1. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 1 Andrew Loach Business Development Director Xchanging London Market Services 17 th May 2004

2. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 2 Not a standard presentation Asked Dr John Hindle to join us Share this discussion platform Create some balance Introduction

3. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 3 Where is the value proposition ? Is it just about cost ? Outsourcing in a global market In-house vs. outsourcing From relationships to partnerships Key themes

4. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 4 Value = Benefit - Cost What does the word value mean ?

5. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 5 Where is the value proposition ? Core Policy Human Resources Procurement Accounting Customer Administration Service Lines

6. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 6 Day 1 - Upfront investment of £10M Projected savings to the market of £30m Improved service standards in all areas Implementation of key market initiatives Efficient processes across Lloyd and IUA All the above are measurable ! The Value

7. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 7 Is it just about cost ? Legacy systems are not jettisoned – built on – use the 3 tier architecture People make it happen build Champion teams Fit-for purpose – defined and measured Six Sigma methodology – focus on reducing errors in process to eliminate rework Radical change needs to be reliably executed Aggregate and control bought-in spend Conducive to a commercial mindset – to make people feel valued – space/time, not everyone needs a desk all the time

8. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 8 In house vs.’ outsourcing Must understand the basics –Definition of Core vs Non-Core activities –Difference between Core & Critical Support Functions –Your macro level Business Processes Breakdown your macro Business Processes to their component activities Classify & record these activities as: –CoreTo be kept in-house –Critical Support FunctionsRisks / benefits to be evaluated –Non-Critical, Non-CoreCould be outsourced immediately Asking the question “What business are we in?”

9. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 9 MeasurementApproach Methodologies From As Is to Should Be Sigma Time “As Is” “Should Be” “Could Be” Application of Logic & Intuition – Quick Hits Rigorous application of 6  Methods & Tools Process Redesign Process improvement and “fresh eyes”

10. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 10 Outsourcing vs.’ in-house

11. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 11 Outsourcing in a Global market (2003 -2005) 20% of world output is open to Global competition, in 30 years this will increase to 80%

12. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 12 BPO - from relationships to partnerships

13. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 13 Business Process Partnership (BPP) Imagination IntimacyImpact Partnership

14. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 14 Caveat Emptor, the risk = “joined up delivery” Infrastructure ApplicationsServices ClaimsTUPE IMPLEMENTATION DIRECTOR IT BD EPs CS HR OPS FIN Environment Compliance ProcessProcurement ChangeTransition Due Diligence WORK STREAMS

15. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. Xchanging cost for value…… resource for service The London Insurance Market Perspectives on Outsourcing John Hindle Knowledge Capital Partners 17 May 2004

16. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 16 Research background 2002/2003 – case studies, articles, presentations –LMP Phase One –Xchanging (XIS, XCS) 2004 – “From the Eye of the Market” –Lloyd’s restructuring –LMP slips, settlement –FSA compliance To date > 75 interviews in London Market –Brokers, risk managers, underwriters, regulators, consultants, vendors Comparative global database: 450+ deal histories

17. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 17 LIM experience with outsourcing Late to the party –One of the last arrivals –Inherent conservatism Primarily ITO –86% say they have outsourced IT projects –96% say costs always exceed budget Perception of uniqueness –Both industry and Market

18. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 18 LIM views outsourcing as a set of risks 1.Control risk Flexibility Focus People Quality Compliance Disengagement

19. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 19 Risks (cont.) 1.Control risk 2.Financial risk Cost overruns Pricing anomalies Hidden charges Change fees Lack of transparency

20. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 20 Risks (cont.) 1.Control risks 2.Financial risks 3.Operational risks Lack of business knowledge Continuity Turnover Prioritisation Service, skill gaps

21. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 21 Risks (cont.) 1.Control risk 2.Financial risk 3.Operational risk 4.Competitive risk Knowledge loss Relationship cost People migration Diverted attention

22. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 22 Perception of risk dominates in LIM Control risk Financial risk Operational risk Competitive risk The biggest risk may well be.... not taking risk!

23. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 23 Knowledge Capital Partners Limited 84 Brook Street London W1K 5EH United Kingdom Tel: +44 20 7866 6152 Fax: +44 20 7866 6153 www.kcpartners.biz Specialists in the creation, identification, and exploitation of intellectual capital Contact: John HindleLeslie Willcocks john@kcpartners.bizwillcockslp@aol.com

24. Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging. 24 Starting from scratch would we do it ourselves ? Would other companies hire us to do it for them ? Will tomorrow's leaders come from this function ? Summary BPO driving the move from “Build to Buy”