ePLMM: Policy Life Cycle Maturity in Insurance Agencies
Insurance players, Brokers and Agencies have a huge task of generating returns when the premiums are falling and claims are rising. The industry is also facing increased competition from technology led entrants such as fintech companies that provide such services directly to the clients. Increasing business compliance requirements and tougher regulations are hurting margins. On an average, most intermediaries are shelling out close to about 10% of their revenue in E&O exposure along with other penalties for non-compliance. Exdion, based on extensive research and more than a decade of experience serving insurance companies has developed an empirical framework – ePLMM ® , which helps companies assess their current operations and technology and indicate areas to improve.
Revenue leakage is the largest component of an Insurer’s expense base. Poor alignment of resources, inconsistent process practices, limited understanding of technology and inefficient use of available technology cost about 6% of revenue losses. Managing an effective and efficient operation is key to a Broker’s profitability and sustainability. A maturity framework is a useful tool for Insurance businesses to analyze and measure their client administration process in the context of revenue effectiveness.
ePLMM: A maturity framework for Policy Life Cycle Administration
Exdion has identified four stages of policy life cycle maturity, viz., 1) Rudimentary 2) Emerging 3) Defined and 4) Optimized. The four stages of maturity is based on application usage, service standard adoptions, service efficiency, codification and digitization, revenue loss due to non-compliance and service operation costs per customer.
Application usage involves the use of IT systems to capture complete information about policy application, escalations, followups, service allocation, audits, service completion time and post service feedback. Application usage reflects the insurance service provider's organizational effectiveness. It also refers to the extent of integration across systems and process. This includes seamless integration of systems across the service engines and their partners. These includes device, application and program compatibility. The higher the compatibility, the more integrated and mature the administration process, as data drop and errors can be minimized.Service standard adoption covers the extent of formal SOP’s, the reliability and codification of process, including ownership of outcomes at various stages. Insurers with detailed descriptions of what is the service offering (what needs and wishes are to be satisfied) and how this is achieved by aligning with their organization strategy and competitive intention to outperform others. Higher service adoption entails detailed service concepts that are robust, scalable and evolve quickly with the demands of markets.
Service standard adoption covers the extent of formal SOP’s, the reliability and
codification of process, including ownership of outcomes at various stages. Insurers with
detailed descriptions of what is the service offering (what needs and wishes are to be satisfied)
and how this is achieved by aligning with their organization strategy and competitive intention to
outperform others. Higher service adoption entails detailed service concepts that are robust,
scalable and evolve quickly with the demands of markets.
Codification and digitization refers to the level of conversion of tacit information to explicit information. It also cover covers the completeness, storage, reproduction and retrieval aspects of data. Designing protocols to capture data in a consistent and accurate manner ensures strong data integrity and reliability. This enables data driven decision making rather than subjective decision making. Higher codification also enables deep dive knowledge management systems that can work on customer and policy information in real time.
Service efficiency covers service definitions, moments of truth in service cycle, TAT, resources and capability, service failure and service recovery mechanisms of the policy life cycle. It covers the complete policy life cycle process: right from application, underwriting, policy issue, claim, and renewal.
Revenue loss to non-compliance is the cost of poor quality (COPQ) of the policy life cycle. This includes E&O losses, revenue losses due NOC’s and penalties, or lost business opportunity. Service operations cost per customer is the cost of serving a policy holder. This does not include salaries, commission and fee, marketing and administrative expenses, adjustments and losses.
Table 1 presents the four maturity stages of Policy Life cycle Management in insurance companies, brokers and agency and associate dimensions.
Table 1: Policy life cycle maturity stages and associated dimensions
** Does not include sales and marketing costs, commission and fees, penalties for non-compliance
Stage 1: Agents and Brokers, especially in the 3-15 employee categories, have no formal SOP’s and the documentation of the processes are weak. There may be a primitive Agency Management System in place, or sometimes none. With only minimum standards on client service, service failure association is unavailable. Service efficiency is very poor with selective and discretionary service parameters, mostly relying on individual knowledge and discretion.
Companies in this stage are predominantly paper based and face a high chance of revenue loss due to non-compliance, NOC’s and E&O exposure. The service operations cost as a percentage of the organization’s revenue is high and there are no measures in place to control costs.
Stage 2:The company’s policy administration maturity is best described as “emerging”. At this stage there is some investment in organization, process and measurements. Basic documentation and SOP’s exist, some key performance metrics are identified at this stage. Processes are largely reactive to client requirements and only the key clients are serviced with defined standards. No knowledge management initiative exists to codify and formalize the root causes of service failures.
At this stage, companies are cognizant of possible revenue leakages – E&O exposures are tracked but have not devised comprehensive mitigation plans. SOP’s, though documented, only focus on the required domain knowledge but fail to cover the system specifics. Employee attrition impacts the revenue due to poor repository practices. Service costs are still high between 45-55% of revenues.
Stage 3:Described as “externally focused”, this is when the intermediary builds client relationships on the basis of their delivery value and cost advantages. At this stage, companies have made significant investments in data capture and consolidation to drive planning and control of leakages and the cost of delivery. The Agency Management System (AMS) is better leveraged but limited to basic workflows and in some cases, a stand-alone Document Management System.
At this stage, the SOP’s are broader and richer, encompassing not just the domain knowledge but also system-level bringing in a formal knowledge management practice, though basic.Companies now implement a service level framework with defined lead times for all activities, but adherence to these standards may be limited only for critical functions. While they meet a fairly good standard in maintaining a paperless office, their disaster readiness is low.Service costs are close to optimal in this stage with about 38% (on an average) being the cost of servicing clients.
At this stage, companies use data analysis to identify the cause of revenue leakages and put in place fairly effective controls to arrest the leakage. Workflows are seamless and the agency management systems are used throughout the entire policy lifecycle and reach an ideal situation of ‘straight through processing’.Service standards are client-centric, robust and adaptive. The knowledge management function operates predictively on a sense and respond mode.
Service processes are clearly defined for each “moment of truth” focusing primarily on customer delight on every activity with proactivity across the service cycle. The office is a paperless highly digitized environment offering powerful disaster readiness and business continuity systems with cloud based redundancy. Potential revenue leakages are preempted through continual audits and prescribed remedial measures. Service cost operations drop to a comfortable range of less than 35% of premium revenues.
From an industry perspective, Policy Lifecycle maturity stages are closely related to the performance of the agency. Figure 1, shows performance metrics at various stages.
Figure 1: Policy Administration performance metrics at different stages
Points to Ponder when adopting ePLMM
Our transformation programs experience has taught us few do’s which are presented below.
- Phased approach to automation, with priority on service variances pays huge dividends.
- Service improvement that deepens end customer visibility has high payoff.
- Create process, product and change owners at all levels.
- All process must be redesigned from customer perspective.
- Top management team has to consistently create the sense of urgency.
- Keep challenging the assumptions, ask for data.
- Service Structure re-engineering and the resultant cost savings can be obtained through outsourcing that yields quick & significant impact.
- Hold frequent reviews/touchpoints with the partners and customers.
- Improvisation is a continuous process and sometimes it is necessary to tweak certain areas after the implementation has been done.
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