Roswell Group

JustifyingJustifyingback office systemsback office systems

Considering the business caseConsidering the business case

Discussion Document with ABC Insurance Company

Roswell Group

Key points covered

What are the back office systems challenges?

What factors are forcing change?

How are companies responding?

Can the costs be quantified?

What are the lessons learned?

Roswell Group

Typical architecture

Customer

Distributor

ClientFront End

Workflow

New Business system

External data sources

Policy Policy databasedatabase

Corporate Corporate data data

warehousewarehouse

Agency Agency databasedatabase

FRONT OFFICE MIDDLE OFFICE

General ledger

finance valuations commissions

Transactionsystems

FinancialFinancialdatabasedatabase

BACK OFFICE

MIS

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What are the back office systems challenges?

Do you keep current systems or consider other options?Do you keep current systems or consider other options?

Current System Pros ConsAttributes

Operational - Reliable - Inflexible- Well understood - Poor integration

Costs - Original costs written off - High maintenance costs- Predictable and controllable

Future capability - Some improvements possible - Slow time to market- Bolt on new - Product not customer focus- Changes resourced internally

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What factors are forcing change?

FactorsFactorsforcingforcingchangechange

FactorsFactorsforcingforcingchangechange

competitionfrom newentrants

technologicaladvances

regulatoryand

legislativechanges

changingcustomer

needs andperceptions

marketconsolidation

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How are companies responding?

CompanyCompanyresponsesresponses

CompanyCompanyresponsesresponses

develop newflexible

products

focus onunderstanding

customerneeds

improve timeto market

develop newdistributionchannels

reduce costs

adopt andadapt new

ways of doingbusiness

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How is the tension between life system stability and change managed?

TEN

IS

ON

System stability

•Familiar capability•Known costs

Need to change

•Customer needs•Innovation•Cost pressures•Competitor pressures

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How does one address the shift in values of doing business ?

TEN

IS

ON

Old Paradigm

•Size•Role clarity•Specialization•Controls

New Paradigm

•Speed•Flexibility•Integration•Innovation

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What are your legacy system options?

3 options worth considering

- Continue adapting and ‘bolting on’

- Complete replacement of core and integration with existing

- Create a ‘wrapper’ - the client-centric solution

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Continue adapting your legacy systems?

Pros- Well understood applications- Stable- Manageable and predictable costs- Allows out-sourcing?

Cons- High on-going costs- Poor customer focus and slow time to market- Limited flexibility- Limited opportunity to improve or replace business process

and technical platform- Limited management information

A low value solution

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Complete replacement of core and integration with existing?

Pros- Lower expense levels- Customer focused- Product flexibility- Reduced time to market- Opportunity to upgrade or replace technology- Opportunity to improve or replace business processes

Cons- Development time-scales - Costs of both package and resources- Experience of managing large complex projects- In-house capability to support new platform- Complexity of converting existing business

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Create a ‘wrapper’? Pros

- ‘Quicker’ win deliver in manageable slices- Delivers service and cost benefits early on- Manages complexity- Reduces risk

- Tactical customer focusing by “linking” legacy systems- Stable starting point for future development

Cons- No reduction in or improvement of:

- Maintenance costs- Time to market- Product flexibility

- Greater, but still limited, opportunity to improve or replace:- Business processes- Technology platform

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What other options are there?

ReplacementReplacementof core andof core andintegrationintegration with newwith new

ReplacementReplacementof core andof core andintegrationintegration with newwith new

Adapt andAdapt andbolt onbolt on

Adapt andAdapt andbolt onbolt on

Create aCreate a‘‘wrapper’wrapper’

Create aCreate a‘‘wrapper’wrapper’

Justify current systemsJustify current systemsOut-source or partnering agreementOut-source or partnering agreement

Use of third party administratorUse of third party administrator

Justify current systemsJustify current systemsOut-source or partnering agreementOut-source or partnering agreement

Use of third party administratorUse of third party administrator

All variations on a theme

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What questions need to be asked to decide?

What is your company’s current position?

What does your company want to achieve?

Which option will best achieve the company’s aims?

What resources are available to the company to achieve this?

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Can the costs be quantified?

Total costs depend on size of organization andTotal costs depend on size of organization andcomplexity of productscomplexity of products

Project Stage Replacement Create aof core “wrapper”

Project start-up 5% 5%

Project definition 5% 5%

Project work 70% 70%

Project closure 5% 5%

Other Costs

Hardware costs 5% 5%

Software costs 10% 10%

Business disruption ? ?

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Certain benefits need to be taken on faith

Some can be quantified- Reduced acquisition and maintenance costs- Reduced product launch costs- Improved process efficiency/staff productivity

Some are more subjective and difficult to quantity- More product flexibility and faster time to market- Improved customer service- Better understanding of customer needs

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What are life insurance customers actually doing today?

At least looking hard at complete or partial replacement

Trying to get the architecture right before anything else

Justifying the business where possible- The product base (some)- The process base (almost all)

Focusing short (and medium) term effort on:- Improving the user interface- Front-ending the legacy systems

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Decision to replace current systems to provide a better platform for the future

Multi-million dollar IT-led project

Project spent 2 years defining requirements, architectures, test planning, standards, methodologies, assessing packages

Almost no benefit delivered back to the business quickly

Estimated time scales and costs escalated

Project cancelled - since started again with new package supplier

Some examples - Company 1A major US Insurer

Replacement Systems Experience

Roswell Group

Modification to ‘package’ bought from another insurer

Development by internal staff working with major development partners

5 year development plan, budget around $100 million

Delivered new product development tool, new client front end, policy administration and links to workflow - further functionality in future phases

Decided to leave legacy systems in place

Went live with first product in January ‘99

Perceived to be a success

Replacement Systems Experience

Some examples - Company 2A major US life company

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Targeted complete replacement

Tendered to number of package suppliers

Developed in partnership with supplier

Project management carried out by company

Three year development plan, budget around $50 million

Integrated client front end, policy administration, linked to workflow, imaging and call centre

Successfully converted legacy data to new system

Seen to be success

Some examples: Company 3A small US life operation

Replacement Systems Experience

Roswell Group

From Roswell Group’s experience ... what are the lessons learned?

This is a major undertaking for all life companies

Costs for complete replacement seem (mostly) to be in the $50 - $100 million range - larger companies with comprehensive product mix

Time scales are normally between 2 - 5 years

Some smaller companies can deliver replacement for around $10 million with a simpler product range

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... at the planning stage

A company must be clear about its current and future strategy

Focus on the future, and justification of the business, is a real help

The effort involved probably demands partnership

Service and cost improvements are possible by tackling just the front-end

It is possible, and possibly better, to leave the legacy systems in place - particularly to support older products

From Roswell Group’s experience ... what are the lessons learned?

Roswell Group

... at project inception

A clear vision of what is to be achieved is vital

The project must be well structured with a strong management team and sponsor

Complexity must be recognized up front and tackled in a timely and controlled manner

Some early benefit to the business is (at least tactically) useful, sometimes essential

Manageability demands a staged approach

From Roswell Group’s experience ... what are the lessons learned?