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Admin costs rising on outdated systems

The cost of administering life and pension policies by providers rose last year, dealing a blow to companies trying to operate within the 1 per cent price cap.

The average annual cost of administering a policy rose by 10 per cent to £28.27 in 2001 from £25.60 in 2000, according to research from software company Marlborough Stirling based on life offices&#39 returns to the FSA.

Marlborough Stirling believes the increase, which covers the cost of running contracts and not up-front distribution costs, has been fuelled by inc-reased costs of compliance and salary inflation.

It argues that some life companies are failing to heed the warning in the Sandler report that legacy computer systems, some of which date back to the 1970s, need to be modernised so providers can compete in a price-capped market.

The Sandler report calls for fully automated systems where data input by IFAs needs no further manual intervention from product providers.

Marlborough Stirling group development director and co-founder Chris Ryland says: “To survive as a provider offering mass-market products under the 1 per cent price cap, the annual cost of running the policy, excluding new business, needs to be in the region of £10 a policy.

“In his report, Sandler calls on the industry to tackle the implementation of end-to-end electronic processing and replace 20-30-year-old legacy systems which are inhibiting change.”

Legal & General public relations manager (distribution) Peter Timberlake says: “In the days of 1 per cent, all ways to drive cost out of the process are crucial. Driving waste from your back-office system means your cost-efficiency is improved which is the key to success in an environment where margins are under pressure.”

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