Value Chain Reengineering of Insurance Industry firm to enable New Innovation
The Property & Casualty segment of the Insurance Industry was severely broken. For fifteen years,
- 40% of the Commercial Market customer base had opted out of traditional P&C insurance in favor of self insurance, led primarily by large corporations. On the other hand, small businesses, lacking the financial resources and competencies for self insurance, were faced with ever-increasing premiums, and very poor service.
- 20% Turnover Insurance Customer Turnover/Churn Rate, resulting in:
- Hi Cost of Sales and Service, and Low Profits for Insurance Agencies
- High Costs to Insurance Carriers, who, in turn, began to attack Agency Commissions
- All Tolled, the Large Insurance Carrier Industry had not made a profit on the underwriting side of the business since 1979, suffering a 2% loss during the early 1990’s
Every part of the value chain was struggling to carve up an ever-diminishing pie, no one was satisfied. The P &C system was a mess, and required more than just “fine tuning.”
While many companies had tried new technology to create efficiencies, we saw the problem not needing technology innovation, but primarily process innovation.
Using our proprietary architectures, two strategies formed the foundation of shift:
- Form collaborative alliances with and across the currently broken elements of the value chain, and
- Reengineer the way value is created and delivered in the value chain.
The aim was to encourage Clients, Agencies/Agents, and Carriers to work together to:
- provide better continuity, and specialized products
- achieve superior underwriting results, and attain better loss ratios,
- create satisfied customers
By sharing risks and rewards across the entire value chain, a “triple win” could be achieved.
By reengineering value chain, improvements could be made in areas such as elimination of non-value added work, better cycle time, innovation, and integration of functions.
Using the theme of the “Power of Shared Knowledge,” innovation has blossomed at every point in the value chain. The client has been able to produce a value-laden strategy, provide leadership, design a functional organization, encourage collaborative alliance processes, and produce very positive economic results. The reengineering of the value chain has been a success.
- Premiums are down,
- Underwriting is now profitable,
- A deep trust has been built among entities that were formerly adversarial competitors.
While many of the networked suppliers and customers remain competitors, they also work together productively on the basis that “all ships rise on a rising tide.”
Since its inception ten years ago, the client has been expanding beyond its mid-Atlantic origins, with operations now in the north-east, mid-west, and west.