what can be learned from the uk - german run-off …. ifds grf 2015...amp hazell carr £35m group...
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Confidential
Closed book strategy. What can be learned from the UK ?
Ian Betley
VP, Head of Sales EMEA,
DSTi Holdings and IFDS Group
2 Confidential
Agenda
• A brief history of closed book in the UK
• The main players and their approach
• What can you learn ?
• The Good
• The Bad
• The Ugly
• What does next generation look like ?
• Insurer demands
• Consumer demands
• Market Sector influences
• Summary
3 Confidential
2011 Munich
•We are all doing well to survive
2012 Berlin
•We need to change and enhance distribution!
2013 Vienna
•Let’s Innovate
• New products, new ways
2014 Vienna
• The customer is king
• We are not in a position to react
The last 4 years of speaking at Life conferences
2011 Crisis Denial
• You’re customer doesn’t trust you
2012 Stagnation
• You don’t understand your customer
2013 Crisis Acceptance
• Your customer doesn’t understand you
2014 Transformation ?
• Your Customer is in control of you ?
Conference Themes
My Challenges to the conference
4 Confidential
Insurer
Challenges in the UK market
Customer Fragility
• Confidence in the financial services market
• Transparency of suppliers
• Customer Experience
• Customer needs – portfolio v commoditisation
Product Innovation
• Throw away the Heritage
• Buy new platforms
• Tactical Reponses
• Partner v build
Economy & market
• Low savings & annuity rates
• Market volatility
• Pension Gap
• Regulation
• Government initiatives e.g auto enrollment – does that make EBC’s a channel ?
Cost of Entry
• Speed to market
• Brand protection
• Getting it right first time
• Cost of failure / exit
• Cost of Channel maintenance
5 Confidential
Now the ‘real’ challenges
• Legacy technology with poor quality data
• Spaghetti of systems caused by mergers and tactical solutions
• Processes embedded in peoples heads, with many manual workarounds
• Stagnation of the working population
• Poor quality staff – with no design or implementation skills
• Lifers in the business
• Union protected
• Public Sector / Fiefdom culture
• Short-termism view of any change or transformation
• Driven by shareholders and executive bonuses
6 Confidential
The drivers for outsourcing: UK vs Europe
Platform Consolidation
Process Rationalisation
New Products Processes
Divest Non-Core
UK market Europe comparison
• Problems with old and multiple platforms. Inefficient and costly to maintain.
• Duplication of activities into multiple systems
• Fewer legacy products so fewer truly legacy platforms
• However, systems replacement and consolidation still attractive in some cases
• Inefficient processes and duplication of activities across locations
• Non-standard processes
• Positioning new products, admin capability in a cost-efficient way post-RDR etc.
• Faster time to market
• Focus on core business / what they do best • Manage out overheads associated with niche
lines (e.g. DB Pensions) or non-core activities.
• Opportunities for improved efficiency will be attractive
• Less fundamental restructuring of products due to regulation
• However, improved time to market still attractive
• Probably less of an issue for most European players
Cost avoidance / mgmt
• Convert fixed costs to variable for reducing books
• Mitigate set-up costs for new businesses
• Cost reduction always attractive
Many of the drivers for L&P BPO in the UK are more intense than they are in Europe, hence the
European market has been slower to develop
• Standardise platforms
• Data migration to preferred platform
• Standardisation, de-duplication
• Process re-engineering
• Improve efficiency
• Offshore
• Create compelling new products that can
be serviced at low cost
• Create IFA interfaces
• Access to more plentiful skills in non-core
areas
• Specific niche processor providing
services
• Benefit from TPA operational efficiencies
and economies of scale
• Contractual certainty on costs and
operational risk
Solution requirements
6
7 Confidential
UK market landscape
Market trends
Outsourcing well established in the UK L&P market - few large players left to
outsource, however not all deals have achieved the sought-for levels of
transformation (especially systems consolidation)
Potentially becoming saturated as far as closed books (which account for the
majority of the market to date) are concerned
However, some deals due for renewal in the next 2-3 years and many small books
still run in-house
Increasing willingness to consider outsourcing as a strategic approach to launching
new products and developing new business
Largest L&P market in Europe in terms of premium (although
Germany and France now employ more people)
Protection market has been flat for a number of years,
investment AUM impacted by the GFC
RDR, as well as developments in consumer attitudes, shifting the
balance of distribution, but only slowly
Increasing interest in on-line and multi-channel transaction and
servicing driving new system requirements
TPA development
Regulation constantly evolving in both UK and
Europe, with uncertain future effects on e.g. VAT
treatment
Recent years have seen significant IT change
driven by e.g. Solvency II and RDR
The FSA has become significantly stricter on the
regulatory status of TPAs
Regulation
The UK outsourcing market is well-established, but growth has slowed significantly…
8 Confidential
8
UK market landscape
0
10
20
30
40
50
60
70
200020012002200320042005200620072008200920102011201220132014
Policies (m)
Policies (m)
UK L&P TPA market growth by number of policies…
9 Confidential
Up to 2004, the market consisted of mostly small, closed book deals and was served by a number of suppliers battling to get to 1 million policies
L&P Company TPA Provider
Deal Value
Deal Type Year # of Policies (Approximate)
Lloyds TSB (Abbey Life) Unisys/UISL £60m Traditional Outsource. Subsequently acquired by Deutsche Bank and outsourced to Capita
2000 1.7m
Barclays Schroders N/a GPP green-field outsource 2000 N/a
JPMAM - Save & Prosper Liberata £60m Traditional Outsource - with migration costs included in cost per policy
2001 350k
GE Pensions Group MSG £11m Traditional Outsource – admin of various portfolios of pension related policies over expected five-year term
2001 70k
Sun Life Financial of Canada
MSG £95m Traditional Outsource - with 550 staff transfer plus systems implementation
2002 800k
Lincoln Financial Group Capita £160m Creative Partnership - share in business growth over 10 years
2002 900k
Prudential JLT & Hazell Carr
N/a Group Pensions 2002 N/a
Barclays/Woolwich Liberata N/a Evergreen deal 2002 1.5m
AXA Sun Life Liberata £50m Axa Equity & Law Closed Book 2002 800k
AMP Hazell Carr £35m Group pensions closed book 2003 100k
Royal Sun Alliance Unisys >£300m Multi-location lift-out creating largest FS TPA deal in Europe at the time
2003 2.8m
Zurich Life Admin Re N/a Post sale to Swiss Re 2003 230k
Liverpool Victoria EDS £109m 13 year deal for open and closed book. Subseuently brought back in-house
2004 600k
Prudential International Capita n/d Dublin based operation for administration of UK sold offshore business
2004 400k
Children’s Mutual Capita £430m Creation of utility to provide CTF servicing to CM and others
2004 New venture
UK market development Phase 1
10 Confidential
From 2005-2010, deals increased in size, included more open books and the market became dominated by Capita with circa 26 million policies
L&P Company TPA Provider Deal Value Deal Type Year # of Policies (approximate)
Pearl TCS (Diligenta) £486m Collection of closed books acquired by Pearl 2005 3.8m
Living Time (AIG) Vertex n/a Launch of new virtual life company 2006 n/a
Zurich UK Life Capita £300m Closed and open book. Planned future product development on Elixir platform
2006 2.8m
Aviva Swiss Re n/a System consolidation and cost reduction play 2007 3m
Prudential Capita £722m Predominantly “mature” (closed) L&P book. Capita also acquired PPMS (Mumbai)
2007 5.5m
Resolution Capita £580m Collection of mostly closed books acquired by Resolution. Resolution since acquired by Pearl. Scottish Provident since sold to Royal London
2007 4.5m
CFS Capita £270m Open book and future product development 2007 4.5m
HSBC Life Vertex n/a Support for new product launches 2007 n/a
Deutsche Bank (Abbey Life) Capita £130m Closed book acquired from LTSB in 2007 2009 1.1m
AXA Capita £500m Closed life and pensions book 2009 3.2m
Equitable Life HCL £120m 30 year deal to cover areas such as IT operational support, policy administration and financial, actuarial and call centre.
2009
UK market development Phase 2
11 Confidential
11
Since 2010, the most significant deals in the market have effectively gone to new entrants...
L&P Company TPA Provider
Deal Value
Deal Type Year # of Policies (approximate)
Friends Life Diligenta £1.37bn Diligenta’s first competitive win since the Pearl and Phoenix acquisitions. Closed book protection business and significant part of its corporate benefits business
2011 3.2m
AEGON Serco £170m Closed and open book. Protection business Serco’s first entry into L&P
2012 500k
St James Place IFDS £1.0bn 15 year deal for legacy book and new retirement wealth platform
2013 800K+
Old Mutual Wealth IFDS £1.2bn 20 year deal for outsource of closed books, new business and wealth platform
2013 1.1m+
UK market development Phase 3
12 Confidential
TPA key selection criteria
Company level Solution level
(varies by proposition)
Corporate strength and
strategy
Corporate culture and fit
Pricing and commercials
Implementation risk
Risk management and
controls
Business solution
Operations and service s
IT
People
Technical (product)
expertise
Regulation
By analysing multiple deals in recent years, typically you can identify a number of key criteria
used in selecting TPAs…
13 Confidential
One approach to segmenting the UK market (in terms of both deals and competitors) is by level of process-driven vs systems-driven rationalisation…
Significant
Significant
Low
Low Platform Rationalisation
Pro
ce
ss R
atio
na
lisa
tio
n
UK market segmentation – outsourced positioning
Transformational change including
process and platform
rationalisation
New Products
Niche
Process rationalisation
on current platform
IT system consolidation
programs
14 Confidential
Deal type Typical characteristics Example competitors
Transformation
al change
• Focused on cost and service
• Ongoing scale efficiency through platform migration
• Closed and open books
• Liberata (now HCL) once dominated this
market (for closed books), but failed to achieve
scale
• Diligenta the only player currently claiming to
be able to achieve large-scale platform
migration
• Wipro, Cognizant etc with aspirations but not
yet credible track record in UK
Process
rationalisation
• Focused on driving down costs, often at the
(perceived) expense of service
• Usually using existing systems, often existing
infrastructure and staff (after TUPE)
• Capita
• Serco (new entrant, just won AEGON)
System
consolidation
• Often in-house or with ITO assistance
• Significant use of offshore IT resources
• Frequently consolidating among existing in-house
platforms
• Wipro
• Cognizant
• HCL
New products • Often gap-fill products
• Need for speed to market
• Existing systems unable to support
• May be on “Build Operate Transfer” basis
• Opal
Niche • Relatively small (typically less than 500k policies)
• Closed books, no longer core products
• Old, complex products – e.g. DB pensions –
requiring significant technical expertise
• JLT
• Hazell Carr
• Capita Hartshead
UK market segmentation
15 Confidential
Comparison of Market
Capita IFDS Diligenta HCL Liberata
Cost reduction
Operational efficiency
Flexibility of service
model
Breadth of technology
coverage
Risk & compliance
framework / control
Proven Migration
Capability
Brand / reputation
Future TCO/ Contract
Sustainability
Ease / cost of exit
Focus on FS
Industry / appetite
16 Confidential
IFDS Market Position
Total Cost
of
Ownership
True business value
Low
High
Low High
Limited sustainability in contracts – high degrees of
financial engineering / short-termism
Indian Pure Plays
minimal local touch – high arbitrage
Distanced delivery empowerment
IFDS Model
Right blend of on/offshore resources. Operational efficiency.
Modern Technology
Large multinational consultancies / high cost base / high client growth
aspirations
Disjointed & diverse structures
Tactical BPO / Technology replacement
Same Mess for Less Operations and Offshore driven
Heritage Outsource (price per policy $/hr )
Strategic integration of wealth and heritage - Customer Centricity
GenPact
Wipro
Capgemini
Accenture
TCS Diligenta
Capita HCL
IFDS Patni
17 Confidential
Offshore ITO BPO Transformational BPO
Continuous transformation
/ GBS Outsource Maturity
Val
ue
ad
d
Same mess for less Sustainable value
Supplier / Partner evolution
18 Confidential
0204060
80
Cost benefit
Benefit Impact across the maturity model
Transformation
Same mess for less
19 Confidential
You know your customers product holding across your business
Op
tim
isin
g re
ven
ue
op
po
rtu
nit
ies
Customer Insight
Orphaned product holder
Policyholder
KYC Know your customer
Customer Centric (SCV)
Customer Lifecycle
Customer, family or
community
Unsure whether details are correct or even alive
Static policy holder with no activity
Known active customer
Building customer insight to market to the individual s life events
Understanding the customer needs as a multi-generational family or community
Engaging with your customer Where are you on this line ?
20 Confidential
Op
tim
isin
g re
ven
ue
op
po
rtu
nit
ies
Customer Insight
Orphaned product holder
Policyholder
KYC Know your customer
Customer Centric (SCV)
Customer Lifecycle
Customer, family or
community
Transactional &
Scheduled STP 3
Customer e-cosystem Workplace, Education, Planning, communities
Family, Tax, Advisor STP 5
Automation Enablement
STP 4
Offline STP 1
Paper Online STP 2
Lower cost of client servicing
Conclusion : The more you know about your customer the more you can sell. The more the customer engages the more you can automate and the cheaper they are
to administer.
Digital maturity and the definition of STP
Where are you on this line ?
21 Confidential
The evolution in policy administration costs
0 10 20 30 40 50 60 70 80 90
Corporate Overhead
Operational Cost
IT Cost
22 Confidential
recommendations
• Build the old world in the new
• Underestimate migration and the data
• Lose sight of retention and customer experience
• Legacy products not legacy customers
• Take a short term view
• Build a business case around the as is – to be model – look at sustainability
• Workers union – legacy staff/ culture
• Jp’s retention slide
• Adopt v adapt
• Issues
• Bad contracts – unsustainable
• rationalisation
• Sack the old / offshore – lose the knowledge
• Tell the story of wesleyan and guardian life aviva prudential
• Round 1 - 90% contracts unsustainable / failed to deliver / renegotiated over budget / high attrition / poor customer experience
23 Confidential
So how has it gone ? • 80% of the contracts are unsustainable and clients are unhappy
with the outcome
• They have failed due to • Inability to migrate / rationalise platforms (Prudential)
• Inability to change due to legacy – same staff different employer (Liberata)
• Poor knowledge transfer has led to programme failure or added cost to buy back in the knowledge
• Contracts badly written
• Old processes implemented – cost of keeping lights on too high
• Staff protected against redundancy / performance management
• Short term view on cost certainty with too many dependencies on building scale or driving out efficiencies
• Consequences
• Margin pressure by outsourcers lead to poor customer service
• Stagnation and no thought-leadership innovation or drive for improvement
• Treated as a wasting asset – no performing as a wasting asset – or the value has been bled out of the books
• High risk from regulatory change
24 Confidential
The Closed book opportunity
The Legacy / Closed books
There is no such as a legacy customer there are only legacy products
Inforce customer Segmentation
Product swap
Upsell / Cross-sell
Retain and Serve
Lowest Service Cost
Transfer to wealth
25 Confidential
Closed book – release the embedded value
Low Value but potential
Upsell and Cross-sell more products
High Value in Transition
Engage & Transfer to wealth platform
Offer new products for at and post retirement
Low Value
Service at lowest cost of ownership
High Value
Engage protect and provide excellent customer experience
Closed Book
Strategy
Assets Under Management
Customer Insight
26 Confidential
Focus on asset retention and embedded value
0
200'000
400'000
600'000
800'000
1'000'000
1'200'000
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Lapse 10%
Lapse 13%
Added value
Difference in total policy years over 10 years at 10% lapse rate to 13% is just under 1,000,000
TIME
AV
. CO
ST P
ER
PO
LIC
Y
27 Confidential
What could this look like ? Assisting our clients’ business evolution
• True transformation of operating models to one that can absorb business change incrementally and fluidly, instead of requiring periodic step changes and transition projects.
• We can service both old and new worlds and enable a customer centric view across all books of business
Upgrade of closed book or open book customers to wealth platform services (e.g. as wealth increases with age or third party assets are captured and consolidated)
Closed book customers becoming open book or wealth customers (e.g. up-sell / cross-sell), capture of third party investment assets or insurance covers, especially on life events)
Wealth customers becoming open book or closed book customer (e.g. wealth services are no longer required by the customer as asset values decline)
Open book or wealth customers becoming closed book customers (e.g. product closure)
28 Confidential
Service model flexibility – it’s not all or nothing
Service model
Capable of serving insurance companies with technology and BPO solutions for wealth, heritage / traditional L&P and funds in an owner-operated, multi-tenanted/shared service environment
Alternatively, our clients have the flexibility to adjust their servicing model based on:
• business segment
• business function
• service channel
• product type or variant
• by customer or customer segment
• by distribution channel
Goal alignment – we use the same systems!
29 Confidential
Successes - Skandia
Skandia have signed a twenty year contract to partner with IFDS, to further outsource a significant proportion of their processing, administration and technology.
Skandia is part of Old Mutual Group who is one of the world’s largest life insurance companies.
This contract builds on our existing relationship with Old Mutual and will enable Skandia to replace a number of administration functions and the majority of its UK platform plus Retirement and Insurance Solutions (RIS) technology
This agreement will enable us to continuously improve the service we offer to financial advisors and their clients, introduce new products as well as meet our financial objectives. The IFDS technology will ensure that we can respond to adviser and customer needs faster than we can today and will results in new functionality and greater flexibility to be delivered to advisers via the UK platform.
Paul Feeney, Chief Executive
“ “ 20 year contract On the grounds of a strong existing relationship, successful track record and the ability to demonstrate how to transform Skandia’s business – longest contract of it’s kind
2016 go live The integration of IFDS administration, processing and technology is due to start in 2016.
30 Confidential
Closed book total value proposition?
Support the whole of business lifecycle
Our end to end service model with our own technology (plus surround technologies) can accommodate both life and savings products to support the whole customer journey
Exceptional experience throughout the whole customer journey
Customer benefits
Insurer benefits
Insurer outcomes
IFDS delivery
31 Confidential
The customer void
Products
Insurance Speak
Distribute
Sell
Commission
Policyholder
Advice
Solutions
Customer needs
Education
Customer
Value
Serve
Engage
The Line Of
Trust
Insurers sell
products client needs service
32 Confidential
The sustainability void
Lowest price
Procurement Speak
Rigorous SLA’s
Continuous Improvement &
Innovation
Cost and Risk Transfer
Service Credits
Benchmarking the price
Best Value
Client real needs from supplier
Continuous competitive advantage
Own and fix the problem responsive error remediation
A Co Create Partnership
Future-proofed & Thought Leadership
Best of breed Service
Sustain-ability is a
hard concept to sell
33 Confidential
Top 5 recommendations / considerations
1. You have legacy products not legacy customers – run-off does not have to be treated as a wasting asset – don’t forget retention and customer experience
2. This is a complex business, tactical tinkering will create a bigger technology or operational debt
3. Outsourcing can work well, but the contracts need to be sustainable and release the embedded value in the business not destroy it
4. When building the business case – it’s not just an ‘as is – to be’ comparison. Look at the future cost of ownership as that is the only way to build sustainability into any outsource contract
5. Don’t try and replicate the old world in the new world. Adopt don’t adapt.
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