Has the Quest for Efficiency by Large Insurers Been Counterproductive?

If the quality of service is to change, staff performance should not be measured in terms of resource optimization but in terms of flow optimization: How quick and efficient is the process from the customer’s perspective?

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Only around 30 percent of insurance customers are satisfied with their current providers. This has created a huge “switching economy” in which, Accenture calculated, $470 billion in annual personal-lines, life and P&C premiums were at play in 2014. But while insurers that have focussed only on internal efficiency may have reduced operating costs, by failing to understand the value of great customer service, they have missed out on winning an increased share of that $470 billion.

Measuring service sector productivity using time & motion methods borrowed from the manufacturing sector is actually counterproductive. Today’s insurance customers are very different from their predecessors. More empowered and more social, they have higher expectations from their insurance providers.

Jeffrey Dailey, CEO, Farmers Group.

Jeffrey Dailey, CEO, Farmers Group.

To quote Jeff Dailey, CEO of Farmers Insurance, “If you just go back a few years, we used to compare ourselves against our insurance competitors… and that’s not what our customers experience any more. Our customers now are looking at Amazon, they are looking at Google, they are looking at Apple and they know what those experiences are like and they expect the same from providers in everything they do.”

A University of Michigan study of 200 companies shows a clear correlation between higher levels of customer satisfaction and higher stock prices. Real productivity doesn’t just concentrate on short-term earnings but also on strengthening customer attitudes and relationships, on strengthening the brand.

A McKinsey Insight states “U.S. auto insurance carriers that have provided customers with consistently best-in-class experiences have generated two to four times more growth in new business and about 30 percent higher profitability than firms with an inconsistent customer focus, in part because satisfied customers are 80 percent more likely to renew their policies than unsatisfied customers.

Two factors that can encourage policyholders to renew with their current insurer are the perception of added value and a positive customer experience—with the latter engendered through the provision of “legendary customer service.”

This does not always mean having perpetually to delight customers; something that is perhaps difficult to do with a grudge purchase such as insurance, but requires the provision of a consistently high level of service that makes customers feel they are valued individuals, rather than a nuisance to agents in the call center.

Reasons for Customers to Stay

The industry must provide a quality of service that gives customers no reason to leave and plenty of reasons to stay. Such initiatives will also help insurers to encourage their customers to base buying decisions on more than price alone.

It is easy to fall into the trap of measuring things because they are easy to measure, such as the number of calls an agent handles in a day and to ignore the things that are actually more important, but difficult to measure, like the feeling of wellbeing that we get when we have received great service. But being difficult is not a good reason for not doing something; in reality, it is the quality of service not the number of bathroom breaks taken by an agent that creates satisfied customers who then become advocates.

Everyone has a story about poor service from an insurer “I had to give the same information to six different people,” but very few have a good story to tell.

There is a direct parallel in medicine, where traditionally clinicians, especially doctors, have been considered more important than the patient. The patient waits, sometimes for several weeks, for a number of appointments to meet with a series of resource-optimized medical practitioners, though only spending a few hours during that period actually receiving treatment.

Compare that with a flow-optimized process where the patient can move directly from one clinician to the next in the space of a single day. While this may be seen as being inefficient by time and motion study proponents, the experience for the patient is immeasurably better and that should be seen as having real value.

If the quality of service in the insurance sector is to change, staff performance should not be measured in terms of resource optimization but in terms of flow optimization; how quick and efficient is the process from the customer’s perspective?

Top-Down Cultural Change

Organizations that fail to place a value on their customers’ time, are destined to be left behind by their more innovative competitors.

It seems that insurers often know what needs to be done, but fail to do so because it all seems too difficult. Perhaps what is required is a radical overhaul of how insurers treat their customers, but this will require a top down change in culture and the adoption of modern infrastructure to empower staff to engage with customers in a way that will bring a smile to their faces.

But for those insurers with visionary leaders willing to make the effort, it will result in their winning significantly more of that $470 billion.

Kevin Wallis-Eade //

Kevin Wallis-Eade, a director at insurance technology specialist consulting firm ORIAC Solutions Ltd, is a veteran of more than a dozen multi-year technology projects for global insurers. Recognized as a visionary leader, Wallis-Eade is a proponent of cloud computing, mobile first, continuous improvement and the value of creating profitable customer journeys. His approach emphasizes evolution over revolution and the importance of the cultural side of change management.

Comments (2)

  1. I have some actual experience with Time & Motion, having served that function many years ago at Bethlehem Steel’s Sparrows Point plant. (Beth Steel was the first major corporation to implement Frederick Winslow Taylor’s MTM.) Um, it doesn’t really work: My workers made it abundantly clear to me how my studies would be conducted and what they would eventuate in. So it is with CSRs in the Service organizations: They self-police.

    But Mr. Wallis-Eade is certainly correct in pointing out that — even if T&M worked in practice as MTM theory says it should — it’s no longer, if it ever was, the way Service needs to work in the Insurance biz today. And kudos as well for debunking the holy grail of “delighting” the insurance customer; Please, let’s just satisfy them.

    I must admit, however, that YET ANOTHER call for “a top down change in culture” by “visionary leaders” is not neither particularly inspiring nor practical without some real ideas about how to effect THAT. Perhaps Mr. Wallis-Eade will attempt to tackle this in a future article.

    • Kenneth, I really appreciate the feedback. I agree that it is very easy to call for change, but a lot more difficult to bring it about; especially in large and complex organizations. However, my point still stands – businesses that are most able to evolve and adapt will be the ones most likely to prosper.

      How depends on a company’s particular circumstances (I would be pleased to discuss specific cases offline). But perhaps in every case, a good place to start is with ‘Why’ as Simon Sinek so passionately discusses. Secondly, is the hierarchical structure of businesses still fit for purpose in an age of ubiquitous and instant communication? Perhaps we need to revisit Itay Talgam’s excellent 2009 TED talk ‘Lead like the great conductors’.

      Finally, for this brief reply at least, I mentioned in the article that organizations that fail to place a value on their customers’ time, are destined to be left behind. The same is true for companies where the staff perceive that their contribution is not valued by their employer and that their time is just seen as a cell in a spreadsheet.

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