Imagine a time when software was considered a dirty word by investors. This was the problem Mr Jim Maher and Mr Michael Franklin encountered in 1987 when they went looking for a start-up loan for their new company, FM Software.
"It wasn't kosher to be a software company then. We changed the name to FM Systems first, and then to FMS to almost look like a software consultancy rather than a development company. Investors in software just weren't making money at that time," says Mr Maher, FMS chief executive.
Today the Dublin-based company is in the vanguard of the US banking deregulation revolution. Its latest product, Allfinanz is providing banks with software that can offer customers life insurance in less than half an hour. With bancassurance in the US in its infancy, the potential market is vast. FMS predicts revenues of between $6 million and $7 million (€5.3 million and €6.2 million) this year. US life insurance industry figures estimate 40 per cent of US consumers have no life insurance coverage. Traditionally only the more affluent individuals have been targeted for life insurance because of the costs involved in winning business. The McKinsey group recently concluded that the average life insurance seller only returns one policy out of 100 leads.
With the relaxation of US banking legislation it is predicted that life insurance sales from banks will account for 15 per cent of the total life insurance market by 2001. The customer base is in place, and FMS is providing a cost effective product at a fraction of the usual time - minimising the risk for insurers.
Allfinanz is an intelligent application which presents the applicant with a series of logical questions normally posed by a human underwriter. One of its key features, however, is a saliva test, which can eventually be conducted in branches, replacing the need for a medical examination. The original product cost around $4 million to develop and was entirely funded by FMS.
FMS has been careful to pitch its product cautiously in the US. It immediately sought a strategic big-name partner to act as a vehicle for the product. The resultant consortium includes the third largest and fastest growing reinsurance company in the US, the Reinsurance Group of America, and a number of large unnamed US banks.
The consortium is managed by a British-based alternative distribution consultancy, TBOI Visionary Strategies, which specialises in analysing existing structures and optimising them with new technology.
Allfinanz has already been successfully rolled out to 106 Travelers Group branches - Travelers was chosen because it is licensed to trade in every state in the US. It is now about to be extended to the entire 1,200-strong chain.
Another unnamed bank has already committed to piloting Allfinanz in 250 branches, and Travelers has said it will target three other major banks in the first half of this year.
In a separate deal, FMS has just concluded business with a major financial services group, which owns 27 financial services companies and one of the biggest life insurance companies in the US. In addition, another two life insurance companies are expected to come on board in the second quarter of this year.
"We never approach the customer to conduct a jointly financed venture. We're fiercely selfish when it comes to intellectual property, because it's the only asset a software company has. By licensing the intellectual property to customers we don't have to compromise in terms of what we develop for the market," says Mr Maher.
FMS realised early, to benefit from the swell of potential business it was about to bag, it needed to change its licensing model. Instead of selling bulk commercial licences to new customers, FMS now receives a cut every time an Allfinanz policy gets sold to an individual. According to Mr Maher, the jury is still out on the success of this "per click" model, because the product has only just moved beyond the pilot phase in most banks.
However, if the consortium target to reach 10,000 branches by the end of the year is achieved, Allfinanz could generate about $250,000 per month if just one policy was sold in each branch for somewhere between $10 and $40. "Until the number of insurance policies sold reaches a critical mass we're going to be down money."
Mr Maher is acutely aware of how quickly the competition can come from behind in the software world. The company has set itself a target of producing a new product every quarter in an attempt to keep competition at bay.
Despite its rollout late last year, policies underwritten by the Allfinanz suite already extend beyond term life to whole life, health insurance and annuities, property and casualty insurance. Longer term sights have been set on a range of pension, mortgage, loan and saving products.
A recent article on the Allfinanz product range in the US Banker magazine said: "The parties involved (the consortium) believe they have the first system to automatically underwrite insurance at the point of sale, and US Banker could find no one to contradict them."
With this kind of lead time FMS is intent on pursuing careful deployment strategies. Some 80 per cent of the Allfinanz business is projected to come from the US. Mr Maher says the company is hoping to announce a venture capital investment amounting to several million dollars within a matter of weeks. The bulk of this investment will go towards FMS's US sales and marketing efforts, and the core staff of six will grow to 10 in the second quarter. Back home, the current staff of 65 is scheduled to grow by 25 this year.
FMS has been mentioned in industry circles as a likely candidate for a public flotation in the near future. But Mr Maher is not necessarily a subscriber to the theory.
"It is valid to see FMS needing access to capital markets within three years, but I wouldn't say Nasdaq would be an appropriate model for us. We are not an Iona selling to all industries, we're more specialist. We are more likely to look at the European capital market. The Easdaq exchange might be interesting in two years time."
