Predictions from 1996

In my book titled "Fourth Generation Risk Management", published in 1996, a set of predictions concerning risk management practices and the insurance industry were made based on observations at that time. Below are the predictions. Lets see how far the industry has come to fulfilling predictions of ten years ago.

1) Risk Managements will measure service responsiveness of their suppliers and publish the results nationally

2) Risk Managers will more finitely define the role of the broker/agent, and the latter's fee's will be tied to their ability to provide services that create value for the entire organization.

3) Risk Managers will no longer be willing to pay commissions for traditional transactional services.

4) Risk Managers will increasingly separate the negotiations of insurance coverage from the selection of the broker/agent. Risk Managers will decide what broker/agent has the capability to provide quality services, and then approach the insurance companies in partnership.

5) Knowledge of an organizations operational issues will become a "must be" for brokers/agents.

6) There will be less shopping of insurance and more long term negotiations

7) Insurance company executives will become more and more involved in personal relationships with their largest customers and trade groups representing the smaller or medium sized customers

8) Operational problem solving expertise will be necessary for insurance carriers and brokers/agents

9) Measurement and evaluation of claims and cost of risk will be dominated by statistical tools and metrics to enable risk managers to provide better analysis and recommendations to their company.

10) Insurance purchasing constortiums will be formed to provide access to the insurance markets for mid- sized risk on a fee basis

11) The information super highway will accelerate transformation of business processes and interactions between the risk manager and their insurance suppliers. This transformation will create further change for the insurance industry and drive down transactional cost.

Certainly the above list represents changes that should have occurred given the explosion of technology over the last ten years. The question is whether risk managers and the entire insurance industry have used technology to the customers benefit and has the customer lead the transformation.

Does "Quality" Really Matter?

What would be the difference if the insurance industry (we'll start with the commercial P&C market) was committed to quality?

A question worth pondering? The answer depends on what "Quality Results" could be produced if the industry adopted Quality as a standard management practice. Quality is about reducing cost while improving customer satisfaction. But if customer satisfaction doesn't bring new value to the suppliers (the carrier, the broker, TPA etc.) why would the industry want to spend the time and money to achieve improved customer satisfaction? So what drives customer satisfaction within the P/C insurance industry enough that customers would change if one company offered said value and another did not? The data would suggest it is that "Quality" is not a factor that drives the customers decision.

Historically customers are driven by the price of insurance and security because insurance is predominantly a price driven commodity that is only measured as a cost by many organizations. From the perspective of customer loyalty studies have shown that the driving factor is one of relationship attributes. Relationship attributes are subjective and difficult to measure my any customer segment. So one could say that the driving factor of customer satisfaction is relationship attributes and price. Even if a company could provide faster turnaround on request, issue a policy correctly the first time, settle claims faster and at less cost etc. etc., the driving factor is still price and relationships.

The insurance industry is extremely inter-connected. An insurance carrier relies on Reinsurance, TPA's, Technology partners, Brokers & Agents, Serving bureaus, industry trade groups etc. etc. of which all are inter-connected in a system which ultimately delivers a product and service to the end customer. Thus improving customer satisfaction of product or service requires a collective effort of all the related parts. A daunting task for anyone company to take on especially if the end result doesn't really matter to the customer.

in 1995 The Chairman of the QIC, who was also the President of CNA Insurance at the time, told the RIMS Executive Committee that if Risk Managers did nothing with the QIC survey results, the QIC effort would be in vain. RIMS and the Risk Managers did nothing and the QIC failed. To this day, as pointed out in the recent "Quality" survey completed by RIMS, only 9% of companies have changed brokers following the Spitzer' findings and their own continued complaints of quality from their suppliers. Just 9%! Does this mean that Quality didn't matter to 91% of the customers? Even more important if Quality really doesn't matter then why would the industry go through all the effort to make improvements?

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Now independent of achieving improved customer satisfaction companies can save money by reducing operating cost driven by rework and complexity of a non-connected systemic processes. Companies could also improve employee satisfaction and retention. However, are these objectives worthy of the time, attention and expense of senior management? It really depends on the mind set and leadership style of an individual company. Collectively as an industry and as a system one could conclude that a systemic quality driven approach to achieving the objectives is rare and not a standard practice of the industry. How could one conclude this? A look at the data would bring one to this conclusion. What data? Operating expenses as a percent of total income has not significantly changed over time. Employee turnover rates have not significantly been reduced when measured over time.

So back to the question "Does Quality Really Matter?". One could easily say it does not for customers of the commercial property casualty industry.

The next obvious question is "Should Quality Matter?".

That is an issue that ultimately is for the customer to answer and if yes then why and what results would have to change.

Back to the Future ?

In 1993 the Quality Insurance Congress was formed bringing together customers and suppliers for the first time in the industry's history. The charter of the QIC was developed by the best minds within the industry and guided by the "best of the best" leaders within the Quality revolution, which started in 1980. The QIC first objective was to define "Quality" from the customer’s perspective and the organization published the first ever commercial insurance customer satisfaction survey results. Subsequently industry improvement initiatives were identified with plans for cross-functional industry teams to work on improvements. Three annual reports were published in 1994, 1995 and 1996. In 1997 the QIC was dismantled and efforts to improve quality within the industry were moved to RIMS, Accord, CPCU Society and other industry trade groups. A report titled "Mission Impossible" was published addressing why Quality Improvement could really never be achieved within the insurance industry.

Much of what the industry trade group did was to institute various "quality programs" which fundamentally delegated the function of 'Quality" to nothing more than compliance and new initiatives for workers and middle management.

Move to 2000 and beyond. The new era started out with the Dot.com bubble burst. Today much of the theory of "systemic thinking" has now become new initiatives with many different trade group labels. From RIMS QIP to other trade group program labels the fundamentals have been loss and "Quality" has been delegated to a department rather than being practiced by leadership. The insurance industry's customer base has not rallied around the opportunity to help the entire insurance industry improve rather they have chosen to "work on relationships" and single processes such as the RIMS policy issuance initiative. The Quality of thinking is missing and instead we can see silo efforts unconnected to systemic improvement objectives that are no longer defined.

What are the factors that led to failure of the vital role of systems-thinking leadership within the insurance industry?

1) Weak Customer Input and Participation: The customer using traditional linear thinking when viewing and solving problems that are systemic in nature. It appears as though that the culture of risk managers as a group is still entrenched in old practices with little understanding of Quality as a systemic issue. Quality Leadership is needed if the customer base truly wants "Quality Improvement" throughout the entire supply chain of the system of insurance product and service delivery.

Customer thinking is entrenched in traditional thinking. Traditional decision-making tends to involve linear cause and effect relationships. By taking a systems approach, we can see the whole complex of bidirectional interrelationships. Instead of analyzing a problem in terms of an input and an output, for example, we look at the whole system of inputs, processes, outputs, feedback, and controls. This larger picture will typically provide more useful results than traditional methods. Education of today's customer leadership is required to go "back to the future".

2) Management by Results: Today's risk manager is measured by financial results i.e. budgets, sales, headcount and the cost of the latest insurance purchase. If the results are not what the "boss" expected then a simple resolution is to cut budgets, blame other people or find cheaper insurance through another broker. This method brings no improvement rather further complexity and increased cost. What are the cost of risk? What is the true cost of poor quality? Who would know?

Today's risk manager is also measured by monthly or quarterly results. A timing factor that does not allow a true picture as to how people, processes and customers are behaving over time.

System thinking helps us integrate the temporal dimension of any decision. Instead of looking at discrete "snapshots" at points in time, a systems methodology will allow us to see change as a continuous process. Systems’ Thinking is a worldview based on the perspective of the systems sciences, which seeks to understand interconnectedness, complexity and wholeness of components of systems in specific relationship to each other. Systems thinking is not only constructivist, rather systems thinking embraces the values of reductionism science by understanding the parts, and the constructivist perspectives which seek to understand wholes, and more so, the understanding of the complex relationships that enable 'parts' to become 'wholes'.

3) Short Term vs. Long Term emphasis: The stock market operates around quarterly results. Corporate accounting systems operate around monthly results. Many organizations are driven by their budgets, not by how to improve or innovate product and service thus increasing customer satisfaction and market share. Improvement drives down cost, creating market differential and increasing customer satisfaction drives up sales. Short-term thinking does not enable either to happen effectively. Many risk managers are measured from renewal to renewal and the cost of insurance is the driving factor. Risk Managers are rarely measured on internal and external process improvement initiatives.

4) Politics: Much of the traditional risk management approach and practice has been entrenched for years. We have seen many "unintended" but "logical” consequences of this approach i.e. allowing brokers to double dip on commissions for years. Practices such as these and others have stayed the same to such an extent that "internal industry politics" has become the cultural norm.

The Political factor drives many risk managers to focus on "how to keep in good standing" with their immediate boss or immediate supplier. Never questioning his/her methods, always learning to give the "politically correct answers" rather than simply speaking the truths. Political factors are a dominant cultural trait of organizations that manage by results.

There are many other factors that have kept risk managers trapped into old practices with corresponding loss of profitability and product/service quality. In order for companies to go forward they must go "back to the future" and learn from mistakes in thinking and practice that are robbing their shareholders value, the value of the risk management function and their customers satisfaction.

History of the Quality Insurance Congress

The Quality Insurance Congress was formed in 1993 to create a forum for the system of insurance and its customers to facilitate change that would improve customer satisfaction. Although each segment of the insurance delivery system had recognized the need to change the industry and develop methods to increase quality and customer service, they came to realize that each of them is dependent on the other in developing improved products and services. If they wanted to raise quality, they would have to work together. This led to the formation of the QIC, an organization uniting the insurance system with the customer.

The QIC wanted to improve the processes by which we provide insurance, the products that we offer, the services that we render, and in all of these areas, maintain a level of quality that meets or exceeds customer expectations.

What are all of the components of the insurance industry? Buying insurance is not just an exchange between customers and agents. The process includes many other players that are in the background but who nevertheless impact how the consumer ultimately feels about his/her purchase of insurance. These background components include, but are not restricted to, regulatory agencies, insurance companies, reinsurance companies, suppliers, brokers, agents, underwriters, customer service reps, marketing reps, etc. How do we inspire a common goal toward quality in all of these people? The mission of the QIC involves four areas.

The first is, on a continuing basis, to identify and develop a common measurement of customer expectations and satisfaction. What makes a satisfied customer? What does the customer expect? How can we, as an industry, meet or surpass those customer expectations? Secondly, to develop a common understanding of what quality really is and its economic impact among all facets of the industry. Next, so that no one is at odds with the other, to promote cooperation and continued education among all components of the process. We need to educate ourselves as well as the consumer. And finally, encourage management to implement these changes so that the goal is met for continuous improvement of the processes, the services and the products.

QIC members had QIC Resource center to use as an information source. The center provided QIC members with educational and reference materials relating to educational opportunities, information on industry associations, calendar of industry events, resources for specific subjects and services, proven management techniques, and new customer topics. More plans are being made to expand the resource services, and this is an area where the membership of QIC could provide invaluable resources.

Jay Deragon, executive director for QIC, believed that members benefit greatly by joining the QIC in its efforts to create and maintain quality within the insurance industry. In many areas, member companies were able to turn to the QIC to provide solutions rather than turning to an outside consultant or spending valuable staff time looking for solutions. The QIC had spent time to research many issues pertaining to quality within our industry. He also believes that the companies who become members of the QIC will have an impact on creating the change that should occur within the industry.

QIC's premise was that by developing a common voice among the various elements of the industry, more could be accomplished as QIC works toward active change. The QIC was shut down in 1996 and its efforts transferred to RIMS (Risk Insurance Management Society) in 1997. RIMS tried to forward the effort by publishing "Quality Improvement Process" for risk managers and their insurance partners. Since then no valid industry wide survey has been conducted to measure customer satisfaction with brokers, agents and carriers thus there is no basis from which to conclude whether anything has improved since the original "Quality Scorecard" was published in 1994.

Instead companies have pursued "quality initiatives" with numerous labels. The growing implementation of ISO 9000, which was a requirement for companies to sell into Europe, fostered a focus on process documentation to the neglect of process improvement, customer focus, and strategic leadership. * Reengineering - the wholesale change of large processes - quickly turned into a way to eliminate large numbers of employees. This and other means of "downsizing" meant that many companies lost their "corporate memory" as well as the loyalty of employees. * Other new managerial frameworks such as employee empowerment (promoted by Stephen Covey) and the Learning Organization (promoted by Peter Senge) were erroneously seen as competing with "Quality" rather than as complementary to it. Different departments or divisions chose and promoted different frameworks. Employees would say, "If this is Tuesday, I must be empowered. If it's Thursday, I should be using TQM." No one did the hard work of integrating them. Also, the traditional U.S. desire for "newness," and a "quick fix" meant that the "Quality Management Philosophy" inevitably and quickly became an old wave of management theory.

So it has been 13 years since the Quality Insurance Congress was formed. 12 years since it first customer satisfaction survey results were released. The initial survey results and subsequent survey results from 1995 - 1996 showed no improvement in customer satisfaction and the overall industry rated in the lowest quantrant of other industries customer satisfaction levels. So with all the supposed "improvement initiatives" subsequently started by the industry how would one know if anything has improved without having appropriate customer satisfaction data availalbe for puiblic viewing.?

In future publications we will examine other insurance industry efforts to improve. What has actually made improvement vs. what is nothing more than a label and another initiative for employees to carry out without a complete commitment from top management.