Mergers and acquisitions and the rapid introduction of new products are pushing the insurance industry to squeeze out efficiencies and reduce costs in IT operations.

To help realize those goals, IBM Canada announced the creation of the

International Insurance Solutions Centre (ISC) that will be centred in the University of Waterloo with operations in Toronto.

The ISC will deploy and manage solutions to meet the increasingly complex requirements of the insurance industry.

According to David Kerr, financial services industry executive with IBM Global Services in Canada, IBM has had a history with the insurance marketplace for decades. “The environment has changed a great deal,” he said. “The number of customers we have is actually half what it was 10 years ago, mainly due to mergers and acquisitions.

“What has significantly changed over the last five years has been the growth of our services business with the insurance marketplace,” he said, “such that services comprises 50 per cent of our business with them.”

Kerr said the ISC is the next development in IBM’s relationship with its insurance customers. “Insurance companies have traditionally been very vertically integrated and quite independent in how they approached building their applications and delivery of their solutions,” he said. “Due to a lot of pressures — cost, economic and regulatory — they’re willing to look at alternative means of delivering solutions and managing their costs.”

The notion of an industry-aligned solutions centre has been around for a while, said Kerr, and ISC is the first in Canada. “The attitude over the last 18 months has really begun a huge change for our clients, notably around cost. Two or three years ago they wouldn’t be willing to look at alternative means of managing and delivering their applications. Now they’re coming to us.”

Robert Brown, director of the Institute of Insurance and Pension Research at the University of Waterloo, said there’s the potential that the ISC will locate in a new research park being built on campus, but nothing has been firmed up.

“If we assume that they are close to us in terms of distance, then we have a lot of potential for ‘back and forth.’ We can put grad students there on projects, we can put co-op students in there on work terms, and of course, we think there will be potential for some good contract research work done by faculty and grad students.”

Manulife Financial Corp. of Toronto has also agreed to be premiere participant in the ISC.

Coupled with the ISC announcement was the signing of a memorandum of understanding with Manulife under which IBM will manage the insurance firm’s IT infrastructure.

“That’s pretty new and exciting,’ said Brown. “Historically, insurance companies have had substantial IT departments in house and done all of their own work.”

In the last two years, Canada’s four largest insurance companies have gone from mutual insurance companies to stock insurance companies. “Clearly when you’re stock, you’re more concerned about the bottom line. This is just a sign of leaner and meaner, and I can’t believe that Manulife is going to be the only one to do this.”

Manulife essentially has its IT requirements divided into three categories, according to John Mather, executive vice-president and CIO of Manulife. “The first is infrastructure and operations, which is all of the underlying hardware and communications,” he said.

The latter two are applications maintenance and new projects, which are run directly by Manulife’s 10 different business units.

The infrastructure and operations – PC desktops, mainframes, Unix/NT, voice and data communication, shared storage and help desk — are centralized and will be taken over by IBM.

Over the last several years, much of Manulife’s growth has been due to mergers and acquisitions, said Mather. “That type of work requires a lot of bench strength. We thought it would be best to reach into a technology partner for that bench strength rather than try to keep it on staff ourselves.”

In addition, the pace of new financial and insurance production introduction has increased dramatically, Mather added. Those new products require processes and technology to support their delivery.

“As we’ve grown over the years it’s become more important to have well laid out process and procedure to ensure that things that go well,” he said.

As part of the IBM deal, 400 Manulife employees will transition to IBM on or before April 1, said Mather. “I think, based on the town hall sessions we’ve had over the past several days, people are pretty excited about it. It certainly has a different feel when you’re an IT person working in an IT company as opposed to IT person working in an insurance company.”

A big part of the excitement also is the ISC. “I think an industry-focused approach to outsourcing is what the market is demanding now.”

One major cost centre for the insurance industry is “book” conversion, said Mather. Every insurance company runs a book of its business, he said, “and when you buy or acquire a company, you end up end up converting the book from one set of systems to another.” It is often an important step, he said, but a difficult one to cost justify because is already running its own book on another system.

“We (also) sell a product that lasts a better part of 40 years and most systems, if they’re lucky, last 10 years, and so you are probably going to convert that book of business at least once, probably two or three times,” said Mather. “This is generally considered by the business units as a cost center activity and anything that can be done to minimize that cost is going to be very important.”


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