Pressures on insurers continue to mount. Customers demand even better service. Markets demand improved combined ratios. And regulatory changes seem never ending. Only those organisations able to address these challenges simultaneously will thrive.
In response, some companies are applying approaches such as Lean, an improvement technique with origins in the Japanese car industry and extensively used by manufacturing firms. Those organisations that have succeeded in deploying Lean have delivered impressive results. For others, however, a breakthrough in performance has proved illusory despite the promises. But why?
A ‘radical’ approach is required to address jointly the service and cost challenges
Competitive and regulatory pressures, alongside incessant advances in the use of technology, impose the need for continual change on insurers. Customer expectations and tight margins mean that there is an urgent need to improve service and cut cost simultaneously – to enhance shareholder value and not merely trade them off against each other.
When manufacturing organisations faced this challenge in the 1970s and 1980s they had a simple choice – change, or go out of business. The successful survivors, such as Toyota, adopted radical new ways of working, with what became known as Lean at the forefront.
It took the manufacturing industry 15 years to perfect its Lean methods. These are now tried and tested and are delivering substantially higher productivity. But there is much about Lean that can be applied in other sectors, including insurance. By adapting Lean to their environment insurers can leapfrog the evolutionary path that manufacturers took.
Manufacturers evolved ‘Lean’ approaches that deliver exceptional results through the intimate involvement of their staff
Lean derives from a performance improvement approach originating in Japan known as the Toyota Production System. It involves a relentless focus on satisfying customers and the elimination of waste. In simple terms, if the customer would not pay for the work done by your staff then it has no value – so don’t do it!
To secure sustainable improvement, Lean has evolved into an ‘holistic philosophy’ that is primarily about getting the most from staff, underpinned by a specific way of designing processes and a set of management tools – while significantly improving the conditions within which people operate. At the heart of Lean is a major cultural shift.
Insurers have yet to achieve the significant service and cost benefits from Lean’s impact
Insurers have identified many ‘moments of truth’, where front-line staff engage with customers. Lean processes, delivered by motivated, empowered staff have the potential to transform the customer experience. However, problems still plague the typical claims contact centre due to multiple hand-offs, staff incentivised to keep average call time to a minimum and absenteeism and low job satisfaction.
To leapfrog the evolutionary path insurers must focus on people, performance and practical interventions
With experience, Lean practitioners found that delivering and sustaining performance improvement requires, above all else, addressing the people aspects. If insurers are to accelerate the improvements in service and cost they must take a more ‘radical’ approach than they typically are, by adopting three principles:
- Focus on people more than processes and tools
- Take a top-down view to achieve the sought-after performance
- Develop a practical approach that grows Lean capability.
The article goes on to look at these three areas in detail, and summarises that using lessons from manufacturing, Lean can deliver immediate results as well as building a long-term improvement capability, with a case study on Alka Insurance.
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This article is from PA Perspective on European Insurance - To request a copy of this publication, please e-mail: insurance@paconsulting.com
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