Insurance company bets health on open source

I've been writing about the use of open source software in business for nearly a decade and during that time I discovered the level of interest in free software to be somewhere between non-existent to various point solutions for routine or mission-critical tasks.

It was therefore with pleasant surprise that I was invited to report on the activities of an independent Sydney-based health insurance company, IMAN International Pty Ltd, which has committed to an end-to-end open source strategy and is reaping measurable results.

The company's founder and managing director, John Braithwaite, has a long history in IT dating back to punch card machines and sees a similarity between now and 50 years ago when hardware came with free software.

When IMAN started in 1981, the company was using DOS and "everything revolved around Microsoft", Braithwaite said.

"All we operated with for 25 years was Microsoft and it served us very well so we can't complain," he said. "I saw the opportunity open source offered and it was time to make the move."

IMAN is a provider of health insurance services to people living in Australia under 457 visa temporary work permits.

There were two changes in the software and insurance industries that ultimately pushed IMAN towards open source.

Changes in Microsoft's technology road map meant legacy VB applications would need to be modernized with .Net and the Financial Services Reform Act (2001), which mandated a higher standard of data integrity for auditing purposes.

"Moving to .Net was going to cost a lot of money, so it was better to take the punt and use open source," Braithwaite said. "Microsoft was going to cost us $300,000 a year in licence fees, but with open source we only pay for development and have reduced operating costs to 40 percent of the industry standard.

IMAN spent $800,000 developing its core information system with local open source software development company Polonious, and adopted global BI with the help of another local provider, Bizcubed.

IMAN was not alone in that staff frequently used Microsoft Access and Excel to build up silos of information that was not visible across the organization.

"I realized open source had the potential to get a single view of the company operations," Braithwaite said. "Everyone lives in fear of the 'VP of No' in the IT department, so they build their own spreadsheets and this is becoming a nightmare for auditors."

IMAN, with $20 million in revenue, 15 full-time equivalent employees, and some 10,000 members, may be small by insurance company standards, but its breadth of open source software adoption eclipses even the largest of enterprises.

The company has even prepared a diagram illustrating what open source components it uses and what business processes they are used for.

Page Break

At the centre of IMAN's infrastructure are IBM Power-based blade servers running Red Hat Linux. The PostgreSQL database is used for data storage and the Spring Framework and Hibernate were used to develop the core business application.

Sun JVM and JBoss are used to serve the Java application, and Pentaho is used for BI.

Other open source services include Zimbra for messaging, Alfresco for content management, Nagios for system monitoring, OpenVPN and FreeNX for remote access, and SugarCRM for marketing.

"Open source is a race of 250,000 runners and we are trying to bet on some winners," Braithwaite said jovially.

IMAN's application was custom developed by Polonious and is "specialized", but Braithwaite is adamant it could be applied to any business that involves claims and policies and is keen to offer it to the world as an open source product; however, that may not happen for another 18 months.

"Everything we need to know about running the business is in the menu and everyone can access it in real time," he said. "We've removed the problem of error-prone spreadsheets and personal assets that reside on the desktop. ASIC will move to an online auditing program and you can't do that if half of the data is sitting in spreadsheets."

Having build a modern application with open source components, Braithwaite is confident IMAN is in a unique position within the legacy-burdened health insurance sector.

"In insurance there are a lot of legacy systems, and a lot of mainframes in health insurance, many still have DECs and develop software in Cobol."

Braithwaite also praised his in-house developers and said if the company had contracted the project out to a big outsourcing firm it would have been a failure.

"I look at competitors spending $10 million and I wonder where the money goes," he said. "We looked at SAP and couldn't afford it, so we looked at Oracle and they wanted $500,000 on the table before they would talk. Off-the-shelf apps were too expensive and I wanted integrated reporting. In this industry reports are up to nine months old."

Braithwaite said representatives from other insurance companies "almost weep" when they see IMAN's infrastructure, which produced an ROI in 12 months.

The maintenance bill for open source software is around $200,000, which includes software upgrades and ongoing development.

Braithwaite estimates if the company was still using Access and spreadsheets and experienced the same growth of the past two years it would need another 12 staff.

"Other insurance execs have seen so much smoke and mirrors," he said. "SAP has good systems, but all they are interested in is your cheque book."

"The rest of the health industry runs on a margin of 4 to 5 percent and I don't want to be in that group. The application enables us to underwrite the risks and we only accept 40 percent of business offered, and you can't do that without real-time systems."

Page Break

Polonious director Stuart Guthrie said IMAN can now see a whole-of-business view of the member, including age details and country of origin, and staff can record notes on what the company needs to do for members, so it's like a member CRM system.

"Hibernate gives database independence, and we will do more Ajax where there is a business benefit using Dojo," Guthrie said. "Spring has saved us massive amounts of Java code."

Guthrie said the performance of Java on Linux is great, but it might be a while before we use the newly open sourced OpenJDK."

IMAN is also working on integrating information from third parties like e-mail, fax and paper letters, which will be scanned and entered into the system.

The federal government is working on paperless billing for health insurance claims, but that could be five years away.

"We've reduced letters and paperwork, and we use to form letters which can be rendered to PDF," Guthrie said. "New business needs go into the core system, and we kill spreadsheets when we find them."

Guthrie is confident the application can scale from a laptop to a mainframe and JBoss clustering allows nodes to be added to satisfy demand.

IMAN estimates the 457 Visa permits issued will go from 40,000 now to 300,000 in five years.

"We tested it on WebShpere and could run it on Oracle or DB2," Guthrie said. "Fujitsu helped with tuning for PostgreSQL and we now have some 300,000 audit logs and growing, as we are logging every system change."

Polonious is contributing changes and bug reports back to the open source community, notably with JSON tools where it worked out how to handle complex objects and sent a patch back.

According to Braithwaite, in a lot of industries the call centre is separated from the CRM system, but now notes are taken electronically.

"The key to our success is case management and you can only do that if you have a whole view," he said. "A substantial number of members are time pressed IT workers and once you give people the opportunity to correspond via e-mail they won't go back. Going open source allowed a communications system based almost exclusively on e-mail."

Braithwaite said the ability to quickly discard one product for another is compelling feature of open source, and working with one language like Java is better than working with a variety.

Page Break

Bizcubed principal Zachary Zeus said integrated BI can show key metrics like revenue, daily claim amounts, and the number of cheques coming out.

"We have incorporated a wiki (XWiki) with help screens staff can edit and use. This describes a report and how to use them," Zeus said. "You can get into the details and understand what portion of the product is costing the most money."

"You can track changes in price right down to individual doctors and hospitals. If you can see this in real time you will save money."

Having started with claims and then rolled the Web application out to other areas of the business in a moderated transition, IMAN employees began using Firefox on Windows in preparation for a company-wide desktop migration to Linux and KDE.

Polonious' Guthrie said a problem with the Windows desktop is "you are tied down to the Windows stack".

"The company e-mail is standards-compliant and IT find supporting Linux desktops easier," Guthrie said. "KDE 3 was a bit more stable, but when KDE 4.0 is stable we will use it as it is beautiful looking."

At the end of its two-year software revolution, IMAN is now left with a few Windows-only applications - MYOB for accounting and NAB for banking.

Perhaps they too will fall by the wayside and become a forgotten relic of the proprietary software paradigm.

Copyright © 2008 IDG Communications, Inc.

8 simple ways to clean data with Excel
Shop Tech Products at Amazon