Finanssialan järjestelmiä uusitaan harvoin uusimisen ilosta. Päätös tehdään useimmiten siinä vaiheessa, kun järjestelmän käyttöikä lähestyy loppuaan, teknologiat ovat vanhentuneita ja liiketoiminnan prosesseja saattaa olla vaikea uudistaa, kun käytössä olevat järjestelmät eivät tätä tue.

– Prosessien tehokkuus vaikuttaa suoraan työnteon tehokkuuteen; käsittelijöiden arvokasta työaikaa kannattaa käyttää johonkin hyödyllisempään. Jos tarkastelemme esimerkiksi antolainauksen ratkaisuamme, niin se palvelee aidosti päivittäisen työn prosesseja ja rutiineja, kertoo Financial Sector Solutions -yksikön tuotteista Evitecissä vastaava Janne Takala.

Mikä Evitec Power Lending -ratkaisu siis on? Tiivistetysti: se on antolainauksen ja vakuushallinnan elinkaarijärjestelmä, joka soveltuu parhaiten suomalaisen yritysrahoituksen tarpeisiin. Ratkaisu koostuu moduuleista, jotka kattavat rahoituksen koko elinkaaren. Näillä moduuleilla hallinnoidaan lainoja ja vakuuksia sekä luottopäätöksiä ja luottoriskilaskelmia.

Nappia painamalla reaaliajassa

Järjestelmän modernisointi tuo monia hyötyjä. Käyttöikä pitenee, integraatiot helpottuvat, työaikaa vapautuu muihin asioihin ja luonnollisesti virheet vähenevät asioiden automatisoituessa.

– Vanhojen järjestelmien osalta integraatiot ovat usein monimutkaisia. Esimerkiksi legacy-järjestelmissä on usein epästandardeja integraatiorajapintoja. Tieto saadaan kyllä liikkumaan, mutta kehittäminen on haastavaa. Ääritapauksissa rajapintojen välille tarvitaan usein erillinen väliohjelmisto, josta aiheutuu kehitys- ja ylläpitokustannuksia. Osaajia on harvassa eikä tehokkaita työvälineitä ole aina edes saatavilla. Moderneilla REST-rajapinnoilla tällaisia ongelmia ei ole, kertoo Evitec Power Lending -tuotetiimissä arkkitehtinä toimiva Jussi Kauhanen.

Janne on samaa mieltä ja jatkaa: ”Usein haasteena on myös se, että järjestelmien integraatiot ovat eräajopohjaisia. Painat nappia ja näet tuloksen vasta seuraavana päivänä. Tätä päivää on se, että asiat toimivat reaaliajassa.”

Isossa kuvassa järjestelmien uusimisille on muitakin syitä kuin integraatiot. Organisaatioiden tulee katsoa eteenpäin ja tehdä päätöksiä, jotka palvelevat tulevia liiketoimintatarpeita.

– Ei ole tarkoituksenmukaista, että ei voida uudistua, koska järjestelmä ei tue prosessi-innovaatioita. Kyllähän se vaikuttaa kilpailuetuun ja siihen, kuinka nopeasti pystytään toimimaan muuttuvassa markkinassa, tiivistää Janne.

A quick introduction into mortgage banks and covered bonds

Issuing covered bonds differs quite a lot from traditional banking. By Finnish law, the organisation that can issue covered bond is called mortgage bank and mortgage banks often form their own separate companies in the organisation of banks. Banks in Finland can also begin issuing covered bonds by having their existing licence extended to mortgage banking.

In Finland, mortgage banks even have their own legislation (Act on Mortgage Credit Banks 688/2010). According to the Act, a mortgage credit bank is a credit institution in the form of a limited company, the purpose of which is to grant mortgage credits and public-sector credits as well as to issue bonds with mortgage collateral and bonds with public-sector collateral as referred to in the Act. Bonds with mortgage collateral and bonds with public-sector collateral are also simply referred to as covered bonds. This law will actually be renewed soon because of the harmonisation of the EU covered bond framework. The new law is currently going through the ratification process in the Finnish Parliament.

To begin covered bond issuing requires that the bank or financial organisation has a sufficient amount of mortgage-backed consumer or housing company loans. Mortgage banks issue covered bonds which are secured by mortgage loans that meet business criteria (mores specifically, collateral is formed by the interest cash flows of the loans and by repayments of principal), which are offered to the financial markets as an investment target.

In practice, then, covered bonds are a means of raising funds for retail banks, enabling the bank to borrow funds from the financial markets (investors) more cheaply, in other words, at a lower margin than by using other types of collateral. Raising funds in this way is affordable because a covered bond is a highly reliable and safe investment for the investor. Normally, only institutional investors such as pension insurance companies and governments (e.g. the Bank of Finland) can invest in covered bonds. Private investors are able to participate in the investments mainly through trust funds. When the bonds are issued, the bank applies for a credit rating for the investment instrument from a credit rating agency. The received rating is typically very good.

A bank can either have a deposit surplus or a deposit deficit. Finnish banks mainly have deposit deficits, meaning that the difference between their retail deposits and loans to the public is negative. Covered bonds do not offer any notable benefits for a bank with a deposit surplus, since such a bank doesn’t necessarily have the need to seek funding from the market or have anything to gain from it. If there are enough of appropriate mortgage loans, covered bonds are by far the most profitable means of raising funds for banks which are showing a deposit deficit.

Developed by Evitec, Evitec Covered Bonds automates complex processes

The systems used to maintain the covered bond pool have typically been the banks’ own. Normally, they’ve been based on solutions such as reporting systems which are difficult to develop and maintain. In addition, these internal systems often turn the issuance of bonds and the maintenance of the pool into laborious tasks with a poor degree of automation. These manual processes are time-consuming and prone to error. When it comes to covered bond-related things, especially, drawing up reports for various parties, such as credit rating institutions and the financial supervisory authority, can be cumbersome and time-consuming.

Evitec Covered Bonds is a customised ERP system, designed to facilitate the mortgage bank’s maintenance tasks and automatically handle most of their work steps. Among other things, our product automates the regulatory assessment of loans, calculation and analysis of pooling and cash flows, alerts in problem situations and creates reports for business, authorities and credit rating institutions.

The advantage covered bond has over other bank funding instruments is clear: according to one of our clients’ calculations, the decreased costs of raising funds means that our system paid for itself in no more than 18 months.

Evitec Covered Bonds is Finland’s market leader in covered bond pooling systems. Over 40 per cent of Finland’s covered bond base is processed in our system. Financial sector institutions such as S-Pankki, Hypo, Oma Säästöpankki and OP are already using our product. In addition, we are running several sales processes at different phases of the cycle, both in Finland and abroad.

We haven’t rested on our laurels: we are currently modernising our system in order to be able to offer our covered bond pooling system also as a cloud-based SaaS service in the future. Earlier this year, OP issued Finland’s first green covered bond. Our covered bond pooling system ensures that the bond has a sufficient amount of green collateral on a daily basis. The Evitec Covered Bonds product can thus also be used in the pooling of collateral for green bonds, as long as the bank’s reasoning about the greenness of the loan collateral is correct. OP has done great pioneering work in Finland by analysing the greenness of housing collateral, and the results of this analysis are now being used in the pooling system. In the coming years, ESG will be a major theme in the financial sector, so it’s wonderful to be involved in promoting this important issue.

How did we get here and what have we learnt?

The idea of Evitec Covered Bonds saw the light of day in 2010 when the mortgage bank OP-Asuntoluottopankki (OPA) needed a new system for issuing covered bonds. The implementation of the system took a couple of years, and in 2013 OPA introduced the versatile new system which adapted to the intermediate loan model pursued by OP. When it comes to issuing covered bonds, OP is a different type of financial group, as it consists of independent member banks and the group’s central organisation with its subsidiaries.

Initially, the system was supposed to be customised for a specific need OP had, but it didn’t take long for us to realise that there could be a broader demand for the system in Finland. At the time, Finland still had many banks which had a deposit deficit, but which did not have a system for issuing covered bonds. We decided to invest in product development, and in 2016 the Mortgage Society of Finland (Hypo) became Profit’s second covered bond pooling system client. Hypo was also our first customer to use the so-called own balance sheet model. Hypo extended the bank’s licence to mortgage bank operations and didn’t establish a separate mortgage bank.

After the implementation of Hypo’s covered bonds system, we carried out several implementation projects in a short period of time. The implementation project of Oma Säästöpankki was completed in 2017, and S-Pankki’s system was introduced in 2019.

The hectic years we spent working on the product managed to make the system the market leader in Finland. Simultaneously, the size of Evitec Covered Bonds team has grown from a development team of a couple of people to a financial organisation of more than ten experts. Evitec Covered Bonds’ development team is very familiar with issuing covered bonds, giving us a competitive edge in this business area, which is clearly different from traditional banking. Along the way, we’ve learnt a lot about bank financing and covered bonds.

For me, one of the biggest learning points has been the realisation that if you want to succeed, you need to trust your own vision and not be afraid of embracing new ideas. There was a market gap for covered bonds in Finland. There was no good system in place but at the same time there were several banks which were starting to realise the benefits of using covered bonds for financing. If Evitec had not filled the gap in the market, it would have been filled by someone else. In Finland, as elsewhere, significant system investments are often snatched by large international players, which does not benefit the Finnish economy in the long run. However, we have already set the ball rolling in Europe and have plans of launching Evitec Covered Bonds in the international market.

To learn more about Evitec Covered Bonds, please contact:

Tomi Heiskari

Financial & Industry Solutions

tomi.heiskari@evitec.com

+358 40 707 9426

When an insurer plans a system renewal, the primary focus is usually on how the new system supports needs today and in the future. However, few insurance companies start from scratch. Especially within life insurance, policies may be older than 50 years. Therefore, the migration of run-off portfolios usually pops up at some point during the renewal project.

Older systems often have an “uncontrolled flexibility”, a feature that originally was regarded quite handy. Individual policy details could be modified in many ways, and not all information had a designated place or format. Thus, over time, users may have entered the same information in different places and, for example, dates in different formats. Older policies also do not always have all the information required by the new structure; in which case the policy information needs to be enriched. Not to mention file formats, which have changed over the years. There are certainly many more examples. And now, 15–20 years later, when this rather mixed data should be adapted to the structures of the new system, we are faced with a data cleaning task. The scope of a migration project can often be bit of a surprise, but luckily there are tools available to help.

The power of collaboration

In data migration the cooperation between the insurance company and the system supplier is key. The insurance company knows its old products and can foresee some of the challenges in the data structures. The system supplier on the other hand, knows inside out the logic and structure of the new system. When a mechanism for checking the quality and consistency of the data is created in between, even a difficult migration becomes easier.

The three phases of migration

Data migration can be divided into three phases. In the first phase, the migration is planned, and the portfolios are studied to the smallest details. First steps are taken with smaller test data and the creation of data mapping rules starts. At the same time, the insurance company often considers whether some product portfolios can be combined to simplify the management of portfolios in the future.

In the next phase, our conversion tool will take centre stage. It is used to check whether the data to be migrated is consistent and compatible with the new system. Rarely, if ever, is older data ready at once. The conversion tool provides feedback on differences and inconsistencies, such as data fields that cannot be matched in the new structure, missing data fields, or data in an inappropriate format.

This is where the actual data cleaning begins. The same data may be run through the conversion tool several times until it can be stamped as OK. Finally, a policy lifecycle testing will be done to ensure that everything matches in the future as well. For the work to progress promptly, the conversion tool is made available also for the insurance company. Hence, the actual experts of the portfolios and those working on data cleaning can independently test the changes and updates. All in all, a time-consuming phase, but the work is rewarded in the last phase.

The actual migration is often the fastest phase. When the old data has been processed and its compatibility has been verified, this is largely a technical routine, where the converted policies smoothly float into the new system. As a final check, the outcome is reconciled with the source data.

Extensive experience of migrations

In addition to the conversion tool, Evitec Life‘s accurate description of the data structure makes migration work significantly easier. The description gives the customer a clear view of which information is needed and in which format.

At Evitec we have carried out system migrations for several decades. We have converted nearly one hundred portfolios and hundreds of thousands of policies. So, it’s fair to say that our experience has built up over time and our migration process and tools have been put to the test in many demanding projects.

When I was watching the excellent Adam McKay film The Big Short originally released back in 2015, the first thought to pop into my head was: “Finally a movie that will explain to my parents why we make these systems for banks!” In the film, the actress Margot Robbie, soaking in a bubble bath, explains how the derivatives that launched the financial crisis in the U.S. in 2007 were based on covered bonds. The scene was an ironic take on the fact that few people would normally have the patience to listen to long winded explanations riddled with financial terminology. The product structure was so complex that it concealed as well as concentrated the underlying risks of the housing market.

In Finland, the situation has been better, but the fundamental mechanism is still the same. Our mortgages are mainly financed by foreign investors, not deposits. These investors receive mortgages as collateral for the money they lend. The interest rate on the money provided by the investors depends on the quality of the collateral. The better the collateral, the lower the interest rate. The quality of Finnish housing collateral has been good, but recently a noticeable risk has arisen especially in regions experiencing net outflows. This calls for transparency also in Finland in order to ensure that the collateral meets the investors’ and credit rating institutions’ criteria. At best, the nearly one hundred reports targeted at different agencies are generated automatically, at worst by dozens of people manually typing them into Excel spreadsheets.

The required transparency and quality of reporting is one of the reasons why the process needs a separate system. Another one concerns daily optimisation: Collateral is mobile by nature, as homes are sold and purchased and loans are paid back every day. Insolvency and credit losses are part of the lenders’ daily life. The handling of hundreds of thousands of collateral assets requires that the bank have a safety margin to ensure the availability of collateral. The smaller this safety margin can be made, the more the bank is able to obtain external funding.

Our Evitec Covered Bonds is an Enterprise Resource Planning or ERP system for a bank issuing covered bonds. According to our estimate, our system processes over 40 per cent of Finnish mortgages as it optimises collateral for covered bonds. Our users include OP, the recently listed OmaSp, S-Bank and Hypo (The Mortgage Society of Finland), the only credit institution in Finland specialising in housing. The reliability of the system and service thus has a great social importance, as is the case with Profit Software’s products more broadly. We have comprehensive expertise in mortgage bank IT systems that meet legal requirements. We are happy to help you launch or automatise your business or modernise your existing system.

Perttu Heinonen, SVP Consulting Financial Services, Evitec

Evitec Life is a policy administration system developed for life and pension insurance companies, supporting both long-term savings and risk life insurances.

In Evitec Life 5.2 beta the most significant development step has been to bring risk life insurance alongside savings products. In Evitec Life, you can now manage risk life insurance agreements, individual policies, joint policies, and large group structures, as well as risk life claims.

Evitec Life offers, as an example, support in policy management for temporary disability, permanent disability to work, permanent disability and critical illness covers. In policy management for groups, special attention has been paid to the ease of maintaining the group’s information and group invoicing requirements.

In claims management for risk life insurances, Evitec Life can among others handle compensations related to the above-mentioned covers and pay both lump sum and daily benefits. The claims handler’s work is greatly expedited and simplified when policies and claims are handled in the same system. The policy information needed in claims management is available and automatically included as part of the claim handling process.

In the new version, digital REST services have been expanded to support, among other things, the sales process, new policy creation and changes made to policy information in self-service channels.

With this version, several general functions have been introduced or updated. Evitec Life supports the future change of the punctuation mark in the Finnish personal identification number, identification of the beneficiary required by the AML directive before compensation is paid out, and notifications to the Finnish tax authority Incomes Register. Additionally, new security improvements have been included to bolster secure operations. To make managing insurance products easier, the PLP Insurance Product Editor tool for defining insurance products has been added to the toolkit.

Interested in hearing more? Please contact sales@evitec.com

Sijoittamisen vastuullisuus ja vihreä rahoitus ovat olleet esillä asiakkaidemme liiketoiminnassa ja viestinnässä, minkä lisäksi ne ovat olleet jo pitkään esillä mediassa. Mediahuomiosta huolimatta nämä eivät välttämättä ole kaikille tuttuja termejä.

Vastuullinen sijoittaminen (englanniksi ESG eli Environment, Social and Governance) tarkoittaa kestävän kehityksen, ympäristövaikutusten ja yhteiskuntavastuun huomioimista sijoittamisessa. Yksinkertaisimmillaan vastuullinen sijoittaminen on listoja yksittäisistä sijoituskohteista, joihin esimerkiksi Nordean rahastot eivät sijoita. Laajimmillaan vastuullinen sijoittaminen otetaan huomioon koko yrityksen toiminnassa ja hallinnoinnissa ja se on osa strategiaa.

Toistaiseksi vastuulliseen sijoittamiseen ei löydy yhtä Euroopan tai maailman kattavaa standardia. Mittaaminen ja viestintä on vapaaehtoista ja sen tarkoitus on tehdä toiminnasta kuluttajille läpinäkyvää. Todennäköisesti vastuullisuus tulee menemään samaan kuin talon energialuokitus, jossa raportin pakollisuuden lisäksi uusissa kohteissa vaaditaan vähintään B-luokan energiatehokkuutta. Myös finanssialalla tulee hetki, kun ESG on huomioitu lainsäädännössä tai toimiluvassa. Yritysten on jo nyt hyödyllistä viedä strategiaansa ja toimintaansa sen edellyttämään suuntaan.

Vihreät bondit eli joukkovelkakirjalainat ovat vastuullisen sijoittamisen yksi toteutustapa. Vihreän bondin liikkeeseenlaskija on antanut ”vihreää rahoitusta” eli rahoittanut vain niitä kohteita, jotka täyttävät tietyt ympäristökriteerit. Vihreät bondit ovat mediajulkisuudesta huolimatta edelleen pieni osa koko globaalia rahoitusta, kokonaisvolyymiltään alle 1%. Sille kuitenkin ennakoidaan suurta kasvua ja vihreät bondit ovat erittäin kysyttyä kansainvälisillä rahoitusmarkkinoilla.

Sitä merkitsevät erityisesti isot vastuulliset sijoitusrahastot sekä julkiset eläkeyhtiöt. EU laatii parhaillaan vihreille bondeille yhtenäistä kriteeristöä, jonka toivotaan lisäävän näiden suosiota entisestään.

Asiakkaamme ovat julkaisseet myös muuta vastuullista rahoitusta viime vuosina. Kuntarahoitus laski liikkeelle tänä vuonna Suomen ensimmäisen sosiaalisen bondin, jolla on rahoitettu yhteiskunnan hyvinvointia lisääviä hankkeita. Suomestakin löytyy sinisiä bondeja, joilla on rahoitettu meren suojeluun vaikuttavia investointeja.

Vihreät bondit ja ESG yleisestikään ei itsessään ratkaise ilmasto-ongelmaa. Sen suurin arvo on tehdä kuluttajalle ja yrityksille valinnat tietoisiksi ja näkyväksi: Hakiessasi maksimaalista tuottoa, onko sinulle merkitystä, annatko rahasi sellaiseen käyttöön, joka varmistaa maapallon ja yhteiskunnan hyvinvoinnin myös tuleville sukupolville?

When discussing a system renewal, hot topics are amongst other digitalization, automation, conversions, and migration. And nothing wrong with these, all important factors ensuring the new system operates as whished and delivers the expected benefit. But will a system renewal bring to the users something in addition to a new interface?

”We’ve always done it like this”

I’m sure we have all sometime come across the saying “we’ve always done it like this”. Same attitude can appear also during a system renewal. When the automatization level increases, the amount of routine manual work decreases. And the logic of the new system might differ from the old one. These factors automatically lead to changes also in work processes. Therefore, a system renewal should be seen as a more holistic renewal, not just a shift in technology. For the users this means getting used to both a new interface as well as new work processes and routines.

Technical and mental transformation

The project team members get to know the new operating platform stepwise. Demos of part deliveries and particularly testing phase are great moments to discuss the functionalities of the new system and listen to the system vendors viewpoints of different solutions. These are also natural moments for reviewing current processes and routines and when needed, form new ones.

Also, the trust in the new system and the rationality for the new work routines build up during the project. Project team members have plenty of time to get used to the changes and go through a mental transformation from the old to the new era.

When the launch approaches and rest of the organisation is brought along, the newcomers will not have the same timeframe for getting acquainted with all new. For them, the pilot phase is often their first touch point with the new system and work processes but as the pilot is a much shorter phase than the project, the rest of the organization needs to absorb all new much faster. Now the project team members have a new important role as the ambassadors of the new ear. They can support and rationalize the new processes and help to smoothen the transition. As the rest of the organization will most likely have same kind of questions as the project team members, so who is better to answer them than those who already have been through this phase.

Adjustable standard system

If some part of the deliverable system does not seem to quite fit into the insurers operations, customer specific adjustments are a good solution. Evitec Life is a standard system developed for life insurers for administering pension, savings and risk insurance policies and claims. Evitec Life has a parametrized product structure allowing a flexible product configuration. Additionally various system functionalities can be modified according to customer needs. Therefore, each delivery is to some extent customer specific, although the base is the same. We are our customers partners and system renewals are planned, tested, and implemented in close co-operation. By this, we can deliver a solution that supports the customers individual products, needs and procedures.

Got interested? Contact sales@evitec.com

Payment Services Directive 2 (PSD2) and Open Banking opened a few years ago a whole new world for handling payments. Now at the cash register you can just flash your smartwatch and pay online shopping with just a few clicks. Open Banking brought new players alongside with the banks, focusing on handling payment transactions. The eagerness to jump specifically into this opportunity is easily understandable when considering that for example in 2021 Finnish pay cards were used 1,9 billion times. Already a small slice of these transactions offers a decent revenue.

For the financial market, PSD2 was the prelude for sharing information more openly than before. Now same topic is discussed also in insurance industry as “Open Insurance” seeks its’ form. But what does Open Insurance mean and what is it aiming at? There isn’t yet a uniform definition. European Insurance and Occupational Pension Authority (EIOPA) published in 2021 a Discussion Paper ”Open Insurance: Accessing and sharing insurance related data”, which is based on a very broad definition: “Covering accessing and sharing insurance-related personal and non-personal data usually via APIs”. EIOPA states increased innovation, competition, and efficiency as main goals.

What would sharing of insurance information enable?

When considering how information dense insurances are and how information generally today can be utilized for various use cases, it’s clear that open sharing of insurance information would enable many kinds of product and service innovation. Still, it should be noted that insurers cannot freely share information. In PSD2 the customer manages their information and decides what and with whom to share. This should push innovation to be highly customer centric and is a starting point for new competitive factors.

When the customer holds insurances in several companies, sharing would enable collecting the scattered information in one place. The customer would get an overall view of their coverage making it easier to get insurance guidance based on correct information and make it easier to ask for offers. Especially In Finland, collecting information of occupational pension and other pension saving in one place could be a very useful use case, Swedish minPension service being an excellent example of this idea.

Claims management is a critical point in client relationship and there are certainly many use cases for making that smoother. For example, what if my flight is delayed more than 4 hours, which is the threshold entitling me to a compensation from my travel insurance? Could the information about the delay go directly from the airline to my insurer and the compensation be automatically paid to my bank account?

Interfaces in key position

Interfaces are a prerequisite for sharing and receiving information, but they might also turn out to be road blockers. This was experienced with PDS2, different standards for interfaces and APIs complicate the development of fluent ecosystem. Let’s hope this experience is taken into consideration when the Open Insurance directive is taking its form.

Additionally, the aging IT infrastructure of the insurers will set its own obstacles. When interfaces and APIs play a central role in digitalization, influencing many processes already today, many insurers are pondering about the best solution in the long run. Continue building upon an aging technology, or has the time come to renew core systems and start capitalizing on the benefits of digitalization?

The future of information sharing

Will Open Insurance cause a same kind of revolution as PSD2 did for mobile payment? Probably not, as within insurance there is not one, even closely, similarly frequented transaction. Also, the Open Insurance directive seems to proceed rather slowly with EU.

There are still many question marks attached to Open Insurance. Even so, the directive will come to force at some point. Therefore, it’s good to start evaluating how and with what kind of solutions to prepare oneself for the possibilities Open Insurance offers.