Ian McKenna – Consultant and director, Financial Technology Resource Centre
It is hard to think of anything which has transformed this industry as much as regulation in the last 20 years. One area that could be considered to have done so is technology. When you examine the interaction of the two more closely, it soon becomes clear that regulation is a significant catalyst for the adoption of technology – not least because many regulatory requirements can only be achieved via this route.
The generation of ever more detailed information for consumers and ever greater levels of regulatory reporting are only achievable through the use of technology. An excellent example of this, in practice, is the introduction in January 1995 of hard disclosure of commission through the use of key features documents.
Without the existence of The Exchange, then a single industry quotation platform, the production of a previously unthinkable amount of information with any illustration could have left the industry seriously struggling to meet a challenging timetable for regulatory change being demanded by a totally intransigent Treasury.
Equally, meeting this regulatory need took The Exchange from a business that was producing in the order of one million illustrations a year in the early 1990s to over 40 million by the end of the decade. In recent years, the level of quotations generated each year by The Exchange have approached 100 million, even though there are now two further portals, AssureWeb and Webline.
To understand the full extent of the transformation which has taken place in industry technology over the past two decades, one needs to consider the services which were available in the early 1980s. At that time, we were just seeing the emergence of the first online quotations using what was known as Videotex. This used dumb terminals, quite literally a very basic monitor with a primitive modem and a keyboard, to access bureau services via a dial-up telephone line. These machines had no local memory at all.
The early players were IBM, British Telecom Insurance Services and Istel, which was then a subsidiary of Rover Cars. The Istel service was, in fact, the progenitor of what we today know of as The Exchange.
After a management buyout, it was subsequently acquired by AT&T and under the Inview brand was one of the original elements of the Exchange service when it was established in 1991 as a joint venture between AT&T and 12 insurers which held their ownership via Origo. The insurers held two-thirds of the equity, AT&T the remainder.
The original plan had been for BTIS and AT&T to each hold one-sixth of the equity. However, BT declined to participate. As a consequence, more and more insurers gradually removed their rates from the BTIS service and within a few months it lacked the critical mass it needed to be a viable player in the market.
There is a salutary lesson here for Vertex, the new owner of The Exchange, should it be tempted to over-leverage the dominant position of the Exweb portal.
Videotex offered very simple comparative premium services, primarily for mortgage endowments and protection, together with individual illustrations from a wide range of providers. Even at the end of the last millennium, a small number of advisers clung to the old Exchange Videotex services and it was only possible to kill them off because of the millennium bug. The service was never Year 2000-compliant and there was no commercial justification for making it so.
With high-speed full-colour laser printers capable of producing photographic quality output now widely available for under £1,000, it is easy to forget that 20 years ago we were reliant on noisy dot matrix printers, with the earliest LaserJets costing thousands of pounds.
Another form of printer that was very popular in supporting Videotex services was the thermal paper printer. These produced a simple dump of what was on the screen and were frequently referred to under the less-than-complimentary sobriquet of “bog roll printers “ because of the similar size of their output to a certain janitorial product. These could then be presented to the client together with wrap-arounds – quality brochures from insurers inside which these low quality prints would be mounted.
It is also worth remembering that access speeds for online services 20 years ago were a tiny fraction of those today. A typical modem speed for Videotex was 1,200bps. If you were really lucky, in some areas you could dial into a super-fast 2,400bps service.
In other words, a typical broadband connection today of1Mb is over 400 times faster than the best service you could expect to access when Money Marketing was first published.
Another major technology event of 1985 was the launch of the first mobile phones. This was a technology quickly embraced by the pre-regulation advisers of the day.
While the majority of these early phones were car-based, the first portable phones were more accurately known as luggables, weighing many pounds and with only about one hour’s talk time between charges. These bore little resemblance to the 100 grams or so that now live in the pockets of virtually everyone.
Ironically, a combination of two new technologies looks destined to radically revise the way that people use and pay for both lines and mobile telephony in the next few years. These are WiMax, the next generation of wi-fi connection that will be able to operate wirelessly at distances of several miles rather than tens of metres, and Voip (Voice Over InternetProtocol).
No summary of technology changes over the last 20 years could be complete without looking at the worldwide web. Given to the world in 1993 by Tim Berners-Lee, it is hard today to think of what the world might be like at the beginning of the 21st Century without the web. It has revolutionised the availability of financial information in ways that would have been inconceivable when the first issue of MoneyMarketing appeared.
Before the web, the standard forms of business-to-business electronic commerce were built around EDI (Electronic Data Interchange), a now very dated technology where information was delivered via expensive gateways and charges were made by suppliers on the basis of each kilobyte of information transmitted on a sender-pays basis. While the internet had existed for many decades without the worldwide web making it a medium for the masses, the majority of the online services on which advisers rely today would need to operate using very different financial models and would almost certainly be more expensive.
One thing about technology is certain – it is an essential part of the evolutionary process. Those businesses that cannot rapidly adapt to the changes it brings run the risk of rapid extinction and, if you do not make the effort to understand new technology as it emerges, you are walking a dangerous path. To demonstrate this, I would look at two companies with very similar names, both very much part of the industry 20 years ago but which are now in very different situations.
By 1985, Friends Provident had already established itself as one of the industry’s leaders in the use of technology – a position it can certainly still claim today, enabling the company to keep its expenses as some of the lowest in the financial services industry.
By comparison, in the early 1990s, another life company invited me to the launch of a new ratebook-based illustration system. This allowed advisers to use look up tables to predict a client’s potential income shortfall in retirement and estimate the additional pension contribution needed to meet that shortfall.
Impressed by the potential of the service, I innocently asked if there was any chance of a disk-based version of the service emerging. I was promptly put in my place by the marketing actuary leading the presentation, who pointed out to me that a computer could never do what a ratebook could do. It did strike me at the time that this might be a rather Luddite attitude and did cause me to seriously reconsider putting business with this company in the future.
The name of the company involved? Provident Mutual, and we all know what happened to it.