Utilizing the SAP Collections & Disbursements Module for Insurance to resolve Billed (Statistical) versus Booked (Financial) Premium Differences

Presenters: Guy Brown (ConVista) & Craig Zebold (Zurich North America)SAP Americas Insurance Forum

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Zurich’s 2007 FS-CD Implementation

Defining the Problem – Why build a ‘book to bill’engine?

The Custom Solution, utilizing the SAP FS-CD module

Conclusion

Presentation Agenda

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Zurich’s 2007 FS-CD Implementation

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Zurich’s major requirements:

Provide a single platform for all receivables management activities to occur – replace many legacy systems with a single, comprehensive solution

Phase 1: Special Bill Accounts Special Bill Accounts are those predominantly Large Loss Sensitive Accounts requiring Account level premium billing to the Broker & non-premium billing to the Customer.

Support Account-Level (Premium and Non-Premium receivables) collections and receivables management capabilities – enabling the collections personnel to provide superior and efficient customer service

Provide the following capabilities:User Interface to enter Premium and Non-premium receivable transactionsCentralized and Local Invoice PrintingAutomated Dunning ProceduresAutomated Clearing RulesAutomated Workflow, Work Queue & DiaryAutomated Book to Bill (BtB) Reconciliation

Integrate with Zurich’s current financial system landscape which includes FI/CO, SL, PCA, COPA, and BW

System Selected: SAP FS-CD Module

Implementation – March 2007

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Zurich successfully implemented FS-CD on March 3rd, 2007

Benefits Achieved:

Improved service to Broker/Customer An Account's premium and non-premium (deductibles, losses, and service fees) receivables are now worked by a single Collection RepresentativeA common invoice format for premium invoicingInvoiced premium = Posted "statistical" premium receivablesEarlier recognition of a Billed (statistical) to Booked (financial) difference by Collection Representative

Improved Collections Results & EfficienciesAutomated Clearing reduces the volume of transactions requiring manual account maintenance activitiesAutomated workflows reduces manual tasks and the Work Queue improves the collection representatives' focus on their daily activitiesAutomated detection of a Billed to Booked difference reduces the manual work effort involved and provides for earlier recognition and action by the Collection Representative

Implementation – March 2007

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Defining the Problem

Why a Booked to Billed Engine?

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Why do Billed versus Booked Premium differences exist?

In an effort to accelerate cash flow, invoicing of the billed (statistical) premium transaction occurs in advance of the final rating and entry of the corresponding booked (financial) premium transaction into our financial recording system

Established Service Level Agreements (SLAs) within the Business Units (BUs) for these Special Bill Accounts require that the Invoice be generated within 5 days of Binding

Final Rating, Policy Issuance, and entry of the Booked (financial) premium often occurs after the Invoice has been distributed

Final Rating may result in a different Booked premium amount than the corresponding Billed premium amount previously invoiced requiring reconciliation by the Collection Representative

Defining the Problem

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Defining the Problem

How are the Billed versus Booked differences Resolved?

IdentificationPre-Implementation: manually identified by comparing listings from a database of invoices against the Booked (financial) premium that was entered into the receivable system

Post-Implementation: system identified subsequent to the time that the Billed (statistical) premium was invoiced and the Booked (financial) premium was entered into the receivable system

AnalysisCollection Representatives and Underwriting discuss the case and reconcile the difference

Pre & Post-Implementation: No difference

ResolutionRevise the Invoice of the Billed (statistical) premium

Pre & Post-Implementation: No differenceCorrect the coding entry of the Booked (financial) premium

Pre & Post-Implementation: No differenceAdjust the Billed (statistical ) premium amount to match the Booked (financial) premium in FS-CD

Pre-Implementation: not possible within our legacy systemsPost-Implementation: performed at a policy level within the system

Write-off the Booked (financial) premium differencePre-Implementation: performed at an installment level each time payment is receivedPost-Implementation: performed at a policy level within the system

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Defining the Problem

A Simple Example: Pre-Implementation

An Underwriter conducts a renewal on customer XYZ, for broker 123. The broker needs to get an invoice out to the customer, who needs a 12-month payment plan. Utilizing initial costing models based on preliminary information, the underwriter determines thepremium to be $1,200,000, taxes to be $2,500 and additional fees to be $500. The underwriter generates an invoice for the first installment; $100,000 in premium, $2,500 in taxes, and $500 in fees; a total of $103,000.

The broker receives the invoice, and collects $103,000 for the first installment from the customer.

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A Simple Example: Pre-Implementation

Defining the Problem

Subsequent to the Invoicing, final rating is completed and the booked (financial) premium is determined to be $1,260,000, taxes to be $3,000, and fees to be $500. The first installment of $108,500 (a difference of $5,500 from what was invoiced) and the remaining 11 installments of $105,000 (a difference of $2,000 from what was presented on the installment schedule) are posted to the legacy receivable system as the financial receivable.

The collection rep receives notice that $103,000 was received, but notes that $108,500 is due, thus manually identifying that a billed to booked difference exists at the installment level. Analysis is required and often results in calls to the broker and the underwriter to reconcile the difference. Resolution is determined and may require activity by the collection rep to occur on an installment basis, ie. Month after month.

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Impact on Collections

Broker involvement in the identification and analysis of Book to Bill differences as they are often identified as a result of the payment application process

Studies conducted prior to implementation determined that Zurich Collection Representatives were spending upwards of 30% of their time on working these Book to Bill differences

Identification activitiesAnalysis activitiesResolution activities

Cash Flow Impact caused by Collection Reps' time spent on BtB resolution vs. collection activities

To minimize these impacts, Zurich worked with ConVista Consulting to develop the "Booked to Billed" extension within FS-CD that supports;

Automated identification of the book to bill difference based upon the booked and billed transactions and not on the payment receivedBilled adjustment or Booked write-off capability applying at the policy level and not the installment levelMetrics reporting capability to manage process performance

Defining the Problem

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The Custom Solution

Utilizing the SAP FS-CD Module

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The Custom Solution

To Resolve the Problem, the following conceptual architecture, utilizing SAP FS-CD, was proposed:

Legacy System For Financial

Bookings

Legacy System For Financial

Bookings

The underwriter (team) would continue to initiate booked premium (financial) transactions entry in the legacy system, which would then feed FS-CD via an automated interface

SAP FS-CD

SAP FS-CD

Instead of creating manual invoices, the underwriter would now enter the "billed" transactions into FS-CD. FS-CD would:

Create an invoice automaticallyCreate a statistical "billed" transaction for the invoiced amounts

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The Custom Solution

A Tool would then be required, within FS-CD, to support the booked to bill reconciliation process:

SAP FS-CD

Booked to Billed Tool

"Billed"Statistical

"Billed"Statistical

"Booked"Financial"Booked"Financial

Automated Comparison

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Billed (statistical) & Booked (financial) transactions are grouped by policy systematically each night. At a policy level, the system determines if there is a booked to bill difference. Groups with no difference are closed by the system and groups with differences are identified, remain open in the Book to Bill transaction display and are aged

Reconciliation activities do not occur at an installment level even if a payment plan exists for the transactions

To assist in the analysis, links were built between the Booked to Billed system transaction and several FS-CD display transactions such as; Partner, Partner Balance and Policy Displays. A link to the custom Zurich Diary solution within FS-CD is also provided

Resolution activities requiring bill adjustment and or partial write-off of booked premium is supported from within the Book to Bill transaction

Resolution activities requiring a revised invoice or correction to the booked premium entry are performed outside of the Book to Bill transaction however, the revised invoice (billed) amount or the corrected booked transaction is received in FS-CD, the nightly grouping logic considers these transactions along with the prior transactions for the policy and will automatically close the group

The Custom Solution

The solution addresses automated identification, as well as, functionality to support analysis and resolution activities

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The Custom Solution

The Solution – A Scenario within our SAP FS-CD Solution

Suppose that an underwriter generated a one-time bill for:Premium: 10,000 Gross, 1,000 Commission, 9,000 Net DueTaxes: 750 Net DueTotal Due: $9,750

Here is our net due of $9,750, which was billed to the customer, within the SAP system

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The Custom Solution

The Solution – A Scenario within our SAP FS-CD Solution

Suppose that an underwriter now initiated the entry of the financial bookings and the bookings represent a different amount than what was billed:

Premium: 9,500 Gross, 950 Commission, 8,550 Net DueTaxes: 650 Net DueTotal Due: $9,200, a difference of $550 from the billed amount (invoice)

Here is our net booked transaction (financial) due of $9,200.

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The Custom Solution

The Solution – A Scenario within our SAP FS-CD Solution

Our collections representative enters the custom ‘Booked to Billed’solution within FS-CD to work the Booked to Billed open groups:

The system calculates the booked net, billed net, and the net difference automatically

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The Custom Solution

The Solution – A Scenario within our SAP FS-CD Solution

So what can the collections representative do about the problem?

Through a quick discussion with the underwriter, it is determined that the booking is in fact correct, and the billing is wrong. The Broker is already aware that they need only to pay the $9,200 net and does not want to receive a revised invoice. In this scenario, the collection rep will utilize the ‘adjust bill’ function.

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The Custom Solution

The Solution – A Scenario within our SAP FS-CD Solution

When the ‘adjust bill’ button is pressed, the user is presented with a summary of what will occur:

The system determines the amounts to be posted – the user can now simply press ‘continue’, the billed adjustment (statistical) transactions will post and the booked to billed issue is fixed! This group is then placed into a closed status by the system

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The Custom SolutionThe Solution – A Scenario within our SAP FS-CD Solution

All billed adjustments and booked write-offs processed out of the Book to Bill transaction follow the custom Zurich write-off approval workflow

A Link to the custom Zurich Diary solution within FS-CD exists, so the collection rep can enter comments as relates the reconciliation activities

Since the functionality works on a total dollar amount transacted basis and not on an installment basis, the correction activity occurs at one time and if the resolution involves a billed adjustment or booked write-off, the amount posted out of the Book to Bill functionality is open and available for manual clearing in the future when the installment transactions have posted

Revised Invoices and Booked premium correction entries flow into FS-CD and the Book to Bill functionality considers those newly received entries in its grouping logic and subsequently closing a previously open group. The collection rep is not required to perform any activity in this scenario.

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To Conclude:

Booked to Bill reconciliation presented a significant problem and challenge for Zurich North America prior to the SAP FS-CD solution

The ConVista/Zurich North America solution addressed all of the business requirements presented as relates the Identification, Analysis and Resolution of Booked to Bill differences

Since going live, Zurich North America has experienced improved identification and resolution of the book to bill differences, significantly limited involvement by the Brokers and an increase in the amount of time collection representatives can now devote to collection activity

Conclusion

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Thank You!

Any Questions?