Leaving
legacies behind
Providers
are recognising the importance of upgrading their back-end systems
in order to compete in a one per cent stakeholder world. Ming
Liu examines what it takes to get past legacy systems
The
challenge facing established pension providers, whose back-end architecture
is based on legacy systems, is that to keep up with new requirements,
these systems need upgrading. However, do they carry on patching
up these systems with short term bandage solutions,
or do they trade the ageing system in for a completely new one?
With e-commerce placing emphasis on technological capability, it
could be time to opt for the latter, if they have the money.
To understand how dated some systems are, consider that legacy systems
are typically based around mainframe computers, the central host
computer. It effectively holds all the intelligence of the system.
Users use their terminals to access the mainframe and alter data
held there. Todays systems are based on a more efficient client-server
structure. The desktop PC acts as a client, accessing the central
server database for files. The difference being that the PC now
holds some of the intelligence as well. Users can use the applications
held on their PCs to modify or access data, no longer needing to
be linked into the server to do so.
Mainframe programmers designed bespoke IT applications to meet specific
needs of the pension provision process. Systems were thus made up
of hundreds of different applications running on different platforms.
These applications were made using dated computing languages like
COBOL. As time passed programmers with sufficient knowledge of how
these systems worked were increasingly rare. Moreover, it was difficult
to transfer data across numerous applications, as they all operated
on different closed platforms.
top
Malcom
Reynolds, director of marketing and strategy at Profund Systems
Limited, comments: It is difficult to manage [legacy systems]
as technology moves on. For example every pension scheme needs changing
at least annually... increasingly there are also problems integrating
with payroll and personnel packages. These change rapidly
as well, adds Reynolds: some companies have hundreds of different
systems that do different things. The solution is to integrate
the numerous systems into one; to create a single platform upon
which all applications can operate and interact seamlessly.
Systems can now achieve this common standard as most applications
use object oriented technology. This commonality, also known as
open systems, is achieved by using components. The idea is that
all applications should be built using component-based technology.
It is like using lego bricks to build everything. It doesnt
matter if your bricks are yellow or green, they all still fit together.
Examples of new open and standardised systems include
Oracle, as well as Microsoft NT, and Unix, to name a few.
By
using component-based systems, upgrades and add-ons are easier,
as most applications use the same platform standard. This eliminates
the incongruity that characterised legacy systems.
The
seamless integration of the applications increases efficiency and
effectiveness with user friendly designs. Integrating the systems
also leads to a process of deskilling the tasks, eliminating the
need for extensive training. Reynolds says: There is a shortage
of pension professionals in the industry so you need to try and
deskill the platform. By using the latest technology, you are deskilling
the job so that even a young school leaver can run the new systems.
top
Another
advantage involves an important change in the business model, pushing
through the idea of self-service. Why train people to upgrade the
policy holders records, when the customer can do it themselves?
If you integrate the front- and back-office applications, users
can access their data through front-end interfaces and modify their
own records on back-office systems. Integration also facilitates
customisation and expansion by producing applications that can be
easily adapted or added to the clients existing systems.
Stakeholder
catalyst
The growing take-up of internet access and e-commerce in addition
to the governments recent introduction of stakeholder pensions
has pushed online transactability to the forefront of the pension
provision industry. Yet in the one per cent world, the ceiling on
commissions is so low that pension providers will find it hard to
make a profit. Mike Lusby, executive consultant at Compass Management
Consulting, says: It could take eight to eleven years before
stakeholder pensions will be profitable. Most companies need to
reduce costs by up to 40 per cent to compete in this environment.
An effective way to reduce these costs is to web-enable the provision
of stakeholder pensions. It would eliminate a lot of overhead by
bypassing the need for people while at the same time a web-based
pension administration process will promote the idea of self-service.
Customers can access their records through an online browser and
update them accordingly.
The pension provider is now faced with two options. Design a new
open platform system, that allows for provision of stakeholder pensions
and other new policies while existing policies are moved over to
this new system. Ultimately, the provider ends up with a fully integrated
online pension provision service.
top
An
example of a start-from-scratch integrated solution is oPen, by
Profund. At the core of the oPen package is the component object
model (COM) that facilitates network expansion. The company uses
industry standards, Microsoft Visual Basic for Applications as the
programming language to design the package and Microsoft Structured
Query Language to build and maintain databases on a server.
Alternatively you could tack on a web-enabled system for stakeholder
pensions, and continue using legacy systems for existing policies.
The front- and back-end systems are still separated, making this
a superficial solution as the advantages of both are lost. Lusby
says: It is very difficult to take the mainframe into the
one per cent environment. You need to embrace e-commerce. You lose
the architecture if you put a web-based system into a legacy system.
All
signs seem to point to integration, but the challenges of integration
can be off-putting. For example, the migration of data from old
to new systems is time consuming and expensive. The integrity of
the old data must be checked beforehand. As Lusby notes: There
are companies that still write to people who have died years ago.
But most importantly, the integration and installation of a brand
new system is expensive. Lusby cites a company that recently bought
a systems package for £23 million.
Moreover, the cost must be justified, and return on investment realised
quickly. Michael Whitfield, managing director at t-bx, an e-commerce
consultancy, argues: Insurance companies are fuelled by new
business, not by servicing legacy business. As more companies are
privatised, there is more pressure on profits. Whats in it
for them to integrate legacy systems?
Those looking long-term to recoup their costs, particularly in the
stakeholder market, may also be mistaken. There are currently 47
stakeholder schemes registered with OPRA. Within two to three
years, there will be only five or so suppliers, says Payten.
The reason being that, stakeholder pensions offer so little scope
for profitability and only a provider with large market share will
generate profit. The big fish are already starting to eye up the
little ones. It may already be too late to integrate old technology
with next generation systems.
Pensions Age August 2001
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