Tony Klim, Bravura Solutions’ CEO discusses the transfer agency industry, current market trends and the challenges facing clients.

How has the transfer agency industry been developing?

From a technology perspective, the focus is on greater operational efficiency and an expansion of services. The fund industry, like a number of other industries, is consolidating. Many of the larger players have multiple platforms servicing multiple clients. In search of efficiency, they are reducing the number of platforms whilst still offering an increasing range of services to their clients.

What are some of the key challenges at present?

The impact of the global financial crisis and economic downturn is reflected in a more challenging regulatory environment. Investors are increasingly demanding high corporate governance standards and transparency in the companies they deal with, and regulators have acted to provide this.

The initial aftermath of the crisis forced belt-tightening across the industry. Budgets are rebounding with investments focused on driving efficiencies and complying with new requirements. In fund management administration, you often get a blurring of the overall business model between custody, fund accounting and transfer agency. There is now a real focus to find profitability in each of these areas.

Another driver has been the change in the relationship between transfer agency and distribution. Innovative technology solutions that allow distributors to operate efficiently online and add value are key to accommodating this change.  As such, we’ve invested a lot of time in our recently launched taWeb solution, providing enhanced distributor services.

In the UK, the hot topic has been the emergence of wrap platforms and fund supermarkets. To date, most players have developed their own platform, but we expect to see a convergence to service providers in a similar manner to that experienced with transfer agency. These service providers will be able to offer what they see as a value added service. They will be able to support not just the individual fund managers, but also wealth managers, IFAs, bancassurers, networks, etc. and offer the broader set of the investment administration services they require.

What do organisations want from transfer agency?

We supply a number of different transfer agency providers, from the biggest third party administrators to individual fund managers, and there is significant variation between them.

Some don't think of transfer agency as a profit centre in its own right, but rather as part of a value chain offering that maintains a strategic relationship with a client in the midst of a range of other services.  However, whenever there is market pressure, organisations break down their value chain elements, increasing the focus on transfer agency as a standalone profit centre.

Previously overlooked and underrated, organisations are starting to recognise that well-delivered transfer agency can improve customer service and increase assets under management.

How does the industry vary between regions?

The domestic markets in Europe including the UK, Dublin and Luxembourg, as well as the US are more mature than others in the evolutionary cycle. We’re starting to focus on less established markets like Latin America and Asia, where there are possibilities for growth and some way for the market to evolve in terms of transfer agency and platforms. The trend towards using common service providers in emerging markets is still in its infancy.

The main difference between markets is the distribution model – whether it's independent, tied agent or bank owned.

In mature markets, it's all about how you differentiate, and the big service providers are moving into broader wealth management provision. In the UK platform space, there are 60-80 wealth managers all replicating similar infrastructure, it's a very fragmented market with plenty of opportunities for consolidation of technology and common service provision.

How automated is transfer agency provision now? How much more could be done?

Levels of automation vary by location. The UK has high STP rates, however, cross-border providers, particularly those which distribute into Asia, continue to rely heavily on faxed trade orders, manual trade entry and its well documented shortcomings.

The advantages to eradicating manual processes are well-known – increasing efficiency, eliminating costly human errors and offering system consumable response messages. Product providers need to find ways to incentivise distributors to use STP mechanisms and convince them of the mutual benefits of full STP connectivity. The key problem as always is who pays to set up the infrastructure – distributor or product provider?

Integration of STP and messaging technology with the back-office environment is also critical – an area in which our Babel messaging solution is particularly strong.

How much impact are increased regulatory obligations having?

Support for regulatory change such as the Retail Distribution Review in the UK can be very expensive to implement, especially if you are a single fund manager. There are clearly economies of scale by using a software or service provider.

Our clients have faced a wave of regulation from the UK, Europe and the US, and we are changing and developing our systems to deal with these increased regulatory requirements.

How can technology help?

There are key areas where technology can help: it must have the ability to support scale; it must be configurable; it must meet the requirements of the individual fund managers, and it must support multiple distribution models. We make a big deal about following the service oriented architecture model to ensure interoperability.

An example of technology being used to solve data integration issues is our recently unveiled Operational Data Store (ODS). Transfer agents are sitting on huge amounts of data and market intelligence; the ODS provides a single, integrated view of consistent, high-quality data across multiple systems – essential for accurate and actionable commercial insight.

What makes a good technology partner?

Bravura Solutions is a proven provider and we know that what we can bring to the table is extensive industry knowledge. We have a core competency in taking legacy systems, modernising the technology and turning them into agile, standards based solutions - without compromising or losing any functionality, and then delivering that as a managed service.

We have made a name in this sector, partly through acquisition but also through development and delivery.

Gazing into your crystal ball – how do you see transfer agency developing in the next few years?

I see a number of key opportunities for transfer agency providers in the years ahead, driven by the need to operate efficiently on an increasingly global basis:

1) The position of transfer agency in the value chain will continue to adapt, with a move to support distributed services with a broader wealth management record keeping proposition. There is opportunity for transfer agents to move up the value chain, developing services beyond traditional record keeping, to manage the changing nature of distribution.

2) There will be further focus on emerging markets such as Latin America and Asia. There are tremendous opportunities and challenges across transfer agency, wealth management platforms and STP capabilities.

3) As the hedge fund market continues to mature, there will be an increasing need for consolidation with long fund transfer agency platforms.

Future of Financial Advice (FOFA). It’s coming. Like it or loathe it, the Australian wealth management industry is going to experience change and preparation is a must.

Changing focus

The reforms will not only require providers to ensure that their adviser based systems can cater for the opt-in and scalable advice models; but will be a catalyst for far more broad reaching implications. Platform and product providers will need to ensure they are strategically placed to take advantage and deliver in the new environment.

FOFA is provoking a shift in focus from product sales to the provision of services and the changing environment is pushing planner focus on High Net Worth (HNW) individuals, where they can add more value and charge appropriately. This may not be the outcome intended by the government in implementing these reforms, but in an industry where it will be even harder to make money, it is an attractive (perhaps necessary) approach to remain competitive.

This push to HNW clients will require platform and product providers to deliver broader product offerings that they can tailor for clients (IMA / SMA / UMA, direct shares, ETFs), or may even lead them to encourage clients to move off platforms altogether to retain their margins. 

Need for product flexibility

Product flexibility will be key in the new environment and the ability to react quickly to changing market and distribution trends will be essential for platform / product providers.

Default MySuper products will be basically look-alike, low cost and low margin products. It will become imperative for platform and wealth managers to innovate in terms of their service offerings to retain and grow their businesses.  Developing the ability to transition clients seamlessly from MySuper to Choice to Wrap into HNW SMSF-like offerings, with the appropriate provision of risk cover and advice, will ensure a head start on client retention.

Nature of advice driving the change

Rather than abandon clients with lesser investment balances, some planners will look to standardise models for these clients to provide a cost effective level of advice relative to their risk profiles.  They will also require the ability to scale up advice for highly tailored client solutions with very HNW positions, or require significant asset and liability planning.

In line with this move to HNW clients, advisers are now looking towards the growing SMSF sector that has historically lacked an advice component, with some statistics suggesting that advice attributable to SMSFs will outstrip retail advice by 2015. Time will tell how effective sector penetration will be, given that SMSF funds have traditionally been established to allow investors to “take control of their own destiny”.

The changes will also spark a consolidation of adviser groups and increasing strength in bank-based wealth management distribution channels.  Advisers will look to product and platform providers to assist them in profitably supporting their clientele.  They will look for online automated advice and calculators to streamline the servicing of lower balance members and call centre based advice for intra-fund scenarios.  This effectively frees up the advisers to focus on the higher touch advice for those clients seeking holistic planning.  The bank based wealth managers will similarly look to provide these online and call centre based advice models as they push into the D2C markets that are potentially being overlooked by the adviser market.

Rather than seeing the decline in adviser numbers we are seeing an increase in the employment of new financial planners as the sector effectively “changes guard”.  The entrance of a new, tech savvy generation is increasing pressure on dealer groups and platform providers to meet a new paradigm of operation.  Real-time, online access with mobile enablement and straight through processing will be essential, as well as tools to assist these planners to transition clients into the new world of service provision.

Providers need to change their service proposition to meet the demands of these new distribution channels, including how they support their adviser based solutions and enable cost effective servicing of their client base.

Technology facilitating change

The level of change hitting the industry over the next three years will be immense and will significantly impact administrators, super funds and wealth managers.  They will toil to keep up with regulatory change and make the strategic moves required in their business to compete in this new environment.  The majority of platform providers and administrators have a complex web of old and new technology and the scope of the changes required will divert their focus to coping with the changes rather than taking advantage of them. 

Technology will need to evolve to enable new tools and facilitate providers in supporting scalable advice models.  Technology solutions will also need to encompass the flexibility to allow clients to move up  the scale; starting with very simple / self-service advice, moving to call centre / targeted advice on a fee-for-service basis and then support clients moving into a full advice model with planners.

Providers will look to technology vendors to help deliver the changes and, in many cases, take the headache away from their business, allowing them to get back to basics and enable strategic development.  Many will seek out the headspace to focus on growing or protecting their business during the change in distribution models. 

Businesses continue to seek efficiencies and ways to simplify their business allowing them to focus on the parts of their proposition that differentiates them.  To this end, Business Process Outsourcing (BPO) is still alive and well, with renewed focus not only on back office processing but, more broadly, on support activities and potentially extensive IT outsourcing of hardware and software environments.

A vendor’s point of view

1. As we enter into the FOFA era, it is essential that IT systems offer flexibility to meet the evolving needs of adviser and distribution channels.
2. Regulatory change is a fact of life in the Australian financial services industry, and employing a (tailored) out-of-the-box solution means shared costs, which can mean serious savings in the long run.
3. It’s not just about the product, it’s about the overall solution; a good product is only as good as its implementation and the skill and knowledge of the team that implements it. Experience and business acumen in a vendor are as important as a robust, functionally rich product. 

Within the life insurance industry, regulation is constantly tightening and the client service delivery bar is relentlessly being raised. This invariably puts strain on the bottom line and profit margins. To combat these effects, the industry increasingly looks to reduce operating costs by automating processes and enhance administration output by implementing technology. However, along with the plethora of benefits that comes from moving to modern IT platforms, also come potential costs and risks. In order to mitigate these, effective implementation of IT projects is critical.

Like all worthy business activities, the project management landscape must contend with – and satisfy – opposing priorities and views presented from different levels within the organisation. For example, senior management will demand on time/on budget projects that lower operating costs, gain market share and increase shareholder value; whereas line management will seek to improve the likelihood of project success by providing best-practice guidelines through project governance and risk management. Ensuring the successful implementation of IT projects, whilst meeting various stakeholder needs, can be a delicate balancing act.

The right methodology

While all implementation methodologies aim to achieve effective project management and create positive project outcomes, not all will deliver. Choosing an IT vendor that understands its clients’ businesses and that has the ability to craft an implementation strategy to meet the unique requirements of each business is vital. 

Some implementation methodologies focus on providing tools and knowledge, offering the project manager an array of devices and proven practices, whilst others provide a more mandated structured approach. For an organisation that may lack the standardisation needed to deliver projects within corporate program management, the more mandated approach may be an appropriate choice; providing project conformity through tailoring varied projects into the same methodology, with all projects undergoing similar structure, governance, terminology and process treatment. However, for an organisation that requires a more dynamic and creative approach to project management, where standardisation is not as big a concern, the knowledge based approach may be more appropriate.

The right vendor

Knowing which implementation approach is appropriate to which organisation is the hallmark of an effective IT vendor.

While the various delivery methodologies each have their merits, the individual challenges and constraints of different organisations will typically lend itself to one methodology more than the other. At Bravura Solutions, we recognise that there are benefits in allowing more than one methodology to co-exist, and so we intertwine the governance methodology with the tools based approach. For example, the PMBOK® methodology provides us with the theoretical knowledge resources that enhance task driven activities, and we leverage off the PRINCE2® methodology for a process model that can be applied directly over a diverse range of client engagements to produce consistency in project outcomes. By taking the best of both models, we become flexible in our delivery approach, even down to the activity delivery level of alternating between traditional waterfall and more dynamic or agile delivery approaches, depending on the needs of our clients.

Experience
So how do you choose the right vendor? It’s more than just having a suitable system. The system may tick all the right boxes in terms of features and functionality, however, if it is not correctly implemented, you may be setting yourself up for failure. Look for a vendor that has experience implementing with organisations similar to your own; do they have experience in your geographic region, with your business type, with similar business requirements? If they have worked (successfully) within similar parameters, you can have more confidence that they can produce the results you are looking for, on time and on budget.

To demonstrate, Bravura Solutions’ successful implementation with one Asian life insurance client was a major factor in its being selected with another. Having proven experience in the region served as an indicator that Bravura Solutions could perform and deliver within the Asian ‘paradigm’, and in fact, Bravura Solutions was further commissioned to implement the organisation’s new general insurance software on behalf of another vendor.

Partnering and leadership
In particular, organisations with less experience implementing new IT systems should look for vendors that have proven skill and familiarity; look for a vendor that can partner with you through the implementation process (and beyond) and provide a smooth knowledge transfer. Where the need for change management is required, look for a vendor that can guide your organisation and, importantly, your employees through the implementation process.

Potential results

Getting the implementation of your IT platform right can mean improved operational processes, and enhanced ability to provide customer service. A poorly managed implementation can not only put a   drain on the bottom line and resource pool, but also damage an organisation’s reputation with its clients – which can perhaps be the most difficult damage to fix. 

How to get the best out of the vendor

The old adage holds true; ‘fail to plan and plan to fail’. The best way to ensure a vendor performs successfully and that the implementation goes to plan is to create a detailed and realistic set of criteria for success. A set of pre-agreed clear, realistic and stable goals will increase the likelihood of successful projects. Make sure you know what you expect out of the project before embarking on it.

A good vendor will take your business objectives and desired outcomes and will keep those in front of the team throughout the implementation process.

Bravura Solutions’ approach

Bravura Solutions has a team of specialist Project Managers and Consultants who work with clients to understand their needs and objectives, providing a complete solution of expert consulting, world class technology and ongoing support and maintenance to ensure business goals are met. Bravura Solutions’ consultants can install, configure and verify all Bravura Solutions and third party software; migrate and convert data from existing systems to Bravura Solutions systems, and engineer and document processes. Bravura Solutions can also provide a ‘shrink-wrapped’ process architecture for start-ups, comprising workflow, procedures, key performance indicators and standards that will ensure the establishment of a highly efficient back-office operation.

The recent mass proliferation of social media tools including networking sites, blogs, social bookmarking, review and opinion sites are now offering individuals the opportunity to interact with potentially vast audiences - radically transforming the way that people communicate, with each other and, increasingly, with businesses. Widespread consumer preference for social media offers businesses the opportunity to not only connect instantly with large audiences but also, uniquely, to target individuals and communicate with them on a one-on-one basis.

The habits that consumers have adopted on mass peer-to-peer networking sites such as Facebook, YouTube, MySpace and Twitter are spilling over into their business interactions. Consumers can now use review sites to leave product feedback, blogs and micro blogs to praise or critique products, networking sites to join product fan clubs, forums to discuss products or services with other consumers and video sharing sites to share promotional clips. And with 48 percent of Generation Y and 25 percent of Baby Boomers already having social networking profiles (The New Conversation: Taking Social Media from Talk to Action, A Harvard Business Review Analytic Services Report), it’s not just younger audiences that are aficionados. 

This offers two important opportunities for businesses (including financial providers): as part of an integrated communications strategy and as channel for delivering customer service.

Social media as a marketing channel

As a marketing channel, social media can draw in and engage new audiences – a radical departure from traditional online marketing strategies that typically involved ‘pushing’ information at audiences through search engine optimisation and advertising. Instead, social media offers the tools to help engage consumers and influential individuals in dialogue and provides them with impartial advice and guidance – and at relatively low cost compared to traditional marketing channels.

Tools such as blogs, independent thought leader contributions and impartial advice sites and forums can help organisations position themselves as experts, gaining consumer trust and earning word of mouth ‘promotion’ rather than paying for it. Information and advice is provided in an ‘impartial’ voice with the objective of generating positive user generated content – critical, as the vast majority of consumers now trust information coming from independent experts or their peers more than directly from organisations.

In addition, social channels can be used as a form of market research to help better understand customers’ needs and find out what they are saying about a brand. Some businesses do this by monitoring, collating and analysing conversations taking place about them or their products and services across social media sites, using sentiment analysis tools to gauge how positive or negative the conversations taking place are. Other organisations get customers involved in product design blogs, getting input from consumers about how to design a product that really meets their needs without having to commission dedicated and often costly market research.

In addition to the role it can play in a pre-sales environment, social channels are also important in communicating with existing consumers. With 70 percent of consumers in the US now claiming to want access to company experts and support via social media channels (a trend that is likely to be replicated globally), social media is no longer considered an ‘alternative’ customer service channel but an essential one for businesses that want to benefit from communicating with customers on their own terms.

Social media for customer service

Adopting social media as part of a customer service strategy may initially involve reactively responding to comments, queries or complaints on third party sites where audiences are already congregating. By responding quickly, providing answers and preventing negative feedback escalating into bad PR, this can be a significant contributor to building brand equity. With only the internal resource to manage the channels required, it is also relatively simple and cost effective to carry out. The New Zealand bank ASB, for example, has broken new ground by setting up an online Facebook branch that allows users to chat in private with an advisor just by logging in to their Facebook account, rendering a phone call or visit to the ABS website redundant.

The alternative to this - creating completely new social networks - is significantly more difficult and the challenge of attracting visitors is great. New networks require substantial investment to establish and build up, though can also be rewarding - some businesses build forums that let customers speak to each other and to company advisers, others offer new industry related networking or advice sites targeted at their prospective customers.

Web enabled mobile devices

Web enabled mobile devices such as smart phones and tablet computers are also changing the way that customers expect their service to be delivered. These effectively ‘tether’ users into their social networks by letting them access the internet and social media content whenever and wherever they are. There are now 650 million people globally (eMarketer) who are now using web enabled mobile devices,43 percent of whom access social networks via these devices (ComScore) - a trend set to continue as it is predicted that more users will likely connect to the Internet via mobile devices than desktop computers within five years.

This rapidly growing mobile channel needs to be taken seriously. First, published content needs to be compatible with mobile devices as users will quickly dismiss anything that doesn’t display or function properly. Next, mobile devices mean messages that are sent to customers via multiple channels such as email, micro-blogging sites, networking sites, SMS messages or forum updates and can be received and responded to immediately.

An example of this is Bravura Solutions’ mobile device (i.e. smartphone or tablet) enabled customer front end, ePASS. ePASS allows customers to receive messages log in to their superannuation accounts and perform action on their accounts via the web, whilst on the move.

Mobile devices also enhance the ‘word of mouth’ power of a message as well having a significant impact on the instantaneous nature of the channel. Customers can communicate with others and content received can be shared almost instantly with others via Tweeting, posting on a blog or forwarding by email. Innovative financial providers looking to gain a competitive edge should certainly be exploring ways to engage directly with customers via this phenomenally important mobile internet channel.

How to make social media work for your business

There is broad consensus that, as a marketing and customer service tool, social media can promise tantalising rewards, despite a lack of concrete results. Recent Celent research with insurance companies (Digital Marketing in Insurance, April 2010) shows that 85 percent of respondents said that ‘spending in social networks would increase in the next three years’ – a definite stamp of approval for the perceived effectiveness of the channel.  

However, as with any marketing communications tool, for social media to work, defining both internal and external strategy is critical. Benchmark and agree on what you’re trying to achieve from external strategy and set up measures to track your success. Guidelines for use of social media by employees should also be set – it’s hard to be serious about a social media strategy if key individuals have no access to the tools.

Once established, resources to manage the channel must be made available. Businesses who don’t take this requirement seriously and who subsequently fail to be involved fully in conversations that are taking place about them will see criticism quickly escalate (and a dissatisfied customer has the potential to tell significantly more people than they would do offline). As a channel, social media is widely underfunded. This is because of a combination of two things: a difficulty in measuring return on investment, and a mistaken belief that, because publishing costs are comparatively low, social channels require little ongoing investment.

Instead, it is important to be realistic about the real cost of the essential and ongoing monitoring, updating and tracking efforts required. Investment in social media must be viewed as part of an extended pre-sales conversation rather than a direct sales tool. As such, more sophisticated analysis is needed to measure its success, from tracking how many conversations with prospective customers it facilitates to using sophisticated customer sentiment analysis tools that can measure how positive or negative the conversations taking place are.

Social media has fundamentally changed the rules of online interaction and marketing for good. Consumers are still mostly tolerant of antiquated communications channels, but quite soon they won’t be. Providers that haven’t successfully adopted and integrated social and mobile channels into their marketing and customer service strategies can be sure their competitors will have and, as a result, they will be engaging in conversations with their target audiences and ultimately winning new business.

Emerging diversity in distribution – what does this mean for technology?

“Forward thinking insurers are leveraging distribution channels as one way to capture the opportunities that exist in the fast growing Asia Pacific markets” – More than one approach. Alternative insurance distribution models in Asia Pacific, Deloitte Touche Tohmastu, 2010.

According to a recently published report by Celent, Distribution Trends in the Asian Insurance Market, Asian insurance companies are moving away from agency based distribution towards a more diverse model that encompasses other channels such as banks, direct sales and financial advisers. In order to accommodate this trend, technology solutions need to evolve to be more functionally rich and adaptable to support such a growing variety of multi channel distribution models.

To better support this diverse range of channels and remain competitive, insurers now require increased levels of flexibility in the software that they employ. This flexibility can come in the form of communication links to the distribution channels, as well as in the form of adaptability of the application to facilitate ongoing change.

Communication

In terms of communication, Celent’s 2010 paper, Wealth Management Business and IT Priorities for 2010: A Global Perspective, highlights Service Oriented Architecture (SOA) as an important area for the future as firms focus on open standards. The report states that SOA enables firms to respond quickly to the changing demands of clients, distributors and regulators. SOA also enables insurance providers to expose various insurance business services to their distribution partners outside of the enterprise.

This has traditionally required the development of replicated functional logic in a separate internet layer. However, using today’s modern n-tier architecture, insurance providers can now readily and more cost effectively service their distribution partners by providing secured web access directly into the core insurance application, without the need to replicate code, functions, or processes in the internet layer. 

The aforementioned Deloitte Touche Tohmatsu report states that bancassurance will continue to grow as a distribution channel in Asia and, according to the Celent paper Distribution Trends in the Asian Insurance Market, in some markets the premium income for new life insurance businesses generated via banks has exceeded that of the traditional insurance model of selling via individual agents. To accommodate this trend and meet the needs of insurers, forward thinking technology vendors are tailoring their offering to support the inevitable continued growth in this area.

Global financial software provider, Bravura Solutions, has recently launched its next generation life insurance software solution, Sonata. This new Java SOA solution is database independent (running on Oracle, Sybase or SQL). Its browser technology enables bancassurance partner banks to securely key in new business applications directly from branches into the insurance system over the internet. The software is designed to embrace the benefits of web enablement for life insurance providers by harnessing recent advances in Rich Desktop Application (RDA) and Rich Internet Application (RIA) technology.

Additionally, Sonata encompasses automated underwriting. Recent experience from a Bravura Solutions customer (one of Thailand’s largest bancassurance life providers) shows 50 percent of new applications being auto-accepted and auto-issued without manual underwriter intervention. These advances in Straight Through Processing (STP) open the door to complex levels of operational cost savings and benefits by streamlining and automatically underwriting clean skin applications within minutes.

Technologically advanced web enablement may also provide support for a direct sales channel. Prospective customers could go online and either get a quote, or submit an application directly into the policy administration system. If the application fulfils the automatic underwriting rules, then within minutes the applicant will be advised that their application has been approved; otherwise the applicant will be advised that their application is pending underwriting review.

According to the 2009 InFinance article, GFC brings life insurance back to the future, the uptake of such web-based distribution is becoming increasingly important in netting the all important emergent Generation Y market, which uses online distribution channels for a large proportion of its shopping, trading and research. 

With the evolution of local and national wireless broadband network grids, this automated underwriting technology can be further harnessed for agents. For example, an agent could in effect visit a client, do an online needs analysis and electronic application capture and provide an underwriting decision in a matter of minutes - all on (as an example) a touch screen iPad. Bravura Solutions is currently developing such web based services with Sonata.

Adaptability

In terms of adaptability in a software application, there are two areas of the business that require flexibility with respect to supporting multichannel distribution.

The first area is flexibility to develop and rapidly launch new and innovative insurance products to the marketplace. In order to differentiate themselves from their competitors, bank partners are continually looking for additional customised life insurance products for their customer base and financial advisors are looking for new, innovative investment life insurance products for their clients to invest in. Modern, rules-based and table-driven life insurance applications with product cloning capabilities provide this flexibility. Using these tools, new products are simply configured (not coded) for rapid launch.

We are now seeing real life examples of this with a Bravura Solutions customer, a large Asian life insurance provider that, using such modern product development features, recently launched a new bancassurance product for its primary bank partner in under six weeks – contrasting markedly with the typical six months time to market seen previously.

The second area is flexibility to effect changing workflow processes, in line with the needs of each of the different distribution channels. Currently most life insurance applications require changes to their software code in order to change a work process. However, according to the aforementioned Celent report, Wealth Management Business and IT Priorities for 2010: A Global Perspective, organisations are looking towards scaling back on customisation and leveraging configuration options.

Modern, more technologically advanced software systems now encompass built in workflow management that effects changes to workflow processes simply and quickly by merely changing a table or a workflow diagram. Online requests from agents, brokers, financial advisors or similar can launch a series of measurable workflow processes to ensure that nothing is overlooked.

Employ modern technology and reap the benefits

By harnessing the features of modern technology and modern insurance administration software solutions, life insurance providers can reap the benefits of deploying a flexible administration system that is designed to meet the challenges of an ever changing and perhaps more discerning insurance marketplace, as well as position themselves to take advantage of new, alternative distribution channels.

Tony Klim, a pioneer of the UK wrap industry and now CEO for EMEA at Bravura Solutions, talks about how owning more of the value chain isn’t always better and how the use of shared infrastructure can help take the industry forward.

Looking to secure a greater portion of the end to end value chain, a plethora of companies have dived into building their own wrap platforms under the often mistaken assumption that ownership of the platform would generate a valuable revenue stream going forward. The result is that the UK now has a number of platforms offering quite similar features, and the development and operational costs have been widely acknowledged as excessive. The question is, if all the platforms are similar, how do you offer competitive advantage?

There may have been some first to market advantages, but there are around 20 different wrap platforms in the market today, and the underlying service itself is now fast becoming a commodity, an enabler of a branded business proposition. As the market matures, differentiation in the platform space will be less about features and more about operational efficiency. From a distributor or consumer point of view, the wrap platform itself is just one component of the infrastructure that delivers an overall proposition; and this overall proposition is more likely to be successful if it is based on traditional attributes such as trust, quality of advice and relationship management.

Competitive or commodity?
It stands to reason that if the industry were to utilise just a few wrap platforms, this smaller number of strong industry initiatives could allow us to see greater take up and significantly improved operational efficiency across the board.

So why are fund managers and life companies reluctant to work together to develop and deliver shared infrastructure for wrap platforms? Much of the platform industry is still working under the premise that proprietary platform technology itself offers a real competitive advantage; however it’s the innovative few who have realised this is an interim phase and that shared wrap infrastructure, particularly when hosted, enables greater cost, time and operational efficiencies. By channelling funds and resources away from developing individual wrap “engines” which are in the end very similar, and instead sharing this investment of time and money, the industry can achieve lower costs for consumers - or see higher margins for product providers and distributors.

It is important to recognise that sharing a commodity infrastructure like a platform, does not necessarily mean shared ownership of the business model and overall value chain, or result in reduced profit. Using a shared service platform also does not stop distributors individually branding and tailoring their own services, determining their own pricing model or negotiating their own deals with individual fund managers across the platform. Technology solutions today allow organisations to develop, maintain and modify the propositions offered to customers, as well as how they are able to utilise the platform, ensuring it continues to look and feel like their own unique offering. 

Today the UK platform industry requires more communication and collaboration between major players. Parallels can be drawn in the banking industry with models such as BACS, CHAPS and VISA where banks saw the need to align in order to deliver payments as a commodity across multiple providers, thereby benefiting customers and the entire industry alike. The banks now compete in other areas of customer service, rather than through the payments infrastructure itself.

The lack of forward thinking experienced in the wrap platform industry is partly due to a limited understanding and acknowledgement from industry players as to what is competitive and what is commodity. Or what in the value chain is revenue generating and what isn’t. Forward thinkers will also be able to see that what is competitive now, could likely be a commodity in the future; therefore, more cost effective methods of development and implementation should be identified and adopted, before too much money is spent.

This issue is also clouded by the fact that we are seeing a fundamental shift in the way traditional financial services players are positioned in the overall value chain.  In line with other industries, product providers such as the traditional Life and Pensions providers are recognising that there is a reducing margin in the manufacturing of financial products and they are moving up the value chain towards distribution.  Similarly, distributors such as some of the quality IFAs are seeking to take more control by packaging their own products; in some cases even creating their own mutual fund propositions from industry standard components. In both cases, platforms have become an enabler.  This changing of market roles is leading to even more uncertainty over the need for ownership of a platform.

Case study: The Transfer Agency market
If we look at the UK Transfer Agency market, we see that it has evolved to a position where a large part of the mutual fund industry is serviced by a few large Transfer Agency service providers such as Bank of New York Mellon and IFDS. These service providers effectively provide the record keeping and distribution support functions allowing the fund managers to focus on their core competencies and skills in fund management. This wasn’t always the case. Many smaller organisations in the funds industry are now looking to the larger platform providers to fulfil their technology and administration needs, a position which sees them reaping the benefits of greater efficiency and a better focus on what the customer really wants. Of course there will always be a case for larger players to run their own technology platforms, but this is very much a factor of scale and in some cases the sometimes perceived need to maintain control, rather than any real competitive advantage.

Lessons learnt: The foundation for the future
When wraps were introduced to the UK there were high expectations of the revenue that the platforms themselves would generate for financial institutions. Success stories from countries such as Australia are leading to a rush by UK players to get involved in the wrap market. However, Australia had a very different set of regulatory pressures driving the adoption of platforms. The UK does not have compulsory pensions, and no matter which direction personal accounts take, it’s unlikely the UK will see the same take up of wrap as that experienced in Australia.  Most platform volume in the UK is still based on straightforward fund supermarket business rather than the all embracing wrap account proposition.

Australian financial services companies and distributors have come to the realisation that owning a wrap engine doesn’t necessarily offer a competitive advantage. Instead, this lies in the client offering rather than the technology and Australia is evolving towards a model of just a few core infrastructure platforms. This realisation offers the UK industry some valuable lessons, in that proprietary technologies cannot be relied upon to generate revenue. Perhaps a lesson the UK funds industry should follow?

Differentiating yourself as a key technology player
As platforms move towards becoming a commodity service providing common features to all, the focus of technology providers must be on cost and speed of implementation and the ongoing cost of operation.

Technology providers must show a wilingness to work with the rest of the industry to develop the best solutions. Getting the most value out of wrap platforms themselves will depend on the industry’s ability to share knowledge and ensure that the customer’s needs are addressed in the most cost effective and efficient way.

The UK industry has incurred some extravagant costs in implementing and operating its first generation of wrap platforms. In some cases, this was due to platform providers using a technical architecture that tried to aggregate existing legacy products, as well as supporting the complex nature of wrap offering itself. The second generation of UK Wrap platforms will be much better placed to succeed once the industry recognises that efficiencies can really only be achieved by developing new products and services within a common overriding wrap technical architecture. This concept of a “pure wrap”, rather than an aggregation platform, could well be the key to success as it can result in a significantly lower cost base.

Conclusion
The realisation that technology, as an enabler, does not always necessarily provide the competitive advantage will be important in determining the most successful operating models in an evolving market. Similarly, a recognition that the platform business itself may not be able to deliver sufficient revenues as a standalone operation in order to justify a large number of providers, is likely to result in an industry where a small number of highly efficient platform service providers deliver a low cost but vital component of the distribution value chain.  Inevitably, this could see the demise of some of the expensive first generation platforms based on product aggregation. Low cost commodity infrastructure for wrap should instead allow distributors to focus on their real differentiators – excellence in advice and relationship management.

Tricia Riddell, Bravura Solutions’ Global Head of Product – Transfer Agency discusses the hedge fund market, what fund managers are looking for in transfer agency systems, as well as providing a comparison between hedge fund and long fund transfer agency.

Can you please provide us with some background information on hedge funds, what are the facts at a glance?

Hedge funds are collective investment vehicles that use specific investment techniques such as derivatives and/or leveraging in order to provide enhanced returns. They are characterised by having relatively low numbers of investors but with high minimum investment values (US$250k not being an unusual minimum) and very high average holding values. Hedge funds also often invest in assets that are difficult to sell quickly or easily, leading to the fund having poor liquidity. In order to deal with this they often have quite lengthy notice periods for investors wishing to redeem.

Recent estimations of the industry size quote assets under management in excess of US$1 trillion.

What are the trends in growth across jurisdictions such as Luxembourg and Dublin?  What has the trend been in the Asia-Pacific region and what can we expect in the future?

The trend for hedge funds in Luxembourg has been growth, apart from a downturn in 2008 when the credit crunch hit.

A recent article in the Financial Times (published in December 2009) stated that “Ireland is already the leading EU location for the administration of hedge funds, accounting for 45% of global hedge funds. Until now, most have been domiciled in low-tax offshore jurisdictions....” 

The Irish government is in the process of amending its regulations in order to make it easier for hedge funds based in the Cayman Islands and other tax havens to move to Dublin.

It is possible that as a result of the economic downturn, investors may switch to more regulated jurisdictions and it appears that Ireland wishes to be in a position to entice funds that are domiciled offshore to relocate there.

Ireland is placing itself to ensure that it is in a position to support new sources of revenue. There does not seem to have been a large re-domiciliation of hedge funds to date, but there is far more visibility and discussion of this topic, with the offshore fund domiciles more on the defensive than previously.

A recent article published by Hedge Fund Research (August 2009) stated that the percentage of Asia-focused hedge funds located in China increased to 23.6%, an increase of over 5% from one year ago. The article also said that the number of Asia-focused funds based in China has surpassed the number headquartered in the UK, and is approaching the number of similar funds located in the US. Clearly this reflects the growth of the hedge fund industry in this region.

In terms of transfer agency (TA) systems, what are fund managers looking for? How are market trends and the nature of hedge funds driving systems development?

Traditionally most hedge fund managers have had small fund ranges, with each fund having a relatively low number of investors, ranging from the high dozens to the low hundreds. Scale has therefore never been an issue for hedge fund systems.

On the other hand, the lack of standardisation with regard to performance fee and equalisation methodologies, and also the frequent introductions of new innovations - such as side-pockets, early settlement and forecast pricing - have meant that hedge fund systems have had to focus on being flexible and able to deliver change quickly.

As a result, most hedge fund systems can be characterised as ‘light’, with an emphasis on rapid change, rather than on robustness, scalability and auditability.

Hedge fund TA software has also tended not to provide or integrate with some surround technology frequently found in the larger long fund systems, such as electronic messaging for straight through processing (STP) trading, links to electronic payment systems (such as SWIFT and BACS), image and workflow systems, and links into automated composition and fulfilment systems for client and agent reporting. This is typically because the scale of operations being run could not justify the expenditure required to provide some of these heavy duty modules.

Long fund TA systems, on the other hand, have been aimed at retail books running to hundreds of thousands (sometimes millions) of investor accounts. The high volume/low value business has made it worthwhile to invest heavily in automation and STP. As a more mature, standardised and (relatively) simple business, the need for rapid change has been less marked than with hedge funds.

What is the difference between hedge and long fund transfer agency?

If you were to list the basic administration tasks for long and hedge fund administration, the lists produced would have a large degree of commonality. They would include anti-money laundering checking, trade placement, confirmation, pricing, settlement, investor servicing and investor reporting.

While there are nuances and different flavours within these tasks, they are essentially operating in a similar fashion. Hedge funds have a number of bespoke features that are synonymous with these asset types, such as performance fees, investor level equalisation, redemption notice periods and side-pockets.

We shouldn’t underestimate the complexity or the variety of methodologies that exist. Historically there have been no standards and each provider has invested its own solution for solving the same issues, hence there is a plethora of methods that exist. While we have seen some convergence of these methodologies, it is unlikely that this will converge to a single standard.

In addition, hedge funds have a number of non-functional requirements, such as high levels of personal investor service, reflected by the more frequent investor reporting and the sophistication of the investor report customisation. Clearly these requirements are driven by the extremely large amounts invested by organisations and individuals into hedge funds. Although this is certainly a requirement in the long fund arena, particularly for institutional business, there has not been a demand to deliver it to such an exacting standard.

There is a call now to integrate hedge and long fund transfer agency, what are the drivers for this integration?

Let’s look at this first from the perspective of the long fund manager and then the hedge fund manager.

Long fund manager:

Historically long and hedge funds have operated as two separate divisions within an organisation – separate silos. We are starting to see companies pulling these two divisions together as they recognise that the basic operating and administration practices to support them are very similar. As they are doing this, they are starting to ask why they require multiple platforms to support them and why they cannot be supported by a single integrated solution. They can see the cost and process benefits of this consolidation.

Hedge fund manager:

We are all aware of the havoc wreaked on the hedge fund sector by the credit crunch. Now we are seeing the situation start to improve, and hedge fund managers are looking for ways to regain the trust of investors and to increase their assets.

One way they see of achieving this is via the launch of UCITS III hedge funds, or as they have been coined ‘Newcits’ – the new generation of UCITS. This will enable hedge fund managers to move into the top end of the retail space by leveraging the UCITS brand.

At the Future of Fund Management Conference in London in March this year, Mark Chambers, Head of Sales Management for Europe at Man Investments, stated “The battle is on for the hearts and wallets of investors....we have seen what hedge funds are doing, it will be interesting to see what traditional managers do in response.” He continued by referring to 130/30 funds; “Uptake was slow when these funds were first launched, but as we have travelled through the crisis there has been a greater uptake. I think we will see a proliferation of these products being launched by some traditional managers.” This provides further drivers for a combined long and hedge platform.

However, as hedge fund managers look to increase their investor base, and attempt to regain assets lost during the credit crunch, we are likely to see them expand their fund ranges, launch more retail orientated UCITS III style funds,  and give themselves a degree of counter-cyclical protection by either merging with or acquiring long fund managers.

At the same time, either by regulation or by pre-emptive voluntary market action, we are likely to see greater standardisation and best practice standards emerge, which will require hedge fund TA systems to provide a greater degree of robustness, scalability and auditability.

Long fund managers may respond by continuing the trend of launching UCITS III funds, either as 130/30 funds or funds adopting other hedge fund-like features.

Both hedge and long fund managers are therefore likely to be looking for systems that combine the features and attributes of hedge and long fund systems. While it would theoretically be possible to take an existing long or hedge fund system and build out the missing features, it is likely to be much easier to add hedge fund features to a long fund system than it will be to try and engineer robustness and scalability into a hedge fund system after the event. We therefore believe that enhanced long fund systems are likely to form the basis of combined long/hedge fund platforms.

What are the potential benefits for this integration?

It will come as no surprise that supporting these asset types via a single TA platform, rather than multiple platforms, will lead to reduced system costs for the outsource provider or the fund manager - whether these are the day-to-day maintenance costs, or the ongoing development costs for regulatory and industry change.  Importantly, a single software platform also provides a single supplier relationship which reduces the amount of time TA management spend interfacing with multiple vendors. 

A single platform will also allow the provider to support a single operating model with a single set of procedures, administered by a single set of operational staff that (depending on the peaks and troughs in the business lines) can be redeployed as necessary across asset types. A valuable by-product of this is that investors also enjoy a common customer experience and process flow, regardless of the asset type being purchased. Of course, all the standard components built for the long fund world, such as integrated image and workflow, STP trading and composition fulfilment engines can be leveraged for hedge funds.

What are the challenges facing this single integrated platform?

One of the challenges facing software providers is finding resources with expertise in both long and hedge funds. Given that these have historically operated as separate silos, it is difficult to find individuals with a detailed knowledge of both. This applies to both business and software development knowledge.

One of the other challenges will be to ensure that the implementation of the hedge fund features, some of which are complex, does not impact the inherent scalability and processing times for the long funds. It will be essential to ensure that these are not eroded and that the levels of scale achieved for the long funds will be inherited for the hedge funds, particularly as the levels of UCITS III hedge trades increase.

For more information about Rufus and hedge fund functionality, contact Bravura Solutions’ Global Head of Product – Transfer Agency, Tricia Riddell triddell@bravurasolutions.com

Firstly, a warning; some may be surprised by what I'm about to convey given my background and field of expertise, heading up one of the leading suppliers of specialist IT platforms to the financial services sector.

Bravura Solutions has numerous clients in the superannuation industry, and we have firsthand experience of some of the critical issues it faces. As such, one might expect me to be leaping on the IT bandwagon, citing improved technology platforms as the answer to a host of industry ills, be they real or imagined.

However, that's not quite the case. On the contrary, I believe that IT issues such as use of ageing and legacy platforms, the slow uptake of straight through processing (STP), compatibility difficulties and so on are just one part of the picture - and that further, they are no different from those facing any other industry.

Processing and technology are just one aspect. Every piece of the IT continuum may perhaps be a little bit old, not as efficient and not quite as good as it could be, but this is the efficiency story the world over and is far from confined to the Australian superannuation industry. So, is there room for improvement? Sure. Are we in an efficiency crisis? I do not believe so. I think the issue has been overblown.

Some perspective needs to be applied here.

To some extent reform is being driven by policy makers and that's fair enough - to a very real degree the superannuation industry represents the future of this country. However, it's also about well intentioned people confusing lower returns with costs. The fact is that a member may have in the past year lost 20 per cent of their returns - losses that at the moment might stand at, say, $100,000.

So, it's against this backdrop that you need to look at the efficiency issue. What's the best case scenario with best STP workflow: saving a dollar a member? So it's going to take 100,000 years to get them back to square one?

I think it's important we frame the efficiency issue from that perspective. Disappointment about returns has brought a lot of this focus on systems to the forefront - but we need to keep in sight the fact that the difference between the most expensive and the most efficient is not huge in this industry. Some of us are focusing on the dollar a day, when what we are really caring about is the $100,000.

There are some key stumbling blocks to upgrading IT systems - however, these are far from confined to the superannuation industry.

Something we need to overcome in the long-term is almost a cultural difficulty when it comes to IT expenditure that applies across many different industries. Essentially, this is a reluctance to spend money on IT projects because, in the minds of some of the decision makers concerned, the benefits may not kick in until a way downstream. So the view is: I just do all the spending and have the pain of implementation and carry all the risk without being there to get the rewards. Therefore, I won't spend the money.

It's for this reason that a number of key players in the industry still rely on green screen proprietary software dating back to the mid 1980s - a similar situation to having a whole lot of people out there still talking on their ancient Motorola ‘bricks'.

At the same time however, I'm concerned - again, perhaps surprisingly - that an excessive preoccupation with upgrading processing and IT may have the reverse of the desired effect.

If everyone comes to the party at the same time, looking for new IT solutions and under pressure to put those solutions in yesterday, there's a real danger that the wrong decisions will be made. We are looking at very complex and expensive infrastructure, and there is a real chance that if the industry rushes to action, it may make choices that limit future capability for growth and performance because not enough time has been spent planning. You could not imagine a major bank or IT company suddenly announcing to the market that they are going with a totally new system and it will render them paperless within three months - the same applies here.

It's important to avoid a simplistic approach in which one is tempted to seek a ‘one word answer'. And the example is STP.

There is absolutely no doubt that STP is a desirable thing, that it can boost efficiency, dramatically decrease processing times, cut down on manual handling mistakes and so on.

However, the question that needs also to be asked is, realistically, how is STP alone going to address the issues that exist outside of, or alongside of, the processing side of the business? What we need to do is take a holistic view of the industry, look at all of its component parts and address issues that affect it in a systematic manner that also takes into account the complex interdependencies concerned.

And, for the many industry service providers who are contemplating an IT spend, first and foremost they need to thoroughly explore the ROI concerned. It's an area that can be neglected in the rush to a solution. And, again, proper planning is paramount.

Fundamental to any IT choice is the question: what is the ROI of the investment? What is the cost benefit analysis? Often the fact is that when you pull everything apart, plan out the scenarios, look at how something will work in practice, in the absence of addressing other issues, what you end up with is a situation that's exactly the same after they've spent their $5 million, or whatever it is, as before. The only real difference is that they will have spent $5 million in the process. Fine for the software company but, as for the fund concerned and the members of the fund, well that's another matter.

So, if IT alone is not the answer and a holistic approach is required, what range of measures will lead to improvements in efficiency?

True efficiency goes beyond what type of platform you are using. It's more about a review of total processes and, perhaps even more critically, matters of scale and consolidation. The simple truth is that scale will create far greater efficiencies and far lower costs than a single investment in the best IT solution around. Scale brings true efficiencies because scale players can afford to implement STP in a way that delivers the benefits: the workflow, the optical character recognition, the major savings on the cost / benefit front. It all comes down to the "why is wholesale cheaper than retail? Scale. The best practice version of all the IT efficiency measures available only works with the scale players.

And, not only is scale critical for efficiency, the converse applies.

Differences in scale across the industry mean you get very dramatic imbalances that are difficult to justify on any merits or equity based reading of the situation. So, for example, you might be looking at the difference between administrative charges of around a $100 licensing fee per member for a very small fund right down to less than one dollar per member for the larger players who have their act together on all of this. It's an anomaly that cries out to be addressed and it's consolidation that is the answer, not just throwing money at a new IT system.

Fund managers and trustees should also be wary about the potential pitfalls of the ‘build your own' system.

The IT industry in general, and that related to financial services processing in particular, is now so specialised and sophisticated that such attempts from non-specialists face low prospects of success.

It may have been different in the early days of the industry which, quite frankly, is when some of these systems hark back to. But where we are now in technology and what can be done is so far ahead of that time as to be almost a different planet, we're speaking a whole new language. It's a bit like saying "I need a new car so I'm going to build my own..."

In my view, the proof of this pudding is most decidedly in the eating.

You could probably count on the fingers of one hand, the number of workable ‘build-your-own' systems that have been created in this country out of perhaps 100 attempts.

There are also other issues that may be lost in the ‘efficiency' noise.

Rather than worrying excessively about efficiency, if we let this argument that the industry's inefficient keep running then it obscures some of the real issues, some of the things we may not be so well prepared for, such as anti-money laundering (AML) measures and protection against fraud such as identity theft.

While we may not be seeing so much of this in Australia as overseas, you have to look at the size of the pool concerned and be aware that a big pool like that will attract the sharks. It's just a matter of time and we need to be ready for it.

So, finally, some intelligent next steps for trustees and fund managers looking to boost efficiency through IT?

What the smart operators should be doing, and what we are suggesting, is getting a specialist team in, comprising genuine experts in the field working on a consultancy model. Get expert help with the thinking, knowing what's available and the business planning that's going to reveal the true cost benefits and the true return on investment.

That's the way to boost efficiency, to make measurable improvements - to start really living best practice.

The life insurance industry has not escaped the impact of the global financial crisis, and in the present economically uncertain times, where new business premiums have dropped more than 50% globally, insurers have a new set of challenges to face. Celent’s 2008 paper, Bad News on the Street, Insurance IT and the Financial Crisis, reports that in periods of economic contraction, the overall insurance market shrinks and sales decrease; consumers start to think of life insurance more as a ‘nice to have’. Life insurance providers are faced with downward pressure on premiums, reduced investment income, decreasing customer loyalty and increasing service expectations. In a time when consumers are buying less, and when – if they do buy – they become more discerning and are choosing more carefully, addressing these challenges is the difference between competing effectively and getting swept away in industry rationalisation.

Now, more than ever, having an effective IT backbone that can assist in meeting these challenges is essential.

Creating a competitive advantage and differentiating through IT

Automate – gain greater efficiency, cost savings and improved service to your clients

Employees are the driving force behind life insurance companies and so it is of the utmost importance that they be equipped with IT systems that allow them to work quickly and efficiently especially during periods of downsizing. Factors such as flexible workflow and automated underwriting capabilities are now must haves in order to service customers at a competitive level.

As Celent states in its 2008 paper, Celent Model carrier 2008: Case Studies of Effective Technology Usage in Insurance, document automation projects are more popular than ever; companies are increasingly looking to modernise and automate their business workflows and retire legacy systems. Easy to use systems with less manual processing equate to higher productivity levels and turnaround times, and therefore, more satisfied customers.

Get online – gain improved efficiency, improved service to your clients and cost savings

The most important factor in creating and maintaining a competitive edge is paying close attention to service levels for policy holders and intermediaries, as well as internal employees. In times of industry rationalisation it is service levels that differentiate life insurance companies. The provision of fast, easy access to accurate information is the ultimate aim for insurers, and the most effective method for attracting and retaining today’s selective policy holders and brokers. Today’s consumers expect round-the-clock access to information, and web-based solutions are increasingly shifting from being cutting edge and a ‘nice to have’, to being an essential service component.

Aside from meeting market demand, online functionality delivers a plethora of business benefits. According to Celent’s 2007 report Top Ten Trends in L/H Insurance E-Business 2007 and Beyond, the common opinion amongst insurers is that policyholder portals deliver improved retention, improved visibility and brand presence, and reduced call centre volume. The deployment of a state-of-the-art software solution, and the development and consolidation of an online presence for both sales and service is crucial in securing a competitive edge.

The desire to electronically manage their books of business and commissions has also put online functionality in high demand with intermediaries; they now expect life insurers to deliver high-end, user-friendly electronic functionality. The aforementioned 2007 Celent report states that over 90 per cent of surveyed life insurance companies either offered transactional agent portals or planned to do so within a year.

The deployment of agent portals is mutually beneficial for the agent and the life insurer; as well as facilitating (and therefore, satisfying) agents, according to the previously mentioned 2007 Celent report, the primary values associated with agent portals are better accuracy of information received, reduced cycle times and reduced rekeying burden.

Move away from legacy - quickly launch innovative products and improve time to market

A highly competitive marketplace has given birth to a discerning consumer pool with specific demands. In this era of reduced investment income, decreasing customer loyalty and multiple product choices, insurers are scrambling to win clientele and outdo their competitors. Life insurers are now in a race to develop innovative products and, importantly, get those products quickly to market.

Legacy IT systems are the main obstacle for rapid time to market; complex legacy code means that enhancements and additions require significant (and costly) programming time and effort. In most cases it can still take six to 12 months to launch a product due to technology limitations. 

Select IT vendors are now offering a new generation of technology solutions that ensure new products are quickly and easily delivered to market. The ‘building block’ approach to technology (such as that of Bravura Solutions) readily supports the rapid launch of a broad range of different product types by providing a set of flexible, table driven, rules based building blocks that can be configured in many ways without the need to change or build program code.

Leading edge vendors are also investing in rules engines that allow product related rules to be defined in an external, centralised location. The introduction of these rules engines can deliver a dramatic reduction in the analysis, development and testing effort usually involved with implementing new products.

By deploying leading edge technology, as Bravura Solutions’ has recently proven with one of its largest Asian clients, it is now possible to reduce the new product implementation timeframe of a moderately complex product to a mere 20 working days (including testing).

What to look for in a software system

It is important that life insurance companies choose an IT vendor that understands their business and current market trends. The ability to provide modern, superior technology that meets market demands is key. Particularly in the current economic conditions, employed technology must deliver increased labour and cost efficiencies to life insurers, and enable an improved product offering to their clients.

Some of the features to look for in a life insurance solution include online services for policyholders and intermediaries, automated underwriting, comprehensive claims management, framework for integration and services such as Services Oriented Architecture (SOA), integrated workflow capabilities and a flexible user defined product set-up for rapid new product development.

Remember: get online, automate and move away from legacy – ‘untangled’, flexible technology is a crucial factor in a modern software system.

What can be achieved?

Staying at the forefront of technology can mean achieving a multitude of business benefits. For life insurance companies it means streamlining costs, achieving improved speed to market and creating a more satisfied customer base cost effectively.

Modern software systems provide long-term relief to the bottom line, delivering cost efficiencies through increased online interaction (lower administration, processing and printing costs, less mailing and lower call centre volume), and through simplified/less time-consuming enhancement/modification processes. Simplified enhancements and modifications also translate to flexibility and ease of product development, improved speed to market and therefore, increased revenue and market share.

An investment in software is also an investment in customer service; online integration, faster cycle times and automatic underwriting allow life insurers to provide their customers and agents with fast, easy access to accurate, real-time information.

While the concept of spending money may seem unthinkable to life insurers in the current financial climate – the old adage “spend money to make money” has never been more appropriate. An investment now means significant cost savings in the long run, satisfying and continuing to grow client bases, and ultimately weathering the ‘R’ word on top.