White Paper - Information Lifecycle Management for the Financial

Informat ion Li fecyc leManagement for the F inancia l

Serv ices Industry

EXECUTIVE SUMMARY

Technology advances have transformed today's business environment and createdenormous quantities of data that financial services organizations retain and manage inmultiple repositories for years, and in some instances decades. The industry-wide need toretain and safeguard increasing quantities of data is forcing companies to rethink how datais stored, archived, backed up, and restored. The information technology infrastructurewithin most financial services organizations is inadequate and unable to efficiently copewith the challenges of modern corporate governance and compliance initiatives. In order toaddress these inadequacies, information lifecycle management (ILM) programs are beinginitiated across the financial services industry to help administrators efficiently manage alldata from creation to destruction by understanding and addressing the needs of differenttypes of information.

This white paper examines four examples of ILM challenges faced by financial servicesorganizations in the areas of auto insurance policy processing, home loan processing, checkprocessing, and securities trading. Although these four areas are directly discussed in thispaper, they are not the only ILM challenges for the financial services industry. Many otherareas in the industry face similar ILM challenges.

The challenges in these four areas are presented to explain how a comprehensive ILM plancan be formulated to address these needs. Each step in the process is discussed from theassessment phase, to strategy and tactical planning, and finally creating the ILMenvironment. The last section discusses how EMC has helped the financial services industrydevelop an ILM plan from creation to implementation using its products and services.

EE XX EE CC UU TT II VV EESS UU MM MM AA RR YY

Frost & Sullivan WhitepaperSponsored by: EMC

2

INFORMATION LIFECYCLE MANAGEMENT FOR THEFINANCIAL SERVICES INDUSTRY

A F ros t & Su l l i van Whi te Paper sponsored by EMCAna lys t and Author : Ja rad Car le ton , IT Consu l t ing Ana lys t

INTRODUCTION

Technology advances have transformed today's business environment and createdenormous quantities of data that financial services organizations must manage over manyyears. As recently as a decade ago, much of the data generated by business was consideredsuperfluous and it was retained or destroyed according to corporate policies or individualdecisions. Over the past ten years, however, the business climate has changed as litigation,governance, and numerous regulations now dictate which types of data must be retained,how long they are retained for, and what the retrieval criteria should be.

The need to keep these increasing quantities of data has forced financial servicescompanies to rethink how data is stored, archived, backed up, and restored. Internalanalysis and reviews have helped many organizations understand that the informationmanagement infrastructure in place is inefficient and inadequate to meet these newchallenges. Thus, information lifecycle management (ILM) programs have been initiated tomanage all content, regardless of data type, from creation to destruction by understandingand addressing the needs of different types of information.

The concept of ILM is straightforward and implies a system wherein data is analyzed for itsuses and value to the organization, and is then proactively managed accordingly fromcreation to destruction at the lowest possible cost. Over days, weeks, months, and years,data typically becomes less valuable so it is managed consistently with its importancedepending upon the business and regulatory needs such as speed and frequency of access,non-repudiable audit trails, retention requirements, and consistent data retirement policies.The high volume of data and diversity of data importance means that instituting an ILMprogram requires a multiphase implementation of hardware, software, and services capableof recognizing data types, the policies attributed to them, and their storage needs.

The ability of an ILM system to understand and apply different business rules to disparatedata types is imperative for financial services firms in order to meet business challengessuch as simple sharing of data between branch offices and headquarters, timely bill paymentby accounts payable, prompt revenue recognition by accounts receivable, facilitating legaldiscovery, and ensuring data protection. While an inherent benefit of an ILM system isimproved regulatory compliance and business continuity, minimizing cost and providingaccessibility to that data should be the focus for all ILM implementations.

In order to illustrate the ILM process further as it relates to the financial services industry,the following sections briefly describe each of the following functional areas:

• Auto insurance policy processing• Home loan processing • Check processing• Securities trading

II NN TT RR OO DD UU CC TT II OO NN


3

AUTO INSURANCE POLICY PROCESSING

Obtaining auto insurance is something most people will have to do at some point.Fortunately, most auto insurance customers no longer see a lot of paper documents whenthey apply for coverage because the information the insurance broker sends to the centraloffice is already in an electronic format. The typical auto insurance policy process beginswith the policy application and review of the applicant's driving record.

The driving record is electronically linked to an online application for auto insurance thatthe broker fills out on behalf of the customer.When the application is complete, a signaturedocument is printed for the customer to sign. An additional signature document will alsoprint if the customer elects to pay via EFT.

After the documents have been signed, a voided check is collected from customers payingvia EFT and the documents are imaged at the branch office. After the documents are imagedand linked to the application, all data is sent to the central office for processing whereunderwriters review the application and images. Approval is granted and insurance cardsand policy documentation are sent to the customer. Once the policy has been issued, allinformation linked to the policy must be stored and readily available in the event that thecustomer files a claim.

Since the insurance company must maintain all information for the life of the policy, all datamust be managed by an ILM system throughout the lifespan of the policy. ILM continuesafter the policy has been retired, as data is then securely archived for a multiyear period asmandated by the company, state, and federal guidelines until its destruction is permitted.

The Automobile Insurance Policy Information Lifecycle Overview

Source: Frost & Sullivan

AA UU TT OOII NN SS UU RR AA NN CC EE

PP OO LL II CC YYPP RR OO CC EE SS SS II NN GG


4

Informationgathering

Destroy information

Retire policy & archive

Service policy

Issue policy

Verify, validate underwrite



Destroy informationDestroy information

Retire policy & archiveRetire policy & archive

Service policyService policy

Issue policyIssue policy

Verify, validate underwriteVerify, validate underwrite

HOME LOAN PROCESSING

Loan application processing is one of the more paper-intensive processes in the financialservices industry. More than 20 documents must be processed and provided to themortgage broker during the loan application, review, and approval phases.

Each required document obtained by the broker must be imaged and processed by multipleorganizations such as a real estate broker, attorney, insurance company, county clerk, bank,and title company. Complicating the process further, the title company must sharedocuments with the bank, an attorney (depending on the state), and the county clerk.Finally, the bank and the insurance company will also share documents since the bank willnot issue a loan without proof of property insurance.

Throughout the initial stages of the loan process, information provided by the applicantmust be stored by the mortgage company and made available on demand to allorganizations involved in the home purchasing process. After the loan is approved, allinformation related to the loan must be stored and tracked by an ILM system throughoutthe loan servicing stage, which can last up to 30 years.

Loan-related information cannot be terminated after the loan servicing stage due tocompany, state, and federal-mandated retention guidelines. Therefore, companies need asecure storage repository capable of storing data and recalling it on demand, while alsoproviding non-repudiable audit trails. Following mandated retention periods, the ILM systemshould flag data scheduled for destruction and automatically complete the destructionprocess if the retention period has not been extended.

The Home Loan Process Information Lifecycle Overview


HOME LOANPROCESSING


5

Destroy information

Payoff & archivingLoan application

Loan servicingLoan application review & approval

Loan packagedevelopment & approval


Payoff & archivingPayoff & archivingLoan applicationLoan application

Loan servicingLoan servicingLoan application review & approvalLoan application review & approval



CHECK PROCESSING

Another challenging information lifecycle management area in the financial servicesindustry is the payment processing system. Each year, hundreds of billions of paymenttransactions involving paper checks or EFT's take place. For each transaction, data must beretained for several years. For example, a customer writes a check to pay for groceries andit is later deposited in a store bank account. If the check was not drawn from the same bankas the merchant, the check will be sent to an intermediary bank where it is converted intoan image. Then the original document is sent to the issuing bank for payment processing.

Upon receipt of the check, the issuing bank verifies its authenticity, creates another imageof the check that is archived in the event of future inquiries, and payment authorization isissued. The intermediary bank debits the issuing bank, and the issuing bank debits theaccount of the check writer and links that data to the image of the check. EFT's work in asimilar manner but the key difference is that there are no paper documents. Instead,electronic communications pass from a merchant's bank to an intermediary bank, then tothe issuing bank, and back to the merchant's bank.

At most financial institutions, the archive for the inquiry stage of the information lifecyclelasts 3-4 months. Then the data is moved to secure, long-term archives where it is storedfor up to 7 years before being destroyed. Although check processing isn't as complicated asthe mortgage application process, the sheer volume of transactions creates an enormousILM and corporate governance challenge for banks. Laws that mandate the retention of alldata and paper documents for several years magnify this business challenge due to theamount of storage required to archive each transaction. Without an ILM system capable ofmoving data to different tiers of storage and automatically assigning retention and destruc-tion schedules as needed, it will be very difficult to rein in costs and operate at a profit.

The Check Processing Information Lifecycle Overview


CHECKPROCESSINGCES


6

Destroy information

Archive for retentionCheck created Check processing

Archive for inquiryConverted to image Destroy informationDestroy information

Archive for retentionArchive for retentionCheck createdCheck created Check processingCheck processing

Archive for inquiryArchive for inquiryConverted to imageConverted to image

SECURITIES TRADING

The purchase and sale of financial securities is a common daily occurrence involvingseveral data creation and lifecycle management steps that are usually invisible to theinvestor. The process begins with a buy and a sell order. When buyers and sellers find eachother in the securities markets, a trade is made and the settlement process begins when thebuyer transfers funds to the seller for the securities purchased.

After payment has been made to the seller, documents are issued to the buyer of thesecurities and statements are generated for both the buyer and the seller. Each completedpurchase and sale must be reported to its respective securities regulatory agency. In theUnited States, this would be the Securities and Exchange Commission (SEC).

The obligation to the securities regulatory agency does not end after reporting thesecurities transaction. All brokerages are also required to securely store informationrelated to the transaction as long as the customer holds the stock or bond, and for up to7 years after the security has been sold before the data can be destroyed. Complicating theILM challenge further, all electronic and paper-based correspondence between thecustomer and the brokerage must be stored for multiyear periods and made available ondemand by the government, making offline archiving and retention impractical.

Because of the volume of trading throughout an investor's lifetime as well as the highnumber of accounts serviced by a brokerage, ILM can be a daunting business challenge.Establishing a comprehensive ILM plan that automatically and accurately manages dataretention and destruction for different data types is one of the most difficult corporategovernance challenges facing the financial services industry today.

A Financial Securities Transaction Information Lifecycle Overview



7

SECURITIESTRADING

Destroy information

Archive for retention

Buy / Sell Order Documents and statements issued

Settlement process Regulatory reporting

Account inquiriesand correspondence Destroy informationDestroy information

Archive for retentionArchive for retention

Buy / Sell OrderBuy / Sell Order Documents and statements issuedDocuments and

statements issued

Settlement processSettlement process Regulatory reportingRegulatory reporting

Account inquiriesand correspondence

Account inquiriesand correspondence

Each of the financial industry market verticals previously discussed are fraught withcommoditization and price competition. Therefore, companies that can reduce the costsassociated with operational processes, while improving customer service and reducing riskwill have a competitive advantage in the market. Across the financial industry companieshave made efforts to eliminate slow, paper-based processes and move to computerize andautomate processes whenever possible. As companies move away from paper-basedsystems, governance and compliance issues have become more demanding, furthercomplicating ILM responsibilities for the industry.

The previous four examples of common financial industry processes briefly describeddifferent stages of data over its lifecycle. Now a closer look at the insurance policy processwill better illustrate ILM best practices.

INSURANCE POLICY CREATION AND DISPOSITION

Finding the right technology to enable implementation of a strong ILM program in thefinancial services industry is a challenge in itself. With the multiple software and hardwareproducts on the market it can be difficult to find the ideal solution and incorporate it withlegacy applications used by the organization. This segment will suggest a three-stagesolution path specific for the insurance market that begins with the ILM assessment,followed by strategy development, tactical planning, and then implementation.

Assessment An assessment service such as Information Lifecycle Management Services from EMC cancut through the information overload and help a financial services organization understandits ILM needs and identify current ILM shortfalls. ILM assessment services will help aninsurance company quickly analyze applications used by the organization and measure themagainst a set of common criteria with companies of similar size. Assessments show thecompany where data is not properly managed, where it is not secure, and areas thecompany can save money by improving its ILM infrastructure. Recommendations are givento the insurance company about possible information management improvements at theprocess, application, and data storage levels.

Strategy and Tactical PlanningAfter a thorough assessment of the current state of the company's ILM has been made,strategies are developed to address high-priority deficiencies requiring immediateattention. These strategies typically also offer a rapid and high return on investment asidentified in the assessment stage. ILM strategies for the insurance industry might addressissues such as insurance policy creation and claims processing, data retention anddisposition problems, or costly manual processes.

The tactical component of the ILM plan outlines how the strategy will be accomplished andhow critical ILM gaps will be resolved. Detailed IT infrastructure plans are created in thisstage to guide the company to an effective and efficient ILM program that addresses itsunique business needs. For the insurance market, tactical planning efforts might focus on


8

INSURANCE POLICYCREATION AND

DISPOSITION

closing ILM gaps for content creation and capturing, implementing or improving a contentmanagement system, or implementing an automated business process management (BPM) sys-tem.

Creating the ILM EnvironmentRecall that in the auto insurance process all paper documents are imaged and indexed to theelectronic application. Electronic documents, such as the online driving record, are also attachedto the application. In an ILM environment, this is accomplished using a content managementsystem, such as EMC Documentum. The content management system collects the information,assembles it, routes the application for processing, applies the appropriate business rules, andthen manages the information throughout its lifecycle until destruction. Prior to forwarding thedata from a branch office to a central processing center, the branch office must have a way tostore the content from creation until confirmation that the central office has received and storedthe data upload.

In this type of situation, the branch office could rely on the SCSI version of EMC CLARiiON asan interim data repository.This allows immediate access to the information at the most effectivecost point during the early information gathering and analysis stages.After the first few hours ordays, the information is uploaded to the central office where it would be stored on ahigher-speed storage array such as an EMC Symmetrix, storage technology specifically designedfor large volumes of frequently accessed transaction data.

In this example, new insurance applications would reside on a product such as an EMCSymmetrix for 1-7 days in the central office to permit instant data availability for underwritersand statisticians accessing the data simultaneously. After the initial burst of activity subsides, itwould be moved by the content management system to a different tier of storage such as theATA version of EMC CLARiiON. Insurance data might be stored on EMC CLARiiON for 20-30days depending on the business rules for the application and as requests to view the datadecrease following an insurance policy approval or denial. After a 20-30 day period on EMCCLARiiON, the content management system would move the data again to the EMC Centera forsecure, low-cost, long-term archiving. During the entire lifecycle of the data, additionaldocumentation such as customer correspondence would also be indexed to the policy file andarchived. It should be noted that the movement of information throughout the organization isdone automatically using EMC technology. For a large portion of the organization's transactions,this would not require any manual intervention.

Software and services are also required to create a successful ILM environment. The softwarecontains the unique business processes of the organization using it and is integrated with a tieredstorage infrastructure based on the business needs of the organization. Software is a vitalcomponent of any ILM program.Without a strong software component, it is impossible to ensurethe consistency of business processes such as workflow, control points, capturing mechanisms,policy statements, and more.This is important in both regulated and non-regulated environmentsin order to efficiently direct where and how data should be forwarded, how long it should bearchived, when it should be destroyed, and where on a multi-tiered storage infrastructure itshould reside at different stages of its lifecycle.


9

Services such as the assessment and planning phases require organizations that provide acombination of skilled personnel, experience in the ILM process, and the ability to provideongoing support to complement the organization's existing staff and knowledge base.

In the following graphic, the insurance chart from the beginning of this paper has beenmodified to emphasize the changing value of information over time and the importance ofa cohesive IT ecosystem in which hardware, software, and services all work together tocreate an ILM environment to meet today's demanding business needs.

The Insurance Policy Process with ILM Processes and Components



10


Destroy information

Retire policy & archive

Service policy

Issue policy

Verify, validate underwrite

The changing value of information over time

EMC Products and Services support all of the steps for a successful ILM implementation• Assessment• Strategy• Business Process Management• Information Architecture• Operational Control and Optimization• Compliance for Archiving, Retention, Retrieval, and Destruction




Retire policy & archiveRetire policy & archive

Service policyService policy

Issue policyIssue policy

Verify, validate underwriteVerify, validate underwrite

The changing value of information over timeThe changing value of information over time

EMC Products and Services support all of the steps for a successful ILM implementation• Assessment• Strategy• Business Process Management• Information Architecture• Operational Control and Optimization• Compliance for Archiving, Retention, Retrieval, and Destruction

CONCLUSION

The value of ILM in today's business environment should not be underestimated. Thefinancial services industry is burdened by enormous data processing, secure archiving, anddata disposition requirements that have become more complicated as organizations moveaway from paper-based processes. The need for a comprehensive ILM plan capable ofautomating critical business processes has become a necessity due to the high volume ofinformation processed, shared, and archived by the financial services industry.

Although ILM is a recent and evolving information technology, EMC has demonstrated earlyleadership in this market by offering a comprehensive and advanced combination ofservices, hardware, and software to make ILM and its benefits a reality. Most of theimplementations to-date have been focused on cost reductions, operational improvements,and risk management. ILM also goes a long way toward helping organizations improvecorporate governance and minimize outside liability risk.

With the increasing prevalence of disputes, litigation, and fines in the financial servicesindustry, Frost & Sullivan believes that the implementation of an EMC ILM plan is a businessnecessity that cannot be ignored. When searching for a technology company that trulyunderstands the complexity of ILM, EMC should be considered the only vendor capable ofmeeting every ILM need for the financial services industry.


11

CONCLUSION

877.GoFrost

[email protected]

http://www.frost.com

Silicon Valley2400 Geng Road, Suite 201

Palo Alto, CA 94303

Tel 650.475.4500

Fax 650.475.1570

San Antonio7550 West Interstate 10, Suite 400,

San Antonio, Texas 78229-5616

Tel 210.348.1000

Fax 210.348.1003

London4, Grosvenor Gardens,

London SWIW ODH,UK

Tel 44(0)20 7730 3438

Fax 44(0)20 7730 3343

CC OO NN TT AA CC TT UU SS

ABOUT FROST & SULLIVANBased in Palo Alto, California, Frost & Sullivan is a global growth consulting company. This whitepaper is part of Frost & Sullivan's ongoing strategic research into the Information &Communication Technologies industries. Frost & Sullivan regularly publishes strategic analysesof the major markets for products that encompass storage, management, and security of data.Frost & Sullivan also provides custom growth consulting to a variety of national andinternational companies.

The information presented in this publication is based primarily on interviews and therefore issubject to fluctuation. Frost & Sullivan takes no responsibility for any incorrect informationsupplied to us by manufacturers or end users.

This publication may not be downloaded, displayed, printed, or reproduced other than fornon-commercial individual reference or private use within your organization, and thereafter itmay not be recopied, reproduced or otherwise redistributed. All copyright and otherproprietary notices must be retained. No license to publish, communicate, modify,commercialize or alter this document is granted. For reproduction or use of this publicationbeyond this limited license, permission must be sought from the publisher.

For information regarding permission, write:Frost & Sullivan2400 Geng Rd., Suite 201Palo Alto, CA 94303-3331, USA

Palo Alto

New York

San Antonio

Toronto

Buenos Aires

Sao Paulo

London

Oxford

Frankfurt

Paris

Israel

Beijing

Chennai

Kuala Lumpur

Mumbai

Shanghai

Singapore

Sydney

Tokyo