Time to Retire Retro Reconciliation Tools?
Information Management Online, February 9, 2009
By Bill Kenealy
Despite being one of the most fundamental business processes an insurance company performs, reconciliation retains a relatively low-tech reputation. This seems especially true if reconciliation is held up against other core systems such as policy administration and claims systems, which have been the beneficiaries of much new technological blood in recent years. Even with new reconciliation technologies available, many companies cling to manual methods of assuring that correct and legitimate data is posting to their financial systems.
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Addison, Texas-based Trintech Group PLC estimates that as of 2004, more than half of all reconciliation processes were done with spreadsheet tools, semi-manual and manual processes, or partially by systems of record. As of 2007, Trintech estimates that only 20 percent of these manual activities had been converted to automated systems.
Yet, this may be changing. According to Trintech, spending on reconciliation and transaction process management solutions by insurance companies is growing faster than overall IT spending.
Two large forces may be behind this trend. The first, largely external, force is the advent of tougher compliance regulations for insurance companies. If the passage of the Sarbanes-Oxley Act, which mandated more stringent requirements for sign-off and reporting, didn't convince insurers that the time is right to leave manual reconciliation processes behind, pending solvency requirements in Europe, and tightening accounting standards both here and abroad, may well do the trick.
The second driver is the realization that financial reconciliation data is an important feedstock for the business intelligence and predictive analytic efforts becoming increasingly prevalent within insurance operations. A modern reconciliation system can help insurers transmute raw data into actionable decision-support information.
Taking the Plunge
Automating any long-standing manual process rarely is routine, especially in an industry as prone to exceptions as insurance. With everything from agent commission to the bank accounts tied in to a reconciliation system, they are inherently complex.
Minneapolis-based Allianz Life Insurance Co. of North America was looking for a new reconciliation solution to increase capacity, meet aggressive accounting closing periods, better manage exceptions and reduce financial risk. At the time it decided to upgrade, Allianz' reconciliation procedures were done using a spreadsheet program, which consisted of several manual, time-intensive processes. In some instances, the reconcilers were dealing with more than 60,000 transactions in a day, which was difficult with a spreadsheet program, recalls Marc Olson, controller for Allianz.
For Allianz, the move to update its reconciliation process was catalyzed as the company looked to migrate to a common general ledger in light of the company's acquisition of Fireman's Fund Insurance Co., Novato, Calif.
Allianz constructed a proof of concept test case for all three vendors vying for the account, which included sample files, use cases and requirements. One test case called for a reconciliation of 55,000 lines of detail that had to be balanced to zero on a daily basis.
As senior engagement manager for Trintech, Brad Alexander led a team that fulfilled the RFP to Allianz. Though originally designed for the retail environment, Trintech's reconciliation engine, ReconNet, is well suited for financial services industries such as insurance, Alexander says.
However, the minutiae of the insurance industry did present some unique challenges. "Going in to Allianz, it was a bit of a new environment for us," he says. "We had not seen these sorts of reconciliations before. Where a retailer may reconcile source balances monthly, an insurer will do it daily. They want to tie back to the ledger every day."
The Implementation
Allianz ultimately opted to go with Trintech. To Alexander and his team, which included a project manager and configuration specialist, this meant spending time in Minneapolis to familiarize themselves with Allianz's business before the ReconNet installation. Alexander says that, based on the sheer number of reconciliations Allianz had, the team decided that a phased approach would work best. Phase one would target 80 accounts.
To ease the implementation, the Trintech team would spend an entire day meeting with each business process owner, making sure they had the specifics down, Alexander says.
By meeting with process owners on site, the Trintech team was able to whiteboard and construct process charts to get a jump on the implementation. "We wanted to configure our software to meet their business processes," he explains. "But there's always some give and take when you move from a manual to an automated process."
Indeed, Alexander stresses that this communication is a two-way street, and in addition to listening to the process owners, his team also had to educate them about product features, functionality and methodology. "We have a standard implementation methodology that we use regardless of industry or project size," he says.
The Big Challlenge
As any project manager can attest, a large gap exists between a whiteboard and a completed implementation. The primary challenge for an insurer looking to implement an automated reconciliation product may well be assembling the data from a host of disparate systems.
"We needed files from all their core systems," Alexander recalls. "We met with the IT side and said 'these are the files we are going to need.' They knew it was coming."
Dealing with multiple legacy systems also presented some issues with timing, Alexander adds. Data sources that were relatively static were now being forced into a more transactional mode. "The multitude of source systems were inconsistent when they generated files," he says, adding that practices common in manual reconciliation, such as the future-dating of items, can throw off balances once automated.
"When going from a manual to automated environment, we came across exceptions with their systems," he says. "It's a little bit of back and forth to get what you need, but in the end we got there."
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