Insurance companies often say they have a distribution strategy, but what they often really have is a compensation strategy. Many believe as long as they get the compensation right, everything else will fall into place. In some instances, that may work. But Springfield, Mass.-based Massachusetts Mutual Life Insurance Company (MassMutual) wants to better understand who its distribution partners are, how they relate to each other, and what role they play in a sale. In order to do this and support a larger modernization initiative, MassMutual is entirely revamping its IT infrastructure with the help of many vendors including SAP.
MassMutual provides financial products and other services to around 13 million clients worldwide and has $456 billion in assets under management. Its customers in the US have come to rely on the company as a premier provider of insurance products. Yet the company found its 40-year-old IT infrastructure was struggling to keep up with fundamental changes in the industry and customer demands.
Within the US insurance industry, the company’s core distribution channel is its career agency system and most of its insurance sales derive from this system. Its infrastructure connects to 85 agencies across the US, encompassing about 4,000 career agents and more than 15,000 brokerage relationships. The career agency infrastructure was built around simple two-tiered hierarchical relationships such as an agency to a producer or a general agent to an agency.
As the company grew, it came to depend on multiple disparate systems, which made it more difficult to fully understand the distribution force. Moreover, implementing change was time-consuming and expensive with over 20 administration systems, multiple producer databases and countless relationship databases that existed across all the different lines of businesses. “Obviously, our current infrastructure presented many challenges to our service organizations,” said Robert Laughlin, Director, US Insurance Group PMO at MassMutual, speaking at SAP’s Sapphire Conference in April 2007.
As part of the larger modernization effort, MassMutual worked with SAP to implement a Distribution Servicing Platform (DSP), a single repository of the partners and relationships that distribute MassMutual products. Essentially, the DSP brings together two producer databases – one of its own and another inherited through a merger in 1996 – to provide full visibility of all contractual obligations from the perspective of compensation and servicing needs.
Not all distribution partners have the same needs. Some require more handholding than others, and their compensation should reflect their demand for support. Some want to receive all of the correspondence sent out by the company, and others do not. “We’re starting to understand who they are and what they want, what are we contractually obligated to provide them, and what are they contractually obligated to provide to us,” said Laughlin.
The DSP is allowing MassMutual to migrate from myriad administrative, annualization systems and over-ride systems to a single compensation and relationship engine. All the data is exposed so everyone involved in a sale – the producers, general agents, broker-dealers and wholesalers – can be compensated accordingly. Moreover, that data can be shared across thousands of applications throughout the enterprise. For instance, when a lapsed notice needs to be sent out, the system knows whether it should be sent to the producer or another party. It can identify which servicing producers should receive correspondence.
The single repository of contractual obligations represents relationships as a network rather than a linear hierarchy. It captures the relevant data within the agreements and shows the distribution networks as they truly exist. One calculation engine is leveraged to calculate primary, secondary and other compensation for everyone who is connected to a particular sale.
A business package has been designed and set up to capture all of the distribution data tied to any sale from this giant network of relationships. Whenever new business is written, it is logged into the system as coming from a particular producer and distributor. But there is a whole network of relationships that become a part of that business package as well.
The business package is a powerful tool that provides a single view of all of the distribution data for a particular sale. It is no longer necessary to go into more than 20 administrative systems to maintain distribution data, for instance, when a producer leaves the company. There is a single space within the business package to terminate a relationship and extract all the policies that were connected to it.
In addition, policy numbers and inception dates can be paired with key data elements on the business package. That makes it possible to bring all the data together and expose it to the enterprise. For instance, when call center agents need to know who the servicing producer on a piece of business is, they simply look at DSP as the system of record.
The DSP is one step in MassMutual’s modernization initiative to overhaul its entire IT platform. Now it is working on several strategic projects in the Life Insurance line of business that will ultimately support new products scheduled for launch between now and 2009. The next step will be to sunset some of the former administration systems and convert the distribution data into the business packages.
www.sap.com