Technology Transformation: Preparing for e-delivery

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1 Technology Transformation: Preparing for e-delivery By Ron Karam, President of Sapiens North American Retirement Services and Insurance Division

2 Table of Contents e-delivery: The Real Potential Fueling Top-Line Growth Technology Transformation: The Drivers Technology Modernization: Simplified by Today s Technology & Rigorous Planning Technical Strategy: Your Digital Roadmap Conclusions

3 1. e-delivery: The Real Potential The transition to e-delivery is in full swing among industry defined contribution plan providers. At a recent SPARK Institute Board meeting attended by retirement industry leaders a good portion of the agenda was dedicated to e-delivery during which a wealth of data on the subject was discussed. Barbara March, CEO of the BridgePoint Group, presented the company s research on Redefining e-delivery Strategies. Cynthia Hayes, principal at Oculus Partners, also shared the results of the SPARK e-delivery Survey conducted in March These presentations, along with a regulatory update on the e-delivery project provided by industry legal representatives, Davis & Harman, provided an excellent update on this important industry initiative. This article will focus on the seemingly challenging topic of technology modernization to support not only the e-delivery initiative but also many other challenges facing retirement services executives. 2. Fueling Top-Line Growth The advantages of e-delivery are immense, starting with the basics of replacing hardcopy and human extended communications with zero cost paperless techniques. The BridgePoint Group s research indicates that our industry spends $1.3 trillion dollars on required participant communications, printing, postage and general advice and guidance. While the industry is working to reduce this spend to help improve bottom-line results, the eventuality of a truly seamless e-delivery world will have a major impact on top-line growth as well. While the industry regulators are evaluating what can and can t be delivered via e-delivery, and while the plan providers are figuring out how to obtain addresses and improve adoption of the e-delivery option, one thing is for certain: e-delivery will eventually become the primary method for communicating with plan participants. Today, the SPARK survey findings show that 42.9% of the respondents (insurers, TPAs, platform providers, banks and mutual fund companies) report a 40-60% adoption rate. The balance of the respondents had lower adoption rates, but the trend appears to be in a positive direction0 With the proper rules-based technology behind your e-delivery strategy, let s explore the possibilities to drive engagement and growth0 Eligibility Notifications Creating rules that will automatically push a text or to the participant alerting them that they are nearing eligibility status to participate in plan0 Auto-Enrollment Notification Once eligible, an auto-enrollment notice is sent along with a link to auto-enroll. The auto-enroll process can be executed through a stepper process from a mobile device. The stepper process will take the participant through your step by step enrollment process0 Contribution Increases Creating a rule that will push a text or to a participant informing them that they can increase their contribution rate to increase their savings and to take better advantage of the company match. This would be accompanied by a link along with a stepper process to go through a simple procedure of increasing the contribution. This can be done based on a frequency rule that you define0-3 -

4 New Fund Options/Fund Transfers As new funds are added to the plan, you can create rules that will automatically notify the participant and provide a link to elect the new fund and allocate contributions accordingly0 Lifetime Income Projections Pushing out communications via text or notifying participants of their lifetime income stream based on the current and future contribution levels, salary increases and market projections, with illustrations and what-ifs showing the results of increasing contribution rates0 The possibilities are endless and require minimal cost to create and manage rules versus oldschool coding requirements. 3. Technology Transformation: The Drivers While our industry leaders are addressing the e-delivery movement, they are also considering many other potentially disruptive market trends. Within this article, we will focus on four of the main trends that we see influencing technology decisions. Addressed properly, these can produce benefits and differentiators for your business. 1. Participant Demand for Digitalization Coupled with the need to support the emerging e-delivery trends, technology will continue to advance in ways we haven t imagined, and consumer expectations will rise in parallel. There is no reason not to expect the demand for digitalization in the retirement plan services industry to catch up with the demand we are seeing in the banking and consumer products sectors. 2. Regulatory Environment The regulations that govern our industry will continue to drive changes in how retirement services organizations sell and administer retirement plans. These changes will in turn create an impact on the software infrastructures that support the plans. Rules-based technology will enable providers to create or change rules once to address a regulation change and have it proliferate throughout your technical infrastructure. 3. Participant-Level Transparency Driven partially by ongoing regulatory changes, such as the pending fiduciary changes and fee disclosures, and by participants simply becoming more savvy investors, the need for complete participant-level transparency will become a standard industry requirement. Technology that can manage and provide visibility to the micro-level elements of fees and charges from the fund managers, through record-keepers, and onto the participants will become table-stakes in competing for new plans. 4. Lowering Plan Fees & Charges With the advent of open architecture and investment options becoming more like commodities, plans will be won or lost based on the quality of your services and the plan fees you charge your sponsors. Automation, straightthru-processing, one & done transactions and participant self-service can all be enabled with the proper underlying technology. To be competitive in the future, all that can be automated should be automated, enabling you to lower fees. Retirement services organizations will need to take a deep look at their current technical infrastructure to assess if they are ready to support these trends or if additional technology changes will be needed in order to compete effectively. This article will engage in a highlevel examination of how the use of modern technology can be used not to only harness these four critical trends, but also to serve as the catalyst for a transformation initiative

5 4. Technology Modernization: Simplified by Today s Technology & Rigorous Planning Modernizing legacy defined contribution technical infrastructure has proven to be a very difficult challenge. Past attempts have had both successes and some failures, but each with a degree of unplanned spend, schedule and service disruptions. The reality is that with today s rules-based and service-oriented architectures, it may be not nearly as difficult to modernize your IT infrastructure as it has been in the past. Yes, it s hard work that requires total commitment from the top down, and there is of course some risk. But modernization today, if designed properly, should not be technically challenging work. The challenging part is developing your overall strategy and then organizing and managing the many activities and moving parts that are required for a successful business transformation. Today s vendors offer many modern, service-based technology solutions to satisfy all of your processing needs, including: CRM, offer management, document management, recordkeeping, trading, year-end compliance and reporting, portals, mobility and analytics. These services-based technologies, together with a well-designed service oriented architecture, can provide a foundation for a thoughtful transition from your legacy systems to the modern world. The most important step in modernizing your infrastructure starts with defining your futurestate vision, followed by creating the technical and transition strategies to achieve that vision, and finally creating the tactics of implementing them. Here are some guiding principles or prerequisite activities to consider before embarking upon a transformation initiative: Future-state Vision First and foremost is defining your future-state vision that provides both the business and IT organization with the direction it needs to define its future processes. The futurestate vision will also provide core objectives to the organization including such items as plan fee objectives, budget objectives, distribution/sales channels to be supported and other relevant information. 5. Technical Strategy: Your Digital Roadmap Following your future-state vision, your technical strategy will drive everything from how you communicate with your customers to how you create and price new products and subsequently onboard and record-keep plans. This becomes your guide to the series of investments you make and should show value throughout the transformational journey. You will likely need to allocate 4-6 months to develop and approve your technical strategy. Experienced retirement services consultants can significantly help with this process, as they bring valuable experiences from working with other record-keepers and vendors. These best practices are proven to save time, money and re-work. The outcome of your technical strategy should yield the following items (high level): Current-state technical catalog identifying reuse or replace for impacted platforms/systems

6 Future-state technical architecture defining the overall high-level design that will drive the minimum technical requirements for the software components you will consider for your new design. Integration protocols defining the points of integration and methods to maneuver through the technology fabric of your environment. Data management protocols defining how data will be created, stored, managed and shared throughout the ecosystem. Communication protocols outlining how you will communicate with all parties associated with your business: plan sponsors, participants, advisors, TPAs, service providers, internal management, etc. Workflow and document management strategy defining tools and methods for processing your business, including how work items flow through your organization and how you produce and distribute documents (e.g., letters, statements and other output). Security plan delineating all aspects of security management and data protection, from your system security and sign-in procedures to user-level security. Transition Strategy Following the establishment of your technical strategy, the creation of a transition strategy is the next logical step in the transformation project. The transition strategy will define how you will move from your existing systems to the new technical infrastructure. This will include the transition strategy for the business functions, the plan migrations from your legacy systems and the systems transition plan. The transition plan is critically important to the success of your overall transformation, as this plan will define your strategy to mitigate business risk. Comprehensive Project Plan Once the technical and transition strategies are completed, you will need a comprehensive project plan to implement the strategies. This effort must address all aspects of the project, including a tightly integrated project plan comprised of supporting projects and sub-projects covering the scope of your transformation initiative. It will also include plans and processes for staffing, vendor sourcing, change management, risk mitigation and contingencies, project governance, reporting, quality assurance and plan migration. The project plan will enable your organization to effectively estimate and budget for the endeavor, a process that should ideally start in the earlier stages of the planning process. Your plans must minimize the risk of creating services disruptions or outages for your existing operations. Not everything need be implemented at once. Phasing-in capabilities and systems is an excellent way to mitigate risk, even though it may require redundant effort. Keep what s working well and can fit within the new eco-system. You don t need to replace everything. Make sure your team is familiar with the modern technology available in the market today. It will help stimulate thoughts and ideas that you may use in the design of your new infrastructure. Take the time to evaluate and select the right technology partners and have your plan reviewed and critiqued by industry experts. It may take six months or more to build the - 6 -

7 right plan for your company, and several more to have it thoroughly reviewed, edited and finalized. 6. Conclusions Retirement industry providers are all faced with addressing the challenges imposed by current market trends. 1) Participant Demand for Digitalization and the move to e-delivery 2) Ongoing Dynamic Regulatory Environment 3) Plan Sponsor and Participant Level Transparency 4) Ongoing Pressure on Fees and Expenses Are these simply trends, or are they opportunities for business transformation? Should the effort of migrating to e-delivery be viewed in isolation, or as a catalyst for something larger? It is our view that each of these challenges can be addressed with today s modern technologies, and if properly executed, the results can be game changing in terms of efficiency, responsiveness and your ability to compete effectively in an evolving market. The key to your transformation is to understand the full potential of what is possible based on today s technologies without being constrained by limitations imposed on your organization. Plan ahead by developing a comprehensive technical strategy, transformation strategy and implementation project plan, and consult with the experts. Ron Karam is the President of Sapiens North American Retirement Services and Insurance Division. An eighteen year veteran of the life and annuity business, he is now focused on - 7 -

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