Next Generation Of Operational Excellence For Insurers

For insurance organizations, the decade following the 2008 financial crisis has been characterized by economic and social change, set against a more recent backdrop of technological disruption. The cumulative effect has been tightening economics and increased competitive uncertainty. Faced with this, many large enterprises have used operational excellence programs to closely monitor and improve all areas of performance.

These include profitability, decision-making, ongoing investment, customer satisfaction and human resources capabilities. One decade on from the financial crisis a large number of insurers are already implementing their second or third group-wide program. In most cases, these programs are singularly designed to drive ambitious cost-savings targets, usually by concentrating on improving efficiency rather than excellence

Yet, many insurers are now coming to understand that there is a lingering contradiction between conducting a program uniquely focused on costs while at the same time having service excellence as part of group-wide objectives. As the pace of change speeds up in the industry, many insurers are concluding that the mantra of doing more with less is no longer the backbone of successful operational excellence programs. It is now time to step back and take a more holistic approach.

The Four Pillars of Operational Excellence

In an ideal world, what are the essential characteristics of next generation operational excellence programs? Being operationally excellent requires tailored solutions to well-defined problems – and programs should aim to provide benefits to all insurers’ stakeholders. This includes shareholders (cost and operational risks reduction), customers (quality of service), as well as employees (quality of life at work and employee satisfaction).

Let’s consider the following four essential objectives of operational excellence:

Cost reduction: Frugality and profitability will continue to go hand-in-hand, usually by reducing operating expenses, as a percentage of an organization’s cost base. We believe that there are still plenty of opportunities for efficiency within most insurers, but they lie deeper within the organization and will require smarter methods than may have been applied in the past.

Quality of service enhancement: In the future, ever more discerning and tech savvy customers will demand superior levels of customer experience, delivered via flawless customer journeys. Heightened competition and the customer revolution in other sectors mean that customers will no longer tolerate unnecessary delays or errors, or poor service experiences. Likewise, service should be delivered with a hearty helping of simplicity, transparency, and empathy. The Net Promoter Score has become the standard customer satisfaction KPI for activities with external customer interfaces. In the future it could be further evolved to monitor activities with internal customers (such as support functions).

Quality of life at work enhancement: Improving employees’ satisfaction - or even happiness - at work will be a crucial element of an employer’s brand proposition, when it comes to hiring and retaining its workforce of the future. This will be done by allowing employees to focus on the tasks that interest and/or challenge them or have intrinsic value, and removing those repetitive tasks which add little value. Employees will feel a greater sense of engagement and purpose if they feel they have more time to focus on the quality of service and improving customer satisfaction levels.

Operational risks reduction: Streamlined process should improve regulatory compliance, as well as reduce operational risks. Robotization can improve an insurer’s capability when it comes to tracking and recording data handling operations, which is increasingly requested from regulators. Furthermore, automation provides opportunities to better define the list of activities that staff and representatives should be undertaking, and hence the activities that are out of bounds, helping to ensure greater compliance with internal and external requirements.

Reality Bites

Whilst these four pillars offer a text book solution to operational excellence, most insurers find the practical application is fraught with challenges. Many operational excellence programs currently focus on one or two objectives at best – usually prioritizing cost savings. Organizations often experience a tug-of-war scenario, where too much focus on one area could have a detrimental effect elsewhere. For instance, offshoring projects have reduced costs, albeit often not as much as initially anticipated, but have often resulted in deteriorated quality of service. This is particularly true for the case of offshoring customer contact centers. Likewise offshoring support functions may have made some improvements to the bottom line, yet these are often accompanied by longwinded or frustrating processes, when attempting to get an outcome.

Fueled by increased competition by a wave of new ambitious players in the market, this trade-off is no longer acceptable for most insurers. It is therefore vital that the next generation of operational excellence programs has a solid foundation based on all four pillars

In some cases the balancing act has worked. Traditional cost-savings approaches, such as ZBB (Zero Based Budget), delayering, decluttering, procurement, frugal, and nearshoring are complementary methodologies which address different parts of an insurance organization and its cost base. Well implemented, they can deliver 10-20% cost savings in a relatively short timeframe, as well as substantial benefits when regularly re-implemented. Importantly, these prove to be more successful when they combine additional objectives to the goal of saving money. For example, through a ZBB approach, multiple granular efficiency (renunciation or optimization) levers will be identified. However, before validating a given lever, a systematic assessment of its potential impact on each of the four performance objectives should be undertaken, either quantitatively (such as % cost savings, and % KRI improvement) or qualitatively (such as impact on quality of service or quality of life at work). Levers that do not meet the minimum level set on each dimension need to be deselected.

Operational Excellence in the Digital Era

It is no surprise that operational excellence programs are being dramatically reshaped by digital reengineering. Not only does this fresh thinking have the potential to deeply disrupt classic operational excellence programs, it offers insurers practical ways to improve performance across all four pillars – and this could be a real game changer.

Today, many insurers are already capitalizing on the benefits brought about by digital reengineering. One example is using technology to improve existing activities and processes, such as robotic process automation (RPA), flows digitization, and self-service. Another approach is to improve the processes themselves, through inter alia end-to-end or front-to-back process digitization. These can be incorporated into an existing digital reengineering plan. The first approach generates rapid results and requires limited investments. Alternately, the second approach will have more of an impact on a larger base, but does require more implementation time and costs.

Technology will no doubt bring tangible results across each of the four operational excellence pillars. For example, well-designed RPA programs can drastically reduce costs (by replacing manual work by robots), increase the quality of service (speed and availability of response), improve quality of life at work (by removing repetitive low value added tasks) and reduce operational risks (no careless errors and better visibility). Front-to-back process reengineering has the potential to align an insurer’s operational performance at the same levels associated with InsurTech’s best practices. Leveraging smart processes and new technologies has the potential to make an astonishing impact on customer experience, as well as radically improve productivity.

Adding artificial Intelligence (AI) into the equation signals a new dawn for operational excellence. Functionality such as natural language processing and voice / image recognition capabilities are opening up a treasure trove of possibilities for digital re-engineering

For example, email analysis technology has allowed some insurance agents and employees to automate processing of up to 30% of customer emails, allowing them more time to meet with customers. And this share will gradually and relentlessly increase. This will have a positive impact on productivity and quality of service, such as better response times. Virtual assistants will help insurance agents and employees mobilize the right expertise in real time with a great impact on their quality of life at work and on customer satisfaction.

In spite of the many operational excellence programs implemented over the last decade, Insurers still hold a lot of operational performance improvement in reserve, with material potential benefits for customers, shareholders and employees. To do so, traditional operational excellence levers have to be enhanced with digital reengineering boosted by AI functionalities.

The next generation promises to deliver a future where technology is fully leveraged to offer benefits for all stakeholders. However, to ensure these approaches can deliver concrete results (such as savings which are fully and sustainably accounted for in a P&L), insurers will need to encapsulate their operational excellence approaches into a structured mid-term program. This should include planning and implementation waves, tracking results, managing change and taking appropriate and sensitive measures to fully adapt the workforce. It is time to reinvent operational excellence for good – and reap the rewards.