For some companies, a roadblock is the markets way of telling them to forget trying something new. For others, roadblocks offer challenges to test their ability and acumenonce past those barriers, the effort seems worthwhile. For Farmers Life, a division of Farmers Insurance Group, there were two huge barriers of entry into the variable annuity market, according to Harris Mortensen, director of annuities and variable products. The company needed both a distribution system and an administration system.

Its network of captive agencies would have to get out their textbooks to study for the SEC license to solve the first barrier, but the second one, well, that would take some effort by the company.

Weve been a safe, secure, whole-life company since 1910, Mortensen said. We had been wanting to get into the variable market for a while. Its the fastest-growing segment of the life market.

The policy administration system that Farmers had used for its whole life business worked fine for 20 years as long as we didnt change it, Mortensen said. But variable products involve lots of transactions compared to whole life products. So the company was faced with three options: We could buy a system, build our own, or outsource it, he said.

Farmers formed a task force to make a risk analysis of those choices and came up with four factors that had to be dealt with: time to market, the ability to handle two products simultaneously, the quality and stableness of the system, and (obviously) cost. But Mortensen said the key factor was speedbuying a system would take time that the company didnt want to waste.

So the company determined that outsourcing would be the quickest way to go. It identified three vendors that could handle their needs, but not all of them were in as big a hurry as Farmers. One company was going to make us wait for a year because of commitments it had with other customers, Mortensen said.

Farmers settled on McCamish Systems, signed an agreement in early 1999, and the race was on to bring the company to market. Implementation was begun in August 1999; Mortensen said he promised the agents the system would be ready to go by the first quarter of 2000, and I wasnt going to go back on that promise.

Amazingly, the two sides were able to complete the project in six months, but not without a lot of time and energy. It was painful, Mortensen admitted of the installation. I qualify that with the fact that we met our target date. In this case, I think the ends justified the means.

Mortensen said that one of the problems was that McCamish was new to the retail market. Their perspective was different, but we were not experienced with outsourcing. This was the first big outsourcing initiative in the 90-year history of our company, he said. The project was bigger than we had identified, but we werent going to give in on the target date, Mortensen said. There was a lot of overtime, a lot of extra work.”

The thrill of getting the product delivered on time was tempered by the fact that a lot of work still had to be done. The day two stuff took us about a year, he said.

Four years ago, when Farmers Life first contemplated the move to the variable market, none of its agents were licensed by the SEC. Today, 4,000 have their license. Everyone told us that getting into the market would be painful, Mortensen said. We underestimated the effort, but we got to market when we wanted and were creating volume to cover our costs. The only thing that would make our agents happier is a better market.

But as much as he would like to, Mortensen is not going to guarantee thats going to happen in the next six months.

Robert Regis Hyle

The Problem: Entering the variable annuities market in a very short period of time.

The Company: Farmers New World Life
Lines: P&C, life, annuities
Net Income: $169.6 million
Web site: www.farmersinsurance.com

The Solution: McCamish Systems VPAS Life
Web site: www.mccamish.com

Special Reports /

Farmers New World Life/McCamish Systems

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