Cost-cutting drive sees `revolutionary' claims system scrapped

Beleagured Royal & SunAlliance (R&SA) has scrapped a major IT project worth up to £10m as it tries to save money for underwriting.

The claims management system was designed to trim the company's costs and improve customer service.

But R&SA pulled the plug after 20 months' investment in the system, developed by insurance software specialists The Innovation Group (TIG).

The deal's value to TIG depended on the number of transactions put through the system as well as licence fees. It is thought to be worth between £5m and £10m.

R&SA communications director Paul Atkinson said there was "nothing particularly wrong" with the TIG product, but the company wanted a single system to cover personal and commercial claims.

"Sometimes you have to make hard decisions. Unfortunately we've opted for an internal system," he said.

Scrapping the TIG system would help the company in its aim to have fewer systems and more streamlined operations.

However, the system was trumpeted as a cost efficient way of doing just that when the deal was celebrated two years ago.

TIG said that customers would benefit from faster claims settlement times and insurers would be "freed from the burden of run-of-the-mill administration" to "sharpen their customer focus and deploy management skill in a more sophisticated way."

Describing the system as "revolutionary", TIG estimated it could cut costs by between 10% and 20%. R&SA was the first customer for the product, which it claimed could save the UK general insurance industry up to £3bn.

Atkinson declined to comment on the cost of scrapping the project but the figure is likely to run into the millions of pounds, made up of fees and development costs.

The revelation comes as R&SA is under pressure following news that it will be fined for mis-selling pensions and concerns over its financial strength.

The shares were trading on Tuesday afternoon at 266.5p, having lost value in four consecutive days' trading. They were selling at more than 280p before the long holiday weekend.