The Life Companies Central (LCC) initiative has hit another wall. Some of the seven participating insurance companies are not happy with the projected costs and want alternative solutions, while National Life has pulled out altogether.
The turn of events has further delayed the project from starting its overdue initial phase.
As well, Manulife and RBC Insurance cited problems with the cost and do not support the projected prototype. However, both companies say they will continue to be involved and are interested in other options.
The seven insurers came together to contribute financially to the LCC project. The project goal is to develop and implement a common electronic interface system between suppliers of insurance products and their distributors, something similar to FundServ but for life insurance.
There are many rumours circulating and it is still uncertain (besides National Life), as to who is still in the game and who has officially pulled out of the project. For example, sources revealed that insurers such as Manulife officially pulled out not only from the prototype but from the entire project altogether. However, Manulife said it was untrue. Canada Life, Trans-america, Sun Life and Standard Life refused to comment on the status of their commitment to the LCC project.
The Insurance Services and Solutions wing of IBM Canada was given the mandate of creating a prototype and drew up the estimated cost for the whole project. The prototype, which would serve as a blueprint for the project and is part of the initial phase, was to be completed within three to six months. The timing is now back to scratch. Sources close to the initiative estimate the proposed project will carry a price tag between $2 and $10 million.
The sticker-shock syndrome occurred says Richard Miles, spokesperson for the LCC committee, where the companies were not comfortable with the price. Mr. Miles was hoping that phase one of the project would move faster, however, says that company hesitations are bound to happen when seven competitors are collaborating on one solution.
“We’ve decided to pull out for the time being. Our reasons are consistent with RBC and Manulife pulling out,” says Ross Turney, Director of Communications at National Life. He adds, “It is a lot of money to put into something for which we’re all finding difficulty to find where the benefit is.”
As well, Mr. Turney is hesitant towards the number of transactions that would go through the system. He stresses that it would not be like FundServ that receives a high volume and high-value transactions. “In mutual funds, there is a lot more going through everyday than there is on the life insurance side. It is not everyday that someone goes out to buy a life insurance policy,” he states.
Despite its refusing to go ahead as the plan currently stands and to inject more money, Mr. Turney says that the company is still open to discussions. “I don’t think we’d ever close the door on anything worthwhile… but now we cannot justify the cost.”
A source close to the project confirmed to The Insurance Journal that Manulife gave a notice regarding their withdrawal from the committee and that it is not interested in looking at alternative solutions.
However, Greg Cerar, Vice-President, Advanced Markets at Manulife and representative of the company for the LCC committee, stresses that Manulife is still very much a part of the project and has not pulled out. “We continue to be actively involved. There will be a regrouping where we will get back together and revisit the proposal. There is no disputing that this initiative is very important and we will absolutely participate.”
He adds that though Manulife has not pulled out altogether, the company was not happy with the pricey prototype and therefore, is not supportive of phase one. He says, “Yes it is true, based on that particular proposal our position was that we could not justify from a cost-benefit perspective, to participate in the group.”
Dennis Craig, Vice-President New Business Services at RBC Insurance and company representative for the LCC committee, echoes the same feelings of Manulife. He says that despite being unsatisfied with the price and the overall general prototype proposed, RBC Insurance is still involved. He notes that the company is looking to regroup with the committee and look for another proposal.
Doug Smeall, Chair for LCC and Vice-President of Life Operations at Sun Life, explains that the next meetings will tell the tale and alternative solutions will be looked at. “…It is not right to say anyone dropped out, but we have to resell a couple of people,” he clarifies. “The proper interpretation is that some companies have come forward saying we are uncomfortable with supporting this prototype so I would not read that as backing out but I read it as I don’t support the next phase.”
The next LCC meeting is scheduled for May when the insurers will reunite and discuss alternative solutions. Mr. Smeall explains that the idea of a simplified prototype will be looked at to cut-down costs. He notes that IBM initially thought it would build a solution that the insurance companies would own, however, says LCC is not ready for that. Instead, LCC will possibly pursue a vendor solution.
Another problem that Mr. Smeall sees is that the insurance companies are balking at spending money on the prototype, thinking they have to fund all of it. “That is what’s holding up the prototype, people saying, ‘why would I put out for the prototype when I am not assured that I’ve got the distributors and the vendors to help me with the costs upfront.’”
Will they come?
Another issue is whether the advisors will use an electronic application says Mr. Smeall. He stresses that IBM proved that the technology exists, the real problem is, who will pay and who will use it. “The industry statistics are not good, most companies are at a 20% to 25% level of electronic application. Some people are asking, ‘Why should we get 100% with LCC?’” he questions.
Therefore, the issue of whether the LCC initiative will be a guaranteed success has led to the price being questioned says Mr. Smeall. “Six months ago, the prototype was not a big deal, we would each throw in $20,000 to $30,000. Now it’s, ‘wait a minute, why do I want to spend this money?’” he points out.
David Kerr, Industry Executive at IBM global services agrees that IBM has the technology, it is the business issue which needs to be solved. “It’s best that people take a hard look at the business model, they need to know hard black and white numbers,” he exclaims.
Mr. Kerr uses the example of FundServ to illustrate that these type of projects work better with a smaller number of people. “You need a small group of committed people who are willing to invest time and money.”
Though he would have liked the project to be at an advanced stage, he says IBM is hoping to further participate in the project.