Subscribe

New blueprint for insurance sector

The insurance sector makes life difficult for itself, but there is a way forward for this embattled sector.
Freda du Toit
By Freda du Toit, Chairman and co-founder of Kgali Investment Holdings.
Johannesburg, 14 Jun 2006

After two decades in the insurance industry, I am still amazed to see how little has changed. Well, if it hasn`t changed over three centuries, what chance was there of it changing in my two decades?

I have sat in countless insurance company meetings involving 20 or more people, where not one person had an overall view of the process on which they were working.

Understand that the same scenario was playing itself out in every other department of the insurance company, and accordingly in every other insurance company in the country, as they are all similarly structured.

Twenty or more people, not focused on servicing clients, but servicing each other. Checking each other`s work, looking for and managing exceptions.

I repeat, not one person in any of these meetings had an overall view of the process in which they were participating; consequently, no one person owns or has full visibility into the systems which enable these processes.

And because no one person has this visibility, no one can see the critical need to change. Which means we are stuck in a perpetual loop.

This, more than any other factor, is why the insurance sector is in so much trouble. Fragmentation, duplication and redundancy of processes; silo-based systems and structures; internal empires; and subsequent resistance to change.

Costs can easily be stripped out of the insurance sector`s processes, but insurers are resisting fiercely.

Freda du Toit, director of SDT Financial Software Solutions

Is it any wonder that clients are unhappy, the Pension Fund Adjudicator is involving himself, and government is agitating? Costs can easily be stripped out of the insurance sector`s processes, but insurers are resisting fiercely.

Here`s an alternative blueprint:

1) Simplify: Under no circumstances is it necessary to provide for every potential exception that might occur in day-to-day activities. Each exception that is accommodated adds complexity to the operational system. This complexity manifests in the cost of development and the long-term cost of maintenance and ownership.

A far more elegant way is to have a system that provides for real, core requirements, and a switch to manually override the exceptions, most of which occur so infrequently - annually, in most cases - that they need hardly be coded in. These exceptions can then be referred to a manager for resolution.

2) Start listening to clients and deliver what they want, and nothing else: Clients want savings that grow, and payment against claims.

To make this happen, and to build a sustainable business, only three things are needed: a basic client acquisition model, a basic servicing model, and a basic claims or payout model.

This reflects the requirement of every insurer, who says to himself: I need new business, I need to service it, and at a certain time I settle a claim or a payout.

Insurance really is that simple, but companies make it impossibly complex. In addition, they create a new department for each product and allocate a staff member sub-process for each: for example, surrender, accident and death claims are all often separated, when they could and should be managed as one. These departments are then staffed with many people, none of whom has a view of the entire process. One person fulfils one part of the process; a second does another, with people checking each other. In other words, people are servicing people, rather than servicing clients.

They are in effect making work for each other, adding cost and complexity, and reducing the chance of an ideal outcome for the client.

3) Create the new business: It will take courage and conviction, but insurance companies simply have to change in line with the above. Someone in a position of leadership needs to have the vision to bring about the change that`s needed.

There is a great deal of resistance to this level of change. Some managers understand the need for it, intellectually, but emotionally they resist it. This is understandable: on the one hand they can see aspects of what is needed to reduce costs and improve competitiveness; on the other, they can see their jobs and those of their colleagues under threat, and they withdraw.

Accordingly, along with the level of change that is required there will need to be cultural change. The restructured organisation will probably place a moratorium on employment of new people, and redeploy inward-looking people in positions where they actually serve clients.

Here`s the real crisis: government will ultimately involve itself in the insurance sector if there is not widespread, fundamental systemic change which reduces costs and makes products available to the formerly disadvantaged sector. Change will be forced from on high, and the industry will in effect have lost control over itself. In addition, governments are by definition inefficient and add cost without adding value, which means further cost and complexity for the sector.

The clock is ticking: which of our major insurers will lead the way?

Share