Lumley Insurance NZ enables more proactive financial management

Insights from scenario planning help the business prepare for whatever the future holds

Published on 20-Jul-2012

"This first project was a highly visible success, because it gave our employees a very tangible example of what analytics could do for them ... the ability to get updates on a daily basis – instead of just at the end of the month – makes a huge difference to their ability to make timely decisions." - Tim Bowen, Financial Controller, Lumley Insurance New Zealand

Lumley Insurance NZ


Deployment country:
New Zealand

BA - Business Analytics, Business Integration, Business Performance Transformation, Enabling Business Flexibility, Information Integration, BA - Performance Management, Small & Medium Business, Smarter Planet

Smarter Planet:
Smarter Insurance

IBM Business Partner:
Cortell New Zealand


Lumley (New Zealand) is the third largest general insurer in the country. Part of the Wesfarmers Group, it employs more than 600 people at its head office in Auckland and other sites around the country. The company focuses on underwriting and claims handling, and its policies are sold by a network of independent brokers. It also provides insurance services for customers through key corporate partners, such as banks and associations.

Business need:
Lumley Insurance NZ saw an opportunity to increase the agility of its business in ever-changing market conditions by replacing its inflexible spreadsheets and static reports with a more sophisticated planning and analytics solution.

The Lumley team worked with Cortell NZ to design a solution based on IBM Cognos® TM1®, which provides flexible management reports via the company’s Microsoft SharePoint portal. The solution allows the company to create multiple scenario forecasts for profit and loss based on claims, indirect overheads and staff costs. It also provides analysis of the balance sheet and cash flow, as well as five-year business planning.

Scenario planning enables the company to create contingency plans that help it navigate market conditions in a more agile manner. A new scenario can be modelled within minutes – a process that would have taken days with the old spreadsheet models. After the Christchurch earthquakes in 2010 and 2011, Lumley created scenarios to model the effect of potential increases in reinsurance costs on the pricing of its products – allowing the business to adapt its plans to the situation.

Case Study

Lumley (New Zealand) is the third largest general insurer in the country. Part of the Wesfarmers Group, it employs more than 600 people at its head office in Auckland and other sites around the country. The company focuses on underwriting and claims handling, and its policies are sold by a network of independent brokers. It also provides insurance services for customers through key corporate partners, such as banks and associations.

Four years ago, Lumley brought in a new executive team, who were tasked with improving the company’s financial performance. The new CFO embarked on a full review of internal processes and financial controls, and identified management information as an area ripe for improvement.

“The company had been relying on a complex system of linked spreadsheets for financial reporting and budgeting, and we saw this as a key area for improvement,” comments Tim Bowen, Financial Controller at Lumley. “To take an example: our management reports were only generated once a month, in a time-consuming process that delivered an inflexible 150-page report about five days after month-end. We wanted to give our stakeholders much faster access to more current information, and present it in a way they could understand more easily.

“On the positive side, we did have one key asset in place: we had already built a robust data warehouse that holds the vast majority of our corporate data. So the first step in our analytics initiative was to find better ways to harness the information we already possessed.”

The Lumley team decided to redesign its budgeting model from scratch, and a team from across the business worked together to define the drivers that should be included in the model, identify gaps in the available data, and bring the missing information into the data warehouse. Next, they used Microsoft Excel to create a proof of concept for the new budgeting model.

“The proof of concept was a success in that it proved that the new model was a good fit for our business – but it also showed us that spreadsheets weren’t the right tool to manage it,” says Tim Bowen. “We create forecasts down to the level of each individual channel and product, which adds up to more than 350 different combinations in total. Each combination needed its own separate spreadsheet – so it became very complicated to consolidate the results or make global changes to drivers or assumptions. We concluded that we needed a more flexible tool for financial planning, and we wanted it to be able to handle our financial reporting requirements as well.”

The team looked at the solutions available on the market, and began testing software from a leading analytics vendor to see if it would meet Lumley’s requirements.

“We spent about six weeks trying to prove the software could meet our business requirements, but in the end we couldn’t find that proof and overall we found it a fairly difficult product to work with,” comments Tim Bowen. “Then we spoke to Cortell New Zealand, who recommended using a different solution: IBM Cognos TM1. They claimed that the IBM solution could do everything we wanted, and would be easy to set up. We asked them to prove it – and they came back the next day with a proof of concept that ticked almost all of the boxes. What we’d spent six weeks struggling to achieve, they were able to do overnight!”

Choosing an IBM solution also aligned well with the strategy of Lumley’s parent company, Wesfarmers Insurance, which uses IBM Cognos technologies in its own business. Equally important was the pricing: Lumley found the software licensing costs competitive with the other solutions it had considered, and Cortell offered an attractive fixed-price deal for its implementation services.

Faster, more flexible management reporting
The first priority for the implementation was to redesign the management reporting process and replace the old 150-page hard-copy reports with a more flexible and real-time analytics platform. Within eight weeks, the team from Cortell and Lumley had created a system that drew information from the Microsoft SQL Server data warehouse and presented it in familiar profit and loss formats, enabling users to access the latest data every day.

“This first project was a highly visible success, because it gave our employees a very tangible example of what analytics could do for them,” says Tim Bowen. “They can access the reports via the company’s Microsoft SharePoint intranet portal, so it’s very convenient, and they can drill down into the data to get deeper insight on individual products, channels and customers. Most important of all, the ability to get updates on a daily basis – instead of just at the end of the month – makes a huge difference to their ability to make timely decisions and assists the finance team in understanding the monthly result well in advance of the month-end close.”

Sophisticated financial planning
Next, the project team turned its attention to financial planning. In a 12-week project, Cortell helped Lumley develop a forecasting solution for profit and loss in its underwriting business. The model draws data from the daily management reports to provide actual sales and claims figures, and loads historical policy information from the data warehouse to estimate likely new policy sales and existing policy renewals in a given period. It also includes staff costs and indirect overheads, and even predicts the likely cost of claims, using sophisticated rules to estimate claim frequencies and average claim values for each product line.

An example of the accuracy of the new models was brilliantly demonstrated in the most recent financial year, when the company’s forecast model predicted the average claim value for the private motor vehicle product line to within $2 (0.2 percent) over the twelve-month period.

“A number of our products also generate seasonal patterns for claims,” explains Tim Bowen. “For example, pleasure craft insurance claims tend to peak in the summer, because that’s when people take their boats out. Our model automatically takes these factors into account, so it forecasts higher claims in the summer months and shows the probable effect on our total costs.”

Smarter contingency planning
Among the most significant improvements that the solution has delivered are its scenario planning and “what if” analysis capabilities. These enable the Lumley team to run multiple versions of their forecasts using different parameters, and see the predicted effects on the business. Tim Bowen provides a dramatic example of how this helps the company in practice:

“The Christchurch earthquakes in September 2010 and February 2011 had a huge impact on New Zealand’s insurance industry, because it led to a major increase in the cost of reinsurance. We were sure it would increase again in 2012, but we couldn’t be certain how large the increase would be. This was a big problem because reinsurance costs affect the pricing of almost all of our products to some extent, and we needed to understand the effect of the cost increase on our bottom line.

“IBM Cognos TM1 was an absolute godsend in this situation, because it allowed us to run five different scenarios, each with the cost increase set at a different level. We could then see what the effect would be on each product line, and make contingency plans for how to price our products when the actual increase was announced. This enabled us to be much more agile and to minimise the impact of these increases on our bottom line.

“The key thing to understand is that each scenario took about ten minutes to create with TM1 – but it would have taken up to two days with a spreadsheet-based system. If we hadn’t had TM1 in place, we probably wouldn’t have had the resources to run so many different scenarios, and we wouldn’t have been able to prepare so comprehensively for the effect of this unknown factor on our business.”

It has been estimated that an earthquake on the scale of the Christchurch events is likely to occur only once every several hundred years. However, on a smaller scale, most insurance companies face similar dilemmas every year because unknown factors make it difficult to estimate exactly what provisions should be made during the budgeting period. “What if” analysis and scenario planning can help to mitigate the risk of misjudging these factors by enabling the modelling of best-, worst- and intermediate-case scenarios, and creating plans to cover each eventuality. With its high scalability and performance, IBM Cognos TM1 is an ideal solution for performing this type of analysis quickly and effectively.

Becoming self-sufficient
As a result of their engagement with the initial management reporting and profitability forecasting projects, Lumley’s in-house team gained sufficient knowledge of the IBM Cognos TM1 solution to develop further models for five-year planning, balance sheet and cash flow forecasting without any external help.

“The knowledge transfer that Cortell provided, and the flexibility of the tool itself, put us in an excellent position to continue extending our use of TM1 throughout the business,” says Tim Bowen. “We’ve consistently been amazed at how easy it is to get things done with TM1 – projects that we estimated would take months have actually been accomplished in weeks. We recently replaced our general ledger system, and it only took a day to switch TM1 over from the old system to the new!”

He concludes: “Cognos TM1 gives us the ability to deliver timely, accurate management information and forecasts to stakeholders across the business, while eliminating hundreds of hours of manual work. We’re looking forward to developing new models and finding new applications for the software that will further increase the value of our investment.”

About Cortell New Zealand
Cortell NZ is a business intelligence consultancy specialising in the provision of solutions to clients to improve business performance. The company focuses primarily on New Zealand, with offices in Auckland and Wellington. Cortell NZ is a member of the Cortell Group, which operates in Australia and the United States, and collectively provides solutions to clients as far away as the Middle East and South East Asia. Cortell has been distributing IBM Cognos solutions in New Zealand for more than a decade and holds a strong position in the local Business Intelligence market.

For more information about Cortell, please visit

About IBM Business Analytics
IBM Business Analytics software delivers actionable insights decision-makers need to achieve better business performance. IBM offers a comprehensive, unified portfolio of business intelligence, predictive and advanced analytics, financial performance and strategy management, governance, risk and compliance and analytic applications.

With IBM software, companies can spot trends, patterns and anomalies, compare “what if” scenarios, predict potential threats and opportunities, identify and manage key business risks, and plan, budget and forecast resources. With these deep analytic capabilities, our customers around the world can better understand, anticipate and shape business outcomes.

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Products and services used

IBM products and services that were used in this case study.

Cognos TM1

Legal Information

© Copyright IBM Corporation 2012. IBM New Zealand Limited, PO Box 38993, The Majestic Centre, 100 Willis Street, Wellington. Produced in New Zealand. July 2012. IBM, the IBM logo,, Let’s Build A Smarter Planet, Smarter Planet, the planet icons, Cognos and TM1 are trademarks of International Business Machines Corporation, registered in many jurisdictions worldwide. A current list of other IBM trademarks is available on the Web at “Copyright and trademark information” at: Microsoft, Windows, Windows NT, and the Windows logo are trademarks of Microsoft Corporation in the United States, other countries, or both. IBM and Cortell New Zealand are separate companies and each is responsible for its own products. Neither IBM nor Cortell New Zealand makes any warranties, express or implied, concerning the other’s products. References in this publication to IBM products, programs or services do not imply that IBM intends to make these available in all countries in which IBM operates. Any reference to an IBM product, program or service is not intended to imply that only IBM’s product, program or service may be used. Any functionally equivalent product, program or service may be used instead. All customer examples cited represent how some customers have used IBM products and the results they may have achieved. Actual environmental costs and performance characteristics will vary depending on individual customer configurations and conditions. IBM hardware products are manufactured from new parts, or new and used parts. In some cases, the hardware product may not be new and may have been previously installed. Regardless, IBM warranty terms apply. This publication is for general guidance only. Photographs may show design models.