“Experiences are as distinct from services as services are from goods.”

Flexible FuturesIntegration and Migration

To Achieve Value Chain Results

Kevin S. Kelly,Managing Director – U.S. Insurance Industry,

Microsoft Corporation

“Experiences are as distinct from servicesas services are from goods.”Joseph Pine & James Gilmore, The Experience Economy:Work Is Theatre & Every Business a Stage

experience

experience

experience

enhancement

improvement

innovation

customer employee operations

experience

customer employee operations

experience

• Choice of methods for interaction• Choice of products and services• Speed of delivery• Accuracy in detail• Competitive pricing• Brand-based value-adds

customer employee operations

experience

• Enhanced productivity• Confidence in applications• Intuitive interfaces• Fewer keystrokes to destinations• Reasonable workflow• Appearance of competence to customer• Ability to achieve “customer hero” status

customer employee operations

experience

• Return on non-discretionary investments• Effective operations risk management• Efficiency - Once and done• Quality, aggregated & timely reporting• Agile business process change without

rebuilding whole organization

Industry Challenges

•Customer satisfaction and retention•Growth and quality of business•Human-intensive, paper-bound workflows

•Poor distribution channel integration •Regulatory compliance pressures •High legacy system costsexperience Frustration!

Policy Administration Systems

•High-Cost of Maintenance/Development

•Business Demands Now Exceed Capacity to Deliver Regularly

•Workflow Desires Meet Temporal Roadblocks … A Dictatorial Platform

•Innovation and Differentiation Are Preventedexperience Frustration!

customer employee operations

experience

“For specialty lines, our phone quotes reduced from 800 per month to essentially 0 and our policies written from 400 to essentially 900.“

- Unitrin“We lowered our ratio of support staff to underwriters from two staff members per underwriter to .5 to .75 members per underwriter.”

- Transamerica Reinsurance“This application has allowed Farmers to be much more responsive to our customer needs. We’ve been able to reduce our rental car payment process between 30 and 40 percent.”

- Farmers Insurance

customer employee operations

experience

“Based on our Test Drive experience, this architecture fully supports our future product needs and transforms our product development process from a system driven to a business driven process. This new platform will help us to improve our speed to market capability and reduce our costs enabling us to remain competitive. As an added bonus we will be able to convert our existing annuity products onto this same platform which will result in cost and operational efficiencies.”

- Merrill Lynch

customer employee operations

experience

• November 2002– Total plans written -

1769 (8 plans per Advisorper annum)

– Advisor Penetration - 79%

– Close ratio - 40%

• Year to Date Q1 2004– Total plans written -

2349 (47 plans per Advisor per annum)

– Advisor Penetration - 99%

– Close ratio – 62%

HSBC Bank USA - Financial Planning Services

Point-of-Sale & Service

Underwriting

Policy Administrati

on

Claims Processing

Reinsurance

Product Dev &

Configuration

customer employee operations

business process management

The Microsoft Insurance Value Chain

service oriented architecture+

experience

16

What Is The Insurance Value Chain?

A Business and Technical approach for delivering:

enhanced, improved and innovative

for our insurance customers

experiences

17

Effective Organizations

Effective Organizations

OperationalExcellence

OperationalExcellence

SuccessfulRelationshipsSuccessful

RelationshipsCustomer

Employee

Operations

A Results-Oriented Approach …

18

Self-Service ExperiencesSelf-Service ExperiencesSelf-Service ExperiencesSelf-Service Experiences

Assisted Service Assisted Service ExperiencesExperiences

Assisted Service Assisted Service ExperiencesExperiences

Tracking, BPM / Workflow, ComplianceTracking, BPM / Workflow, ComplianceTracking, BPM / Workflow, ComplianceTracking, BPM / Workflow, Compliance

InquiryInquiryInquiryInquiry CollaborationCollaborationCollaborationCollaboration

Search and Delivery ExperiencesSearch and Delivery ExperiencesSearch and Delivery ExperiencesSearch and Delivery Experiences

AnalysisAnalysisAnalysisAnalysis

OperationsOperationsOperationsOperations

Employee Employee Employee Employee

CustomerCustomerCustomerCustomer

Business and Technical Systems ExperiencesBusiness and Technical Systems ExperiencesBusiness and Technical Systems ExperiencesBusiness and Technical Systems Experiences

DevelopmentDevelopmentAdministrationAdministration Risk Mgmt.Risk Mgmt.

TransactionsTransactions ReportingReporting R.O.I.R.O.I.

Develo

pm

en

t / Inte

gra

tion

Tools

Develo

pm

en

t / Inte

gra

tion

Tools

Develo

pm

en

t / Inte

gra

tion

Tools

Develo

pm

en

t / Inte

gra

tion

Tools

… Through Connected Experiences

19

20

“experiences” to be expected …•Workflow unimagined, becomes possible•Applications can be “orchestrated” and

“composed” into logical “processes” that support the functions of the humans who need to use them

•IP Assets (yours and those of third-parties) can be summoned and “knit-together” to be utilized in unique and highly customized ways

•Productivity can be assumed and increased … not threatened or reduced

•Costs can be managed and reduced•Outcomes can become more predictable

21

How Are We Executing?

22

We are taking the industry from a segregated set of “siloed” … non-interoperating business processes …

… to a streamlined set of integrated applications, workflows and platforms …

… all while reducing the overall costs of deploying, modifying and maintaining those processes.

How Are We Executing?

• Sourcing Microsoft applications that are best-of-breed examples of insurance business processing, ranging from point-of-sales-and-service through re-insurance.

• Providing those partners with a “framework” for integrating their applications, based on Microsoft .NET Web Services and industry standards for Forms andEDI transactions.

• Pairing and Pre-integrating those applications, in an effort to reduce millions of dollars of post-purchase integration pain on the part of ourinsurance customers.

How Are We Executing?

• Sourcing Microsoft applications that are best-of-breed examples of insurance business processing, ranging from point-of-sales-and-service through re-insurance.

• Providing those partners with a “framework” for integrating their applications, based on Microsoft .NET Web Services and industry standards for Forms andEDI transactions.

• Pairing and Pre-integrating those applications, in an effort to reduce millions of dollars of post-purchase integration pain on the part of ourinsurance customers.

How Are We Executing?

Insurance Value ChainApplication Areas

Accounting

Agency SystemsGeneral Ledger

Distribution and Service Channels

Financial Management Systems

Support Systems

Reporting and Analysis Outside Networks

Call Centers

Internet

Financial Reporting

Regulatory Reporting

MIS

Compliance

Asset/Liability Mgmt

Appraisers

Insurance Bureaus

Reinsurers

Compensation Mgmt

Product Development

Actuarial

Fraud Detection

CRM

Core Insurance

Underwriting

Policy Administration

Claims/Benefits

Underwriting

Policy Administration

Claims/Benefits

Product 1

Product 2

Investment Acctng

Billing & Collections

Claims Adjusters

Wireless

Attach & Integrate

Lift & Shift

Replace & Innovate

Attach and Integrate:Enhance and Extend Features and Functions

•Risk Mitigation on Code, Code Skills and Platforms

•“Nibble around the edges”•Drill into existing platforms to provide access

to data and business logic from new user interfaces and new systems.

•Integrate existing assets with newly developed or purchased assets

•Trying to workflow-enable legacy systems•Provide capability of accessing IVC partner

applications, tools and/or services

Lift & Shift:Improvement of Platform and Economic Operations•Risk Mitigation on Code and Code Skills•“Lift” legacy application code off of the mainframe

and place it in a COBOL.NET run-time environment•“Shift” underlying hardware and operating system

with Intel Platform and Windows 2003 Server•Preserve existing code and coding skills•Alter the economics and performance of the

underlying platform by changing Hardware and Software Licensing models

•Provide capability of accessing IVC partner applications, tools and/or services

Replace & Innovate:Becoming Agile and Dynamic … It’s time!

•Risk Mitigation on business-demand lapses and competitive advantage

•Bring data and Business Logic over to new systems

•Take full advantage of new applications and innovation

•Most flexible

• Sourcing Microsoft applications that are best-of-breed examples of insurance business processing, ranging from point-of-sales-and-service through re-insurance.

• Providing those partners with a “framework” for integrating their applications, based on Microsoft .NET Web Services and industry standards for Forms andEDI transactions.

• Pairing and Pre-integrating those applications, in an effort to reduce millions of dollars of post-purchase integration pain on the part of ourinsurance customers.

How Are We Executing?

DevicesDevicesInformationInformation

PeoplePeople SystemsSystems

.NETSoftware to connect information, people, systems and devices

NetworkingNetworking

DataDataManagementManagement

UNIX SystemsUNIX Systems

XMLXML

Web Web ServicesServices

Industry Industry StandardsStandards

LanguagesLanguagesApplicationsApplications

IdentityIdentity

Legacy Legacy HostsHosts

Interoperability

A Global Workflow PlatformIntegrating people and processes

Web Web servicesservices

People and People and processesprocesses

Direct Direct connectionconnection

ss

BusinessBusinessNetworksNetworks

PersonalPersonalNetworksNetworks SocialSocial

NetworksNetworks

Value ChainValue ChainNetworksNetworks

CustomerCustomerRelationshipRelationship

NetworksNetworks

ScientificScientificNetworksNetworks

Connected NetworksWiring-up people and processes through software

•Advanced Web services•Workflow and Process control •Empowers the Business-side•Real-time or Real-enough-Time•“Reuse” made real!

•Advanced Web services•Workflow and Process control •Empowers the Business-side•Real-time or Real-enough-Time•“Reuse” made real!

Connected SystemsSOA (Service Oriented Architecture)

• Align IT assets & business vision• Infrastructure to enhance information flow

through customers, employees and operations• Leverage and adapt existing investments• Build systems that reflect the dynamic nature

of business– “Future-proof” systems (through loose coupling)– Simplified cross platform integration– Secure, Transacted and Reliable business

• .NET creates them by default & helps incorporate existing applications

Connected SystemsSOA (Service Oriented Architecture)

Microsoft Working with All Financial Services Standards

X9NACHAECCHO

Competitive Information

• How is .NET stacking up against JAVA for developer preference?

• How is the Intel platform stacking up against Mainframe performance?

• How does the Intel platform stack up against Mainframe pricing?

• What do price/performance futures look?

“Which one platform will be used for the majority of

your development work in 2004?”

Source: Forrester, May 2004

Professional Developers (US)

Mainframe Performance vs. 32-bit Intel CPUs

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1980 1985 1990 1995 2000 2005

Intel

MF

0

1

10

100

1,000

10,000

1980 1985 1990 1995 2000 2005

Intel

MF

Sources: Intel MIPs – IntelMF MIPS – Gartner Group

Alsop’s Prediction

MIPS Performance per CPU Same data, logarithmic axis

“I PREDICT THAT THE LAST MAINFRAME WILL BE UNPLUGGED ON MARCH 15, 1996.”

Stewart Alsop, InfoWorld, March 1991

Typical System Comparison

Unisys ES7000 IBM z990 15 way

16 Way System $200,0005 $4,482,0001

16 CPU OS License $ Included $1,177,000 / yr2

32 Gig RAM $ Included $320,0003

1.2 Terabyte Disk $ Included $78,0004

1 Gartner Research – Mike Chuba2 Gartner Research – John Philps, http://www.zjournal.com/PDF/Phelps Article.pdf 3 IBM price reduction press release Aug, 20034 $65 per gigabyte for IBM ESS 1.2 terabyte systems, which is the benchmark case5 Unisys pricing from Unisys sales desk – 16 x 2GHz, 32 GIG RAM, Data Center, 1.2 TB RAID

10x

12x

15x

19x

23x

28x

2.5x 2.3x 2.1x 2.0x 1.8x 1.7x1x 1x 1x 1x 1x 1x

0x

5x

10x

15x

20x

25x

30x

2004 2005 2006 2007 2008 2009

Mainframe

Large SMP Intel

Single Intel

Hardware Price/Performance: The Gap Will Widen

Ratios include server infrastructure hardware costs required to deliver standard data center operations (e.g., application development, testing, quality assurance, agility, high availability), but exclude software and personnel costs.

Source: Meta Group

• Sourcing Microsoft applications that are best-of-breed examples of insurance business processing, ranging from point-of-sales-and-service through re-insurance.

• Providing those partners with a “framework” for integrating their applications, based on Microsoft .NET Web Services and industry standards for Forms andEDI transactions.

• Pairing and Pre-integrating those applications, in an effort to reduce millions of dollars of post-purchase integration pain on the part of ourinsurance customers.

How Are We Executing?

Company ACompany A

Remote Office/Consumers

MobileEmployees

Company BCompany B

Customers Partners Suppliers

Remote Office/Consumers

MobileEmployees

We Are Fulfilling a Technical Imperative

CustomerIntimacy

“Understanding”

Operational

Efficiency

“Consistency”

ValueChain

“Throughput”

Core BusinessPractices“Sense & Act”

EmployeeInnovation

“Leadership”

And Delivering Business Results

Solid financial performance

Best partner ecosystem

Unparalleled investments

Vision and roadmap for the future

Business and industry leadership

The Next Wave: Microsoft Vision, Leadership and Results

The Microsoft Insurance Value Chain

The best way to

Kevin KellyManaging Director – U.S. Insurance Industry, Microsoft Corporationkevkel@microsoft.comhttp://www.microsoft.com/insurance

Questions?