One example of a bank broadening its horizons is Chase Insurance Group, formed in the mid-90s as part of J.P. Morgan Chase & Co. We have evolved, beginning with credit insurance and moving into life products, auto, homeowners, and employee benefits, says Paul Petrylak, senior vice president of Chases Regional Banking Group. And were among the lead banking distributors of insurance products.

Chase recently introduced its first in-house underwritten insurance product, a fixed annuity. Petrylak says customers think of it as more of an investment product than an insurance product. The economics for an annuity are competitive, but our competitive advantages bring a higher return on equity than a traditional underwriter, he says.

A third-party carrier normally pays a six percent distribution fee to financial institutions for selling their product. Since Chase is now underwriting its own annuity, it can save that six percent. The product was easily assimilated into Chases current environment. Since the firm has been selling annuities for several years, underwriting its own product was a natural step.

Within Chase Insurance, we have a carrier management and new product development group. The product was developed within that group, with the addition of a third-party administrator (TPA). So the TPA adds the capabilities we didnt already haveits definitely an outsourced solution, explains Kevin Rice, vice president of the customer solutions group.

The end-to-end process works like this. The customer fills out a paper annuity application, which is then sent to a unit in the bank that consolidates all the applications and forwards them to the carrier. The carrier completes the applications and sends a feed back to Chase through the National Securities Clearing Corporation (NSCC), which provides clearance, settlement, and information services to the securities industry. The NSCC sends information back to Chases processing systems for posting to the master customer information file, to the investment data mart, and to the commission payment systems. Right now its a fairly upfront manual process that were looking to automate within eight to 12 months, adds Rice.

Chase uses its own distribution channel of brokers, which it calls Personal Financial Advisors (PFAs). Were working toward providing insurance solutions through financial planning for a targeted customer basethose with $250,000 or more in investable assets, explains Petrylak. Insurance is a natural component of a financial plan.

Having brokers sell insurance products is a program Chase initiated last year. Its a natural transition for a PFA to incorporate selling insurance along with other investments. Once they become more familiar with the product and integrate it fully into financial planning, well have greater success. Were moving in that direction, Petrylak says.

Insurance and IT Working Together

At Chase, insurance and IT work hand in hand to improve cost efficiency, product availability, and client data mining, which determines profits and the level of client service. We integrate customer information from a data mining perspective, and we use that information in our target marketing, explains Rice.

The carriers that underwrite the various products provide the customer information through tapes, data feeds, or some other medium. This enables Chase to keep tabs on what products are being bought and by which types of clients. Within the branches, we have a platform that allows access to the customer record, says Rice. We can use those records to provide information to the rep regarding sales opportunitiesby employing an application thats designed to create more timely offers than batch updating processes. It results in a more timely delivery of event decisions to the rep.

Data mining is just one function that is outsourced. Our strategy is to leverage our existing bank systems and processes where we can and outsource the processes our systems are not designed to handle. We leverage the third-party administrator to do customer tracking and administration, notes Petrylak. Chase gets favorable pricing in this case by outsourcing the functions that are not within its core competencies. Outsourcing was key in creating higher profits for the annuity than the norm. We are able to provide variable pricing, and theres no fixed cost, he says.

The bank has insurance-dedicated servers at Pinnacle, its outsourced data center, as well as a client-server environment that allows the gathering of client information both internally and externally. We use this information for marketing purposes, explains Rice. Basically, what were doing is creating a lead file. The lead file is subsequently sent to the telemarketing vendor and the third-party carrier, which executes the campaign.

How Chase Does IT

Industry organizations integrating insurance products with other financial service offerings focus on smoothing and enhancing business processes to increase operational efficiency and improve distribution capabilities and relationships, says Johnson. As a result, these firms are focused on streamlining the organizations ability to comply with changing regulatory demands and to respond to sudden market shifts.

Chase has a good start down that road. We have some segmentation programs that point to product opportunities if we can get the right information [from the client], says Rice.

These segmentation programs are part of a decision engine, which is designed to take multiple inputs and provide a business rule based on those inputs. If youre tracking a group of customers and an event happens, such as a large deposit, a large withdrawal, or a new mortgage, that would lead to a business rule that might say, based on the activity of this customer, you should offer them life insurance, or offer them an extension on their home equity loan, says Rice.

The decision engine being deployed by Chase is not yet complete. We have the systematic piece down, but we dont have the real-time piece down yet. Were working toward that this year, he says.

By hosting all its data at a vendor and using a Web-based interface to its remote salespeople, the bank avoids having too much software or data on its remote reps laptops. Its easier to manage, and Chase doesnt have to spend the money to build a massive infrastructure. It also avoids all the costs associated with managing such an infrastructure. In selecting third-party vendors, Rice says, We do a strict due diligence and risk management profile. Its difficult to find vendors that have a lot of market experience with Web-based applications, and we dont want to be a guinea pig. So we want to find a vendor that has experience in the marketplace doing the application we are focusing on.

Future Developments

Petrylak and Rice agree the future of financial services in general lies in Web-based applications. Keeping costs down is also key, a function vastly aided by interfacing with the Web. Chase Insurance is well prepared to benefit [from this movement to the Web]. We dont have a lot of legacy systems and no mainframe applications, so theres very little or no conversion to Web-based applications, says Rice. Fortunately, since insurance is relatively new to banking, we havent built up those large infrastructures.

Adds Petrylak: Again, our strategy is not to create a lot of infrastructure. Were trying to find the best solutions, and those might not be internal. They reside at times externally, and one has to reorient ones thinking to get the best possible solution from an economic perspective and a core competency perspective through outsourcing. So, we already think, How do we get the best solutionby leveraging within the bank or outside of the Chase Insurance Group or through other partners who can provide significant scale? We work with the IT division for that purpose.

META Groups Johnson points out that banking and insurance firms in general are moving to address the management of internal data, documents, and records. Few companies are presently equipped to manage, distribute, and act upon the kind of market information needed to conduct todays business of financial services. Insurers need a robust data input channel to enhance decision-making, Johnson says, and to allow market leaders to take advantage of emerging opportunities.