Identifying The Attributes Of The 21st Century Insurance Enterprise

By

San Diego

Identifying the attributes of the 21st century insurance enterprise was the focus of a panel at a general session here at the annual meeting of the American Council of Life Insurers.

Saying that it was analogous to being on the outside and looking in, Richard Marx, vice president and North American industry leader, Cap Gemini Ernst & Young, posed a series of questions to three panelists, none of whom work for an insurance company.

Yet, as it turned out, all three executives–from a reinsurer, a technology company and a bank insurance firm–had insights about how insurers could operate more profitably and efficiently in the coming years.

The first question posed by Marx was what his panelists companies were doing or helping other companies do to get to and operate at the lowest possible cost and the greatest efficiency.

David B. Atkinson, president and CEO of RGA Reinsurance Company, said his firm was addressing the issue in several ways.

First, he said, was the way RGA staffed. “We are wary of adding any position that doesnt serve customers,” Atkinson said. “And we always add to staff after we need them.”

Atkinson said that the way decisions were made at RGA also was a key factor. The further you get away from customers, he said, “the easier it is to destroy value,” which, he added (half-jokingly), is why he makes relatively few decisions.

He described RGA as a flat organization, where 20% of the staff is authorized to make decisions up to $1 million. They audit themselves, he said, and it has turned out to be a system that works well.

Outsourcing is another way that RGA has chosen to lower costs, according to Atkinson. The company outsources investing, he said, which allows it “to gain economies of scale and to diversify in a way it could not do if it was in-house.”

Finally, as a relatively young company, RGA was not saddled with older technology, Atkinson said, and has tried to keep up with new technology over the years.

Doug Brown, director of marketing, IBM, solutions and strategy division, also spoke about outsourcing, of which he said there were “multiple levels.” But companies have to realize, he added, that “they cant outsource the responsibility for a quality experience with producers and customers.”

Tracy Foss, managing director, life insurance, Banc One insurance group, said that for her company productivity was a key factor in expense control. “We look at our agents productivity,” she said, “and if they are not as productive as they should be then we see what can be done in terms of educating them.”

Banc One takes a similar tack with the companies whose products it sells. “We try to get the companies to work with us, to supply product that meets our specific needs and standards.”

Regarding expenses, RGAs Atkinson said that insurance companies “should track expenses at the granular level.” But there is no point doing this and getting all this information, he added, “if they are not going to use it.

“You need discipline to follow through on what youve found,” he said.

IBMs Brown predicted that business activity monitoring, which is “now new, but will be mainstream in a few years,” will help companies increase productivity and control expenses. This technology, he explained, captures events that flow across a system where the software monitors whats happening, enabling companies to act on that information.

The second question that Marx posed was which paths insurers would take to differentiate themselves in the future. He said there were basically two paths: Insurers could be a product manufacturer or a relationship manager.

Looking at these two paths, Atkinson said, “Customer intimacy is not a warm and fuzzy policyholder experience, but a focus on your producers so they can add value.”

As for product leadership, he said companies should try to be innovative “so they dont have to have the lowest price.” Operating efficiency, he added, “is where you can support product leadership.”

Banc Ones Foss said, “We try to be a full financial provider for customers, so how you use products as a solution for your customer is key.” But this is “more a question of processes and delivery,” she said, rather than product per se, since “a product is a product.”

Foss described one facet of the process that Banc One uses in this regard. She said her firm has its own underwriters who look at every insurance application so that when it is sent to an insurer “its clean.”

Last year, she said, 90% of apps that Banc One sent to insurers were clean. “We have 70 errors per 1,000 apps,” she said, “as opposed to the industry average of 450 errors per 1,000 apps.”

This shortens the time it takes to process the apps, she said, and so leaves less time for customers to change their mind.

Finally, the panelists were asked to consider the barriers to executing the agendas that would lead to greater productivity and efficiency.

Technology is not the barrier, said IBMs Brown. “Technology is not standing in the way of an institutions choosing its distribution channel, for instance,” he said. “It is up to the institution to decide whether it will sell through agents or not.” The technology is there to make any choice work, he added.

Atkinson said that he thought that was true for service, but not for sales.

Foss agreed with Brown that technology was not the roadblock. “The major roadblock is how you handle regulations like the Patriot Act and others, that you have to deal with in serving your customers.”

The key to success and the major challenge for a company, said RGAs Atkinson, is alignment of vision, strategy, implementation, culture and tactics, among other elements, so that these elements all line up through the entire company.

Many companies dont have this kind of alignment, he said, and to get to it they need to start in one place. For instance, he explained, figure out your strategy and then make sure it is aligned with your products and markets. “If you can do this and have your people buy into it,” he said, “then start to change your culture.”

This incremental approach to alignment, he concluded, is the surest way for a company to overcome the barriers to implementing its agenda.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 21, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.