EXHIBIT 10.41 - COST SHARING AGREEMENT
FOR INFORMATION TECHNOLOGY DEVELOPMENT
This Cost Sharing Agreement ("Agreement") is made this 14th day of March, 2001
(the "Effective Date") by and among Erie Insurance Exchange by and through its
Attorney-in-Fact Erie Indemnity Company, Flagship City Insurance Company, Erie
Insurance Company, Erie Insurance Property & Casualty Insurance Company and Erie
Insurance Company of New York, which entities are the property and casualty
insurers of the Erie Insurance Group.
WHEREAS, these insurers have undertaken to review in comprehensive detail the
information technology requirements projected over the next several years which
will be necessary to improve their respective business and customer interaction
systems; and
WHEREAS, these insurers recognize that electronic commerce plays a critical role
in remaining competitive in this industry, and it is essential that these
companies move to a technological platform that is principally based on the use
of Internet technology to conduct electronic commerce; and
WHEREAS, it is critical and a commercial necessity for these insurers to develop
informational technology for the storage and access of essential customer and
insurance information on their respective policyholders since such information
will be vitally important for the ability to compete effectively in the
financial services marketplace of the future, particularly with the enhanced
levels of service required to meet customer expectations; and
WHEREAS, the fundamental technological infrastructure, applications, processes
and methodologies necessary to develop and support a wholesale migration to a
new, electronic commerce environment will be required to sustain and enhance
services and products delivered to subscribers and policyholders of the
insurers; and
WHEREAS, the necessary information technology to meet these customer
expectations envisions policyholders having the capability of Internet access to
their individual accounts and information; and
WHEREAS, because of their inter-related business relationships, it will be
necessary for these companies to develop and utilize these systems on a shared
basis; and
WHEREAS, it is the intent to distribute the costs of this necessary information
technology among these companies on a fair and reasonable basis.
NOW, THEREFORE, intending to be legally bound, and for and in consideration of
the mutual promises and consideration contained herein, the parties agree as
follows:
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1. Erie Insurance Exchange, by and through its Attorney-in-Fact, Erie
Indemnity Company, will undertake to develop, cause to be developed, or
purchase software programs of outside vendors ("Third Party Software") to
be deployed and integrated into the following information technology
application systems and infrastructure elements for the use and benefit of
all of the members of the Erie Insurance Group:
A. On-line Policy Processing System as more fully described in Exhibit
A which is attached hereto.
B. Customer Relationship Management System as more fully described in
Exhibit B which is attached hereto.
C. Required Information Technology Infrastructure as more fully
described in Exhibit C which is attached hereto.
(hereinafter collectively referred to as the "OLPP/CRM Systems")
2. The parties hereto recognize and acknowledge that the ownership of the
intellectual property comprising these OLPP/CRM Systems will reside
permanently with the Erie Insurance Exchange. All aspects of the OLPP/CRM
Systems, including without limitation, programs and processing
methodologies shall remain the sole and exclusive property of the Erie
Insurance Exchange and shall not be sold, revealed, disclosed or otherwise
communicated, directly or indirectly, by any company or entity entitled to
use such OLPP/CRM Systems. It is expressly understood that no title to or
ownership of the OLPP/CRM Systems, or any part thereof, is hereby
transferred from the Exchange to any other company of the Erie Insurance
Group. Such property rights as delineated herein do not extend to Third
Party Software that may be integrated into the OLPP/CRM Systems, but
appropriate licensing agreements will be obtained to include usage by all
parties hereto.
3. The Erie Insurance Exchange will undertake to assure that all companies
that are parties to this Agreement will have equal access to the OLPP/CRM
Systems for the benefit of their respective policyholders, and the Erie
Insurance Exchange, subject to the terms and conditions of this Agreement,
specifically grants to Flagship City Insurance Company, Erie Insurance
Company, Erie Insurance Property & Casualty Company and Erie Insurance
Company of New York a non-transferable perpetual license to use the
OLPP/CRM Systems.
4. All costs to develop, purchase, deploy, implement, integrate, and
maintain the OLPP/CRM Systems (the "Costs of the OLPP/CRM Systems") will be
incurred by and accrue to the Erie Insurance Exchange on and after the
Effective Date hereof and no such costs have been incurred prior to the
Effective Date hereto. The Costs of the OLPP/CRM Systems will be incurred
as underwriting expenses established on the books and records of the Erie
Insurance Exchange in accordance with statutory accounting practices and
procedures. The Costs of the OLPP/CRM Systems will be ceded to the
inter-company Reinsurance Pooling Agreement effective January 1, 1995
("Reinsurance Pooling Agreement") among the parties hereto. In accordance
with the terms of the Reinsurance Pooling Agreement, the Costs of the
OLPP/CRM Systems will be borne by the parties hereto in accordance with
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their "Respective Percentage Share" as established in the Reinsurance
Pooling Agreement as follows:
Erie Insurance Exchange - 94.5%
Erie Insurance Company - 5.0%
Erie Insurance Company of New York - 0.5%
Flagship City Insurance Company - 0%
Erie Insurance Property & Casualty Co. - 0%
5. Erie Insurance Exchange will keep accurate and current records on the
Costs of the OLPP/CRM Systems, including the cost of Third Party Software,
as it is the intent of this Agreement to share such Costs of the OLPP/CRM
Systems on a fair and reasonable basis among the user companies.
6. This Section 6 of the Agreement is intended to establish the procedure
for adjusting the sharing of the Costs of the OLPP/CRM Systems in the event
that any of the Respective Percentage Shares as described in Section 4 of
this Agreement are changed after the date of this Agreement.
Solely for purposes of this section, the following terms have the meanings set
out below:
"Inception to Date Investment in OLPP/CRM Systems" shall mean the Costs of the
OLPP/CRM Systems incurred from inception to the date of any change in the
Respective Percentage Shares.
"Economic Life End Date" shall mean a date exactly seven years from the
occurrence of the first of the following: (i) the date the OLPP/CRM Systems are
ready to be "placed in service" as that term is generally understood in
Generally Accepted Accounting Principles, or (ii) the date either one or both of
the OLPP/CRM Systems are considered abandoned.
"Remaining Economic Life" shall mean the period of time, expressed in nearest
whole months, between the date of any change in the Respective Percentage Share
in the Reinsurance Pooling Agreement to the Economic Life End Date.
"Recapture Percentage" shall mean, for each entity which is a party to this
Agreement, the change (positive or negative) derived by subtracting the revised
Respective Percentage Share under any new or amended Reinsurance Pooling
Agreement from the current Respective Percentage Share in the Reinsurance
Pooling Agreement under the terms in existence as of the date of this Agreement.
"Remaining Economic Value" shall mean an amount computed by (i) dividing the
Inception to Date investment in OLPP/CRM Systems by 84 (months), and (ii)
multiplying that result by the Remaining Economic Life in months.
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In the event the Reinsurance Pooling Agreement Respective Percentage Shares are
modified at any time prior to the Economic Life End Date, it is the intent of
the parties that the cost sharing terms as provided for under this Agreement
will be adjusted equitably, to share the costs considering the economic impact
of any revised Respective Percentage Shares. The amount of the adjustment with
respect to and among the parties to this Agreement shall be computed by
multiplying the Recapture Percentage for the respect entity by the Remaining
Economic Value. The parties hereby agree to settle such obligation in
immediately available funds not more than 30 days from the date the Reinsurance
Pooling Agreement Respective Percentage Shares are changed, positive amounts
representing amounts due the party, negative amounts reflecting amounts owed by
the party.
7. This Agreement shall be submitted in a timely and appropriate manner to
the Pennsylvania Insurance Department in accordance with the Pennsylvania
Insurance Holding Companies Act (40 P.S.ss.991.1405).
8. It is the express intent of the parties to this Agreement to establish a
fair and reasonable basis for the sharing of the Costs of the OLPP/CRM
Systems. It is understood among the parties that this undertaking for the
development of the OLPP/CRM Systems will proceed over a duration of more
than one year and that unforeseen contingencies could occur that could
disrupt the development process. Nevertheless, it is the intent of the
parties to have equal access to the OLPP/CRM Systems and share fairly in
the Costs of the OLPP/CRM Systems, and should circumstances arise that
would require adjustments among the parties in the allocation of costs,
then the parties will proceed to equitably adjust the costs in a manner
that would be fair and reasonable taking into consideration all of the
facts and circumstances and the interrelated business relationships of the
parties.
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ERIE INSURANCE EXCHANGE
BY AND THROUGH ITS ATTORNEY-IN-
FACT ERIE INDEMNITY COMPANY
By: /s/ Stephen A. Milne
Stephen A. Milne
President & CEO
FLAGSHIP CITY INSURANCE COMPANY
By: /s/ Jeffrey A. Ludrof
Jeffrey A. Ludrof
Executive Vice President
ERIE INSURANCE COMPANY
By: /s/ Jan R. Van Gorder
Jan R. Van Gorder
Sr. Executive Vice President
ERIE INSURANCE PROPERTY &
CASUALTY COMPANY
By: /s/ Philip A. Garcia
Philip A. Garcia
Executive Vice President & CFO
ERIE INSURANCE COMPANY OF NEW YORK
By: /s/ Timothy G. NeCastro
Timothy G. NeCastro
Senior Vice President & Controller
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EHHIBIT A
ONLINE POLICY PROCESSING SYSTEM ("OLPP")
OLPP System is an integrated system of function, capabilities and features for
electronic data entry automated underwriting rating, and automated policy
processing built around a central customer file that enables servicing of all of
the customer's policies. This integrated system captures detailed information on
a customer and underwrites the policy as accurately and efficiently as possible
for both commercial and personal lines. This digital system would eliminate
paper as much as possible, creating a single, digital file for each policy and
customer.
In addition to automated underwriting, features of OLPP include: on-line
intelligence for agents to guide them through submissions, storage of quotes in
client file organization, on-line viewing of stored quotes, automated policy
issuance and document management, historical archiving of policy information,
on-line change processing and management, automated renewal processing and
workflow automated the initiation and processing of premium audits, management
of certificates of insurance and proof of insurance and support reinsurance for
commercial lines.
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EXHIBIT B
CUSTOMER RELATIONSHIP MANAGEMENT SYSTEM ("CRM")
CRM is an information platform that provides a single view of the customer
across the enterprise in support of all customer processes and touchpoints. CRM
usually includes tools that enable sales force automation, customer interaction
management and marketing automation tools.
Sales force automation capabilities aid the agents with lead tracking,
appointment tracking, marketing materials shipping, and marketing effectiveness
tracking. Its focus is on converting leads into sales.
Customer interaction management tracks all customer-enterprise communication
across all communication channels - including call centers, agents, e-mail, and
websites.
Marketing automation tools help the enterprise to manage its campaigns and
promotions and to cross sell and up sell its products and services. Marketing
assistance may occur in two ways: system initiated and user initiated. System
initiated assistance is done using rule based alerts that prompt the sales
person with potential cross selling and up selling opportunities. User initiated
assistance is triggered by sales targets identified by querying the customer
database.
This initiative will deliver a customer relationship management system that will
enable a policyholder-centric focus at the agent and customer service level of
interaction. This system will allow for the tracing of customer service
inquiries, cross selling, up selling, and it will increase the productivity of
the home office customer service representatives, agent customer service
representatives and the agent. This initiative will focus on the customer
interaction management and sales force automation portions of CRM. In addition,
this initiative will enable ERIE to analyze the customer data captured by CRM.
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EXHIBIT C
REQUIRED INFORMATION TECHNOLOGY INFRASTRUCTURE
Design and Implement Web Infrastructure
The majority of new applications deployed at ERIE will utilize a browser based
user interface. Each of these applications should be built on a common web
infrastructure, allowing new application deployment to be completed in a more
timely fashion, minimizing custom development, reducing subsequent deployment
and maintenance costs and providing the users of ERIE applications with a more
homogeneous user experience.
The web infrastructure will centralize functions such as web content management
and application and web server monitoring and management. The building of this
infrastructure will primarily consist of choosing the appropriate software and
hardware platforms for these key components and then deploying and integrating
them with the ERIE environment.
Deployment of new ERIE applications will require the appropriate degree of
integration with the web infrastructure. There will need to be one common
registration process, a central repository of user access information and a
single set of screens for user sign-on. Each application deployed must be able
to recognize when a user has already signed onto ERIE and must be able to share
key information with the centralized services such as registration data and
event logging.
Data Transformation Architecture & Tools
The focus of this initiative is to purchase and integrate the tools required to
support data extraction, cleansing and transformation for the creation of
operational data stores and to support operational and analytical processing.
This infrastructure will be essential for supporting a range of initiatives,
including but not limited to:
o Creation of databases to support new operational systems, such as a CRM
or a web enabled front end
o Creation of an environment where online analytical processing can be
used to derive a greater understanding of ERIE's customers
o Creation of a data mart to support agent performance reporting and
analysis
o Any holistic customer-oriented reporting
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EXHIBIT C
REQUIRED INFORMATION TECHNOLOGY INFRASTRUCTURE(Continued)
Integration Architecture
Integration architecture will be developed to enable a unified view of
information to multiple back-end systems. This unified view is required to
provide a common web front-end to back-end systems. The integration architecture
is also required to ensure that multiple systems contain consistent information,
improving the accuracy of reporting. Commitment to the architecture will ensure
that applications are integrated to maximize flexibility and minimize cost.
The integration architecture will provide technology adapters, application
adapters, tools for building custom adapters, metadata repository,
transformation, content based routing, deployment tools, and management tools to
monitor and adjust for quality and performance. The building of this
infrastructure will primarily consist of choosing the appropriate software and
hardware platforms for these key components and then deploying and integrating
them with the ERIE environment.
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