while simultaneously driving innovation and revenue growth.

 Kalpesh believes that this is certainly possible, but to do so, EAs need to understand business strategy and define the business capabilities. Taking business strategy and business capabilities as inputs, EAs need to work towards solutions to streamline the operations, increase revenue, and bring more innovative products to market.

“It's basically all business-driven," Kalpesh says. "CIOs are asking us, ‘How can you increase my business? How can you increase my footprint to enable me to sell my products with better reach while also simplifying my organization?'"

EAs are committed to the strategies they help design, and in many cases, their budgets are contingent on the business outcomes delivered.

Crucial for IT transformation in the insurance industry is phasing from monolithic to microservices and cost reduction to prioritizing the implementation of new business strategies. EAs can help here by incorporating a two-step stratgy approach: the corporate strategy and the platform strategy.

  • Corporate strategy: What are the business goals? What are the business capabilities aligned to those goals?
  • Platform strategy: What architecture will best support these capabilities? What technologies and processes need to be laid out to enable this architecture?

For platform strategies in particular, EAs must look into the existing business capabilities and focus their attention on the customer and business. 

“Once you have the business outcome in mind, then you go to the drawing board and define your business capabilities from the perspective of strategic management.” — Kalpesh Sharma

Open APIs for insurance

Kalpesh believes the insurance industry has always been a laggard in customer-focused transformative activities compared to other industries like banking. This is because the insurance industry has less customer touch points compared to banking. Nonetheless, the insurance industry has made notable developments thanks to open APIs.

Open APIs offer insurance providers a way to sell directly to customers in order to stay innovative. These access points allow insurance and insuretech companies to widen internal operations and tap into the right processes to deliver new products to customers. EAs can support this by creating frameworks and guardrails for transforming legacy monolithic applications to services-based architecture and enabling security and compliance for these services for third party consumptions. 

Kalpesh offers several examples to illustrate some news ways the insurance industry can bring their services to the next level:

  • Example 1: A customer buying a product on Amazon would be asked if they want to add or increase a warranty on the item (a warranty, after all, is insurance).
  • Example 2: Users driving with IoT devices can reveal patterns that lead to up-selling or cross-selling new insurance products.
  • Example 3: Short-term insurance would cover costly products for just two or three weeks rather than the entire life of the product.
These innovative ways to sell insurance to customers are still in the early stages but gaining traction.

“To increase new channels of selling insurance products, the insurance industry has started leveraging open APIs.” - Kalpesh Sharma 

From project to product

Asked about the major difficulties in the insurance industry from reaching a mature microservices architecture, Kalpesh shares that integrations are hindered by legacy systems/mainframes. Not only do these changes have to be heavily rationanlized (i.e., retiring or updating or replacing systems), organizational cultures and operations need to be changed to accommodate and monitor new ways of delivering business. 

Thankfully there’s plenty of talent and technology right now in the sector, and Kalpesh is confident that the insurance industry has the money to implement the changes. In his experiences, the root causes of delayed modernization efforts within the insurance industry stem from the ways teams are structured within organizations.

“The primary the way organizations are currently structured," said Kalpesh. "This includes the way organizations are currently delivering their capabilities and the culture of the organization towards developing or building these capabilities.”

Insurance organizations, for example, have traditionally organized themsleves around the insurance products they serve and the regions in which they serve these products. These siloed set-ups resulted in inconsistencies and inefficiencies in ways in which the projects are delivered despite the attempt to combine everything into customer-focused capabilities. 

There’s a serious need for change in the way organizations deliver the product. They need to start thinking of insurance, or whatever is being delivered to customers, as one goal.

“Once they do that, I believe technology is always easy," Kalpesh said. It’s the people and the processes that are the difficult part, he added.

To translate that in architectural requirements, insurance needs to think of the capabilities across the products and extract them to be reusable. Insurance needs a fresh focus on reusability and modularity. 

To help this insurance IT transformation, Kalpesh recommends creating three layers of EA:

  1. A top level of EA to define the business strategy and capabilities.
  2. A second level for enablers for the product to align with the business strategy.
  3. A “ground” level for architects to work closely with app dev, testing, QA, and SRE teams to deliver the defined business outcomes.

These three layers help align EA decisions to make architecture frameworks as resilient as multi-channel engagements increase. This approach can be replicated in product-based organizations, per business capability, to facilitate quicker iterative improvements and thus faster overall transformations. 

“Insurance is now understanding and realizing that this kind of change has started happening on ground.” — Kalpesh Sharma

Operational resiliency

EA can build the most beautiful structures ever seen, but unless they are resilient, they are useless. For the insurance industry, operational resiliency is especially timely given the Covid-19 pandemic and recent bizarre freezing weather snowstorms in Texas.

In terms of application resiliency, performance testing can only take you so far. EA needs to incorporate chaos engineering principles into the design.

“We have come up with a solution with the working prototype where we are helping financial institutions to test their application resiliency, as well as infrastructure resiliency, and then see how those components behave in odd events,” Kalpesh said. 

“The question is, ‘How would your system behave?’” — Kalpesh Sharma

While there are multiple areas EAs can look to start with operational resiliency, it’s more about taking the first step. EAs should help customers focus first on critical applications within the business and second on the infrastructure where the applications reside.

“Just work with those critical applications and critical infrastructure,” Kalpesh said. “Have this practice of chaos engineering right at the root.”

If this is incorporated into daily practice, then businesses will be ready and confident that their applications and the corresponding infrastructure are optimally resilient.

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