£25m deal sets HBOS on path to a single platform for insurance

The advent of stakeholder pensions has forced the insurance sector to cut overheads so, for the first time, an ambitious project...

The advent of stakeholder pensions has forced the insurance sector to cut overheads so, for the first time, an ambitious project may at last deliver the long-awaited single platform from which multiple services can be sold and maintained, cutting costs and streamlining future product development. Nick Huber reports

For 20 years the insurance sector has searched in vain for a single platform to deliver multiple services. Now, in an industry first, HBOS has signed a £25m contract with consultancy Cap Gemini Ernst & Young to help it create a common platform for life assurance, savings and pension products.

HBOS, the bank, formed by the merger last year between Bank of Scotland and Halifax, said last week that it expects the system to reduce customer servicing costs by 25%.

John Edwards, chief executive of HBOS Life & Pensions, said, "To succeed in today's financial services arena you must give your customers the highest service quality while simultaneously driving down costs. That is precisely what this project hopes to achieve."

A call centre will be set up to support the different product lines and the modification of an existing services platform from Equitable Life. The revamped platform, due to be finished within the next two or three years, will support a range of life, pension and assurance products under the Clerical Medical, Halifax Financial Services and St James' Place brands.

The existing Equitable Life system will be modified for the independent financial adviser market. The rest of the project, involving several hundred staff, will be a mixture of system development and data migration.

Industry experts said that although there were strong arguments for consolidating product lines on to one platform many insurance firms had tried, and failed, to do so.

"The claim that this would be unique is broadly true - no big life and pensions group has achieved it," said John White, executive chairman of Winchester White, an insurance industry IT consultancy. "Many have tried in the past 20 years or so and nearly all have given up because escalating migration costs destroy the business justification."

Other financial services companies said that the consolidation of products and services on to one platform could create more problems than it solved.

"They are trying to bring the back-end servicing of the multiple brands they have acquired on to one platform," said Graham Newitt, protection and housing director at Legal & General. "As we have grown organically we have not had to face up to these issues, this is a factor of growth of acquisition.

"One system for all is not necessarily good news. It can create complexity, slow down development and speed to market and create unnecessary dependencies. It could also end up in consolidation of an effective product range as they all work off the same platform, so offering less diversity for customers."

John Duncanson, head of financial services for Cap Gemini Ernst & Young in the UK and Ireland, accepted that the project posed some substantial challenges but added that the firm had the right skills and experience to handle the consulting and technical aspects of the implementation.

"There are always risks that you will have to take resources away [to work on other IT projects] but you can minimise this if you manage priorities."

The HBOS IT revamp comes at a time of unusual turmoil in the insurance sector, traditionally seen as the technology laggard of the financial services industry.

A series of shifts in the way the market is regulated and does business is prompting insurance firms to become more innovative in their use of technology.

The introduction of 1% caps on customer charges for products such as stakeholder pensions means firms are keen to use the Web as cheap delivery channel. This has the potential to cut administration charges and avoid high overheads.

The high-profile collapse of Independent Insurance and the stricken insurance giant Equitable Life has created a more bullish approach to regulation of the market. This will result in more stringent compliance requirements, with a knock-on effect for their IT systems.

"You will see bigger demands from regulators for insurers to have a clearer audit trail on the advice they give customers," said Daniel Mayo, lead analyst in the financial services group for analyst firm Datamonitor.

"If everything is paper-based it is very hard [to store it all] as things get lost. If you automated independent financial advisers' policy administration packages, for example, it might ask they had asked the customer certain questions, such as if they know the risks of a certain product."

The final shift in the insurance market is the way financial services companies interact with independent financial advisers, the life-blood of the industry. Increasingly insurers are using the Web - extranet sites - to speed up and streamline their dealings with independent financial advisers.

Currently, however, only a small proportion of insurance policies are sold and administered via the Web, although analysts predict a steady move online.

The business case for the HBOS platform is a solid one. At a time when firms are under increased pressure to reduce costs and simplify their IT infrastructure. HBOS also has the help of a big-name consultancy with a blend of consulting and system integration experience.

However, analysts have warned that this type of project is strewn with difficulties and many companies have failed to pull them off in the past.

"I expect that they have based this saving on detailed analysis but we have seen no-one achieve this level of cost reduction from this type of project," said White.

HBOS and outsourcing

June 2002
HBOS terminates its IT outsourcing contract with Xansa. In 1998 Bank of Scotland outsourced its IT to First Banking System, a joint venture with Xansa. The joint venture company managed day-to-day IT functions at Bank of Scotland and introduced new technologies. The deal fell foul of the Halifax takeover of Bank of Scotland, however. Explaining the decision to terminate the contract HBOS said the Bank of Scotland's centralised IT infrastructure was incompatible with its own approach to IT.

August 2002
Bank of Scotland terminates its 10-year £700m outsourcing contract with IBM after less than two years and brings its IT back in-house. The collapse of the deal raises serious doubts about whether such large, long-term deals can survive business change. HBOS says the move is all about cost savings, post-merger. When the ground-breaking deal was signed in 2000 Bank of Scotland boasted that it would save £150m in IT costs over 10 years. Industry watchers claim these savings targets were unrealistic and that HBOS may have under-estimated hidden costs such as training and redundancies.

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