Since the beginning of the decade, it's been pedal to the metal for AAA Life Insurance Co.. The organization, which offers term and universal life products, fixed annuities, and travel accident insurance to AAA members, has grown from 75 employees in 1999 to a staff of 400, supporting more than 800,000 customers and more than $1.1 billion in assets.As AAA Life's business began to accelerate at breathtaking speed, the organization's managers began to see some treacherous bumps and obstacles on the road ahead. The company lacked an enterprisewide system for watching and managing costs within the various business units. With relentless hiring and increasing costs of doing business, managers needed a clear, single view of where more gas needed to be applied to boost business, and where the brakes needed to be applied to curb spending.
AAA Life's challenge was that it lacked an effective means to gather and analyze enterprise information, according to Jay DuBose, chief financial officer of AAA Life Insurance Co, and, until recently, acting CIO. Budgeting and planning were being conducted on Excel spreadsheets, he explains. Along with ad-hoc spreadsheets, much of the organization's budgeting data was locked up in an IBM AS/400 system that was only accessible via character-based green- screen terminals. "We were spending about 85% of our time just accumulating, balancing, and validating the information, and only 15% to 20% of our time actually analyzing the numbers," says DuBose.
The goal was to put an enterprisewide data management strategy in place. "We had a lot of business units that were not looking at certain metrics; not using information to manage their business," DuBose explains. "We needed an enterprisewide strategy to use data and help us make better business decisions with that information." In addition, DuBose said, while AAA Life is not a publicly traded company, it still wanted to meet Sarbanes-Oxley requirements for supporting embedded controls within its data management and reporting processes. "There were not sufficient controls built in Excel to support the requirements," he says.
Need for business intelligence
Headquartered in Livonia, Michigan, AAA Life Insurance Co. is jointly owned by three of the largest American Automobile Association (AAA) clubs in the United States: AAA of Southern California, AAA of Northern California, and AAA of Michigan. The company comprises five affiliated life insurance companies; and together the companies at the end of last year had about $37 billion of life insurance in force.
To make data more available across its enterprise, AAA Life recently rolled out tools from Ontario-based Cognos Inc., including the vendor's Planning tool and PowerPlay analytical front-end environment. Cognos Planning is a client/server-based integrated solution for planning, budgeting and forecasting. The tool, typically used within finance departments, integrates operational and financial planning in real time for visibility into resource requirements and future business performance.
PowerPlay is online analytical processing (OLAP) tool that draws information from relational databases to model and build cubes, or data sets, that can contain tens of millions of consolidated rows of data and hundreds of thousands of categories. Business rules and calculations (percentage growth and market share change, for example) can be built right into them, and time-series analysis is delivered automatically.
The business intelligence and reporting tools will help the insurer's executives and area managers access integrated data and create up-to-date performance reports that can be measured against forecasts, says DuBose.
The most immediate goal is just to be able to have all business units working with the same information, within the same context, he says.
"We had people in marketing who were pulling information under certain assumptions, and the financial reporting people were pulling the same information, but using different assumptions," he explains. "We were not using consistent information across the organization."
Human resources and beyond
The first area AAA Life is tackling is its human resources and payroll system. "Salaries and employee benefit costs are about 70% of our expenses," says DuBose. The new system, which is scheduled to come online this month, will match secured human resources and payroll information-synchronized with the company's ADP payroll reporting database-against cost and budgeting data coming off a general ledger system on the AS/400. "We do a lot of analysis of our headcount by cost center," he says. "Until now, we've been working with five or six Excel spreadsheets that had to be reconciled together. We had to make sure managers had the right number of employees on their headcount reports, tied into the right dollar amounts in the salary sheets, and tied into their benefit expenses. So if we needed to decide whether to cut back on hiring, we had to go through a whole process of revising those spreadsheets."
The goal of the new program, DuBose says, is to be able to "enter human resources information all at one time, and have it automatically update all headcount reports, as well as generate the capital projections for the capital costs associated with a new employee." The Cognos environment "will also automatically calculate all the employee benefits costs and payroll taxes," he says. "Because human resources is such a significant expense to us, it gives us the ability to make changes quickly in the system, and based on certain assumptions on bonuses percentages, certain assumptions on annual increases, we can have some flexibility on how we add those or analyze those pieces."
AAA Life has also tied Cognos Planning to its fixed asset accounting system and discretionary expense reporting as part of this first-phase project, DuBose notes. "This is a new front end for the managers to use. Previously, they used Excel spreadsheets to build support for their travel, training, and other discretionary expenses. We would have to re-input those into our expense management system on the AS/400. We've rebuilt the front-end interfaces in Cognos, which look very similar to the Excel formats." The front-end screen also incorporates pre-formatted key assumptions, such as airfare and hotel rates, DuBose says. "We've simplified a lot of those processes within those Cognos worksheets. They enter their data into Cognos, and it all rolls up into our system."
In the next phase of the project, DuBose hopes to extend reporting and analysis capabilities deeper into AAA Life's various business units. "We want to be able look at expenses and variances in production volumes," he says. "For example, we may want to look at how are we going to manage expenses with a 10% reduction in production, or with a 10% increase over our budgeted amounts of production. We want to see how that will impact our expenses on a per-unit or per-policy basis."
Controlling expense growth is now a key challenge for AAA Life as it continues to expand and add customers and staff at an incessant pace, DuBose explains. "AAA Life is projected to grow at a 15% to 20% rate each year for the next five years. We really need to be able to manage our expenses, since we have a fairly high overhead, and fixed-cost percentage today. It's critical for our individual managers to be able to continue to reduce their per-units expenses for their cost centers."
Joe McKendrick is a business writer based in Doylestown, Pa.
