There are some issues that come around in this industry with monotonous regularity. One such idea is the proposal from IT companies that the industry could save vast amounts of money if all providers passed all their administration to a single technology supplier.
At the time of stakeholder you could paper the walls with the range of similar propositions being touted around. People have pushed the idea again since then, and with the increased focus on workplace marketing via a wide range of employee benefit portals and so called corporate wrap products, it is unsurprising that this idea has again been doing the rounds.
Whilst information has been supplied to me via a number of sources, I am uncertain as to the exact provenance of the latest proposal. Certain of the elements have emerged in a summary of Platforum’s recent conference on corporate wrap, but a more detailed version that has been supplied to me by life offices does not bear authors details.
I do not know who is responsible for the latest proposal for an “industry hub” for providers and their corporate customers, but having reviewed the document I can only conclude that the author has a somewhat limited understanding of the industry and previous similar initiatives.
For a number of reasons I do not believe the proposal as currently constituted is viable. This is not to say that there is not scope for some form of collaborative venture which might include many, though almost certainly not all, industry constituents were the scope to be substantially revised.
Firstly I believe for a number of reasons that the point at which a single industry solution is viable is long past. Many insurers have spent millions building much of the support infrastructure that this proposal says can be replaced with a single solution. For these providers to come on board would be to throw away not only their existing investment, but also the commercial advantage it brings with it.
Many of these elements are key differentiators in the eyes of IFAs, benefit consultants and employers. Whilst organisations who have not made this investment, existing players with less sophisticated systems and new entrants might find the sharing of costs to catch up very attractive, it is hardly going to appeal to organisations with current leading edge solutions.
A risk in a single solution is that it will commoditise pension providers and limit their ability to bring new services to market. Ways must be found to address such challenges
Many of the players have already outsourced much of their operational infrastructure to Capita and so presumably have already achieved much of the savings a single hub might offer. The discussion document being circulated talks about shared costs, and cites previous examples of the investment industry funding industry projects.
In the past too many technology companies have seen insurers as a bottomless pit of money to pay for the development of systems, which the software company would then charge the insurer for using. For a proposal like this to have a serious chance of success the commercials must represent a significant saving over organisations’ existing operating costs without the need for large up front investment. If a technology company wants to take this forward they should fund the system using their own resources and then seek customers rather than asking the industry to fund the equivalent of a public sector IT project. Lets face it – the country is littered with failed IT projects of that type.
A risk in a single solution is that it will commoditise pension providers and limit their ability to bring new services to market. Ways must be found to address such challenges.
It should also be recognised that the market is going through a crucial period of evolution. Any suggestion that organisations should delay their own commercial plans whilst an industry collaboration is built is simply unrealistic. There is a massive land grab going on right now and no one with any sense is going to step back and allow competitors to capture market share at such a crucial point.
Allowing for all the above, there are still elements of what is in the current discussion document that warrant further investigation. Like so many similar solutions the current scope is too wide, the document talks of a revolution; in practice evolution offers a route far more likely to succeed. If the proposal can be reworked to take more account of the current real world state, recognising what has been learned with similar projects over the past 15 years, and identifying who would be the major immediate beneficiaries, this might yet be an approach which could help catalyse the market and reduce costs. Hopefully the authors will want to explore these options.
