3 Long-Term Cost Benefits of Microservices

Much has changed over the past 20 years or so. Insurers are transitioning from monolithic mainframe-based applications to distributed computing platforms. Additionally, today’s SaaS-based core application suites are available from a multitude of solution providers. With all these changes there is one constant: the time and cost required to add new business functionality to an existing application in production.
Insurance core systems such as claims, underwriting, policy, billing, rating, and agency management systems are all very complex applications. Many of these core systems have been developed specifically for segments of the insurance industry adding another layer of complexity. Internal IT organizations along with software vendors have adopted complex application infrastructures to deliver these applications that are expensive to develop and modify.

Microservices for the Long-Term

In a previous article, I outlined how microservices provide a more cost-effective way to address the bigger picture. By breaking down an application into small pieces that fit together, it becomes easier for the organization to build, maintain and support business applications. Microservices can help insurers save time, effort and cost in the long term.
For this article, my focus is on three long-term cost benefits that should be considered when addressing the bigger picture.

#1 – The Large On-Premise Legacy System Upgrade

With the exception of running a sizable monolithic application on a mainframe, most large on-premise legacy systems are made up of several internal applications with some linking to external data sources. Upgrading just one of these on-premise legacy applications can be expensive and time-consuming, especially during the testing stage. Consider the time and effort involved to evaluate how an upgrade or enhancement to this one legacy application may affect other internal applications. This is when an upgrade becomes more time and labor intensive.
By swapping out microservices rather than upgrading entire claims or underwriting applications, for example, upgrades and testing can be performed faster with less risk, IT and business resources. Functionality upgrades or changes for a specific application can be prioritized to deliver critical functionality sooner than later.

#2 – The Vendor Supplied Platform Upgrade

Upgrading to a new release of a 3^rd party application can be very expensive. Although the cost of version upgrades may be included in the annual support fee, many times major version upgrades, from version 1.x to 2.0, for example, may require an upgrade of the underlying technology such as the database, application infrastructure, and even operating system.
Now that cloud-based microservices are commonplace in the industry, organizations can develop new applications and business functionality while realizing the benefits of the cloud.

#3 – Time is Money – New Application Functionality

LOB owners face a common challenge when new functionality is required to enter a new market or accommodate a recently acquired book of business. Regardless if an internally developed or vendor supplied platform is used, the time to add the new application functionality is typically measured in months rather than days or weeks. By default, this creates a disadvantage for the LOB owner in terms of gaining market share by being among the first to enter a new market.
To add new functionality or modify an existing feature within a microservices architecture, you are not required to redesign your entire application. With microservices, you are developing smaller, independent applications that are tested and deployed independently allowing you to deploy new applications faster and get to market faster.

Conclusion

There are both direct and indirect cost saving associated with adopting and deploying a microservices architecture. Direct cost savings come in the form of requiring less development and testing resources for upgrading to a major release of a vendor-supplied application, along with the associated support costs.
Indirect cost savings come in the form of time to market. Ask yourself, what does it cost your company in terms of lost market opportunity by not being one of the first to market with a new product?