Insurance Industry Considerations in Workload Placement Strategy

A level set: We, GTSG, are IT infrastructure consultants serving the insurance industry. We’re expressing our understanding of some key challenges faced by your IT organizations in an effort to provide context regarding how we can help.

The external climate continues to challenge, as budgets tighten.

Yes, there’s a more demanding marketplace: better and more innovative competition as consumers escalate what they want ever more quickly.

Demand for a better experience doesn’t bring relief from profitability requirements. Insurer’s tech spending budgets hover near flat in real terms. Forrester writes:

Pressure to transform continues. From SunLife CEO Kevin Strain:

Cloud continues its growth. Legacy workloads endure.

The movement to SaaS is accelerating (especially here in North America). Industry cloud is “new but growing:” About 1/3 have adopted, with a more significant percentage in pilot or considering, leaving only 20% currently uninterested.

Legacy modernization is a top priority. Composability is an important objective; the cloud is seen as a big part of the solution.

The benefits haven’t yet been realized. From a Deloitte survey:

The same survey found that planning of core system modernization was “imperative:”

• “An increasingly competitive operating environment”
• “Disparate systems will drive intermediaries and end customers to look elsewhere for more streamlined solutions.”

IT executives understand reality: successful funding requests must both provide ROI and compete successfully with other initiatives drawing on the same finite pool of funding.

Ideally, perhaps, all but the most IO-intensive workloads would be composable and largely cloud-based. Today, just over half of core systems run in the cloud, leaving nearly half still on-prem (or in colocation)- with half of the on-prem systems remaining on mainframes, many for the foreseeable future.

From our perspective, for some of these mainframe-based workloads in particular, “rightly so.” IO-intensive workloads are often best suited to run on an infrastructure designed and engineered for this purpose.

One industry expert used a (perhaps extreme but real) illustration – closed books of business. These contracts have 30-40-year tails and so must run economically for decades. Few would consider taking the risk, let alone the expenditure of tens of millions of dollars, to do anything with these workloads.

The enduring challenge is the need to integrate the old and the new: many of these systems will be around for decades.

Core insurance systems vendors are attempting to use Gen AI to pull the requirements out of poorly documented systems. Development of this capability is emerging as a “must-win” battle to support these systems over the coming decades.

Big Bang replacement versus incremental: what’s right?

Over the past several years, “Big Bang” replacements have fallen out of favor.

BCG states:

So, it has become very challenging to demonstrate ROI and gain approval for the risk profile associated with a significant replacement initiative. Clients seek alternatives that reduce that risk profile and provide a shorter payback period. Interim configurations, of course, carry their own risk profile.

There are differences by line of business. Life and pension might not necessarily want wholesale replacement; if not driven by a business model shift, they could simply be looking to replace the product and pricing engine, not the core (resulting in a complex integration). By contrast, Property and Casualty are moving faster and more dynamically.

With budgets generally near flat, CIOs need to find funding for growth from operations.

These constrained budgets need to deal with increased costs from

• scarce, expensive talent
• over the past few years, supply chain issues
• escalated cloud prices- and of course, once workloads are moved to the cloud, running for an extra 12-24 months during hard times on depreciated hardware is no longer an option
• increasingly, from software vendors in a consolidating legacy marketplace changing their pricing models. (There are also concerns that these platforms’ historic reliability will diminish over tim)

This vendor consolidation has driven unplanned work efforts to deal with breakage in financial models (restating for emphasis) at a time of significant pressure on legacy infrastructure spending to generate funds for investment in new capability.

These challenges are reconciled by the right kind of workload placement strategy.

We begin by understanding the most important guiding principles of the business. Sometimes, that translates to a major cloud migration. Sometimes, a client may move opportunistically over time, but there is no funding to do it right away. The strategy reflects the needs of the business before IT, prioritizing the transformation of those workloads bringing the greatest business benefit.

Workloads in their Best Execution Venue

One of our clients utilizes mainframe systems to manage sensitive data for many millions of customers. This client engaged us, seeking to leverage the cloud to improve the agility and effectiveness of several key workflows.

We found disagreement among senior executives, specifically between

• those who saw the value but who would move to alternate platforms over time and
• those who would decommission the platform quickly, risking potentially serious operational issues during the transition.

Further muddying the decision:

• the high percentage of paper-based input provides an additional impediment to change
• the data model didn’t lend itself to being segmented without a complex bidirectional replication
• the highly competent technical team “protected” the platform with modernization estimates so high they’d be unlikely to be funded.

We led the client through structured decision-making processes, and they

• identified representative Business Process Flows,
• for which we developed Solution Alternatives with benefits and considerations identified for each,
• with a recommended course of action.

Of course, no alternative could degrade the current (excellent) levels of performance or (continuous) availability- or fractions of seconds of data loss risk.

In this case, we brought focus to a significant inhibitor: the outdated functionality of the Business Rules Engine, for which there was no direct replacement- and from which there is no easy transition. The business rules engine also performed database updates, so our client couldn’t develop a new function without relying upon it.

In addition to “answering the question,” we helped the client resolve conflict with fact-based alternatives and recommendations.  We also provided a deliverable that serves as the client’s guide to action through the multi-year effort.

The answer in this case was, “No, we can’t just ‘turn the mainframe off’-  but we can begin to add capability through integration with public cloud capabilities.” Perhaps as importantly, they now understand that the Business Rules Engine is the most significant technical roadblock to change.

…run the Right Way

Finally, we cautioned our client that they could not “starve” the legacy application environment during the transition period. The client was in a multi-year transition, during which they must maintain capacity and operational currency for both cost and performance reasons.

Even with the workloads in the right place, pressures abound – cloud cost increases, the ISV challenges, and the talent crunch.

Recent changes in the virtualization software market have caused significant disruption for most shops.  Concern began with the announcement of Broadcom’s acquisition of VMware, based on prior acquisitions (especially CA Technologies, which we know something about), followed by discontinuation of perpetual licenses and support for renewals of VMware infrastructure offerings (December 2023), changes in the partner structure, broad reporting of unprecedented cost increases at renewal time and even concern that the historical reliability of the product will suffer over time. Gartner advised that most shops need at least “a contingency plan.” [i]

Of course, there’s no benefit to the IT shop from these changes.

In our view, the analytical part of the response can be modeled using the Workload Placement Strategy – although there’s more to it.

Approaching the decision via the Workload Placement Strategy enables a client to re-evaluate decisions based on the change in one critical input – cost – while keeping in mind that cost is only one criterion, and perhaps introducing or re-introducing alternatives (whether a competitive hypervisor, HCI, or cloud migration).

The correct response doesn’t necessarily require “tearing up” the strategy.

If our client has already done the work, fantastic! There’s a model we can leverage to get the analysis done more quickly. If not, we help clients build one or lend the required structure to an informal strategy. This structure supports the plan with analysis where that makes sense.

Yes, there’s more to it than the workload placement strategy.

• Significant complexity is associated with the hybrid cloud support ecosystem – backup/recovery, DR, and data protection; other systems defined by VMware have been the fabric for 10-20 years.
• And there’s the human and organizational impact that accompanies even the possibility of change from something so deeply ingrained in the environment.

Whether on-prem, in colo, in the cloud, or at the edge, we understand the management and governance systems required to protect and enable the business.

Finally, if you’re among the 24% who still have the mainframe running core systems- we can help you to

• Sustain it.
  • GTSG retains a sizable corps of experienced mainframe experts , enabling our clients to continue running this essential IT asset. Where others view the mainframe as a “niche” if not an “outdated” technology, we can attract and retain this talent because they know that GTSG views them as mission-critical to the firm
• Optimize it.
  • We continue to practice performance capacity and workload management that enables our clients deliver better with today’s resources, sometimes forestalling the addition of resources, and potentially reducing sizing for software purposes
  • With the ISV landscape as it is, we can help you to determine whether “sticker shock” at renewal time warrants moving from one ISV platform to another.
  • Make the right decisions around
    • what workloads should remain on the mainframe ,
    • which should move.

We’ve helped clients maintain data integrity, encapsulating the mainframe via API and delivering data to more user-friendly or ergonomic customer-facing applications hosted in the cloud.

Staying with you

GTSG has served the insurance industry for more than three decades. As the workload placement and infrastructure landscape continue to evolve, GTSG will continue to bring pragmatic solutions to our clients,

• solely through experienced practitioners- no trainees here
• from a 100% vendor agnostic perspective- only our clients pay us, not product providers, so you can be sure whatever we recommend is what we believe is best for you.

Reach out to Partners@GTSG.com to discuss this further.