December 1, 2014

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Operational Excellence in Insurance Service Delivery

The Challenge

Do any of these sound familiar?

  • We need to make our processes more efficient, but because we have so many underlying applications and platforms, we cannot adopt a common processing model
  • Regulatory requirements are a real constraint on our ability to streamline processes – and we often have to add extra steps to deal with new requirements
  • We are highly dependent on subject matter experts because of the age and complexity of the products we are servicing

Some or all of these challenges are faced by service delivery teams across the whole of the financial services sector and none more than in insurance.  Whether serviced in-house or out-sourced, the combined effect of ever-changing regulations, new product requirements and increased customer awareness present the same set of challenges: how can I make my service delivery more cost-efficient and at the same time keep pace with what the regulators, the marketplace and the customers require?

Providers have successfully implemented a range of strategies to address these challenges: offshoring, increased automation, workflow management, BPR initiatives including Six Sigma, LEAN,  Kaizen and the like have all enabled cost efficiencies to be achieved.  Similarly, some insurers have addressed the perennial challenge of managing the cost of maintaining their older products by consolidating legacy products and, in many cases, migrating to specialist platform-based service providers.  These strategies have enabled benefits   realization, and continue to do so, but they do not provide the whole answer.

Taking just the UK market as a case in point, life and pension providers are currently contending with a combination of:

  • A radical change in the post-retirement income product regime, announced in 2014 and to be implemented in 2015
  • The implications of Solvency II, with consequent impacts on financial reporting and risk governance
  • A regulator-led review of legacy products
  • The introduction of auto-enrolment, leading to new challenges in the effective administration of group pensions business
  • Increasing consumer awareness, leading to more focus on value and service quality
  • Conduct risk requirements, to demonstrate not just that the company is treating its customers fairly but that it is managing its affairs in a way that puts the customers’ interests at the front and centre of its decision making processes.

The Response

HCL has addressed this challenge through its Operational Excellence programme – OpEX.  First adopted in HCL’s own platform-based insurance servicing business (HCL IBS) and applied to its operations both in UK and  India, the approach is now also being rolled out in clients’ in-house operations.  Whist initially developed specifically for insurance servicing operations, OpEX is equally applicable not just in other financial services businesses but in any other activity where there are multi-stage processes requiring people to complete different tasks.

Drivers for OpEX

HCL IBS’s business has been built on a successful track record of migrating clients’ policy administration systems to its own proprietary system, ALPS..  By 2011, some 25 successful migrations of four million policyholders’ records had been completed from multiple predecessor systems, allowing clients to retire out-dated and expensive legacy systems and enabling HCL to adopt a highly cost-effective utility servicing model.  These benefits had been complemented by migrating a large proportion of processing and service delivery activity offshore.

Increasing downward pressure on costs, combined with more demanding regulatory requirements and increasing customer awareness – leading to higher levels of interaction for each customer meant that a further step-change was needed.  The start point was to recognise that, taking account of all stakeholders’ requirements, we needed to evolve a culture that delivers contracted service in a compliant manner to the required quality at the lowest possible cost.

We therefore decided to fundamentally review the way we process work within HCL IBS.   We initiated a programme to deliver:

  • Platform-independent workflow and workforce management, which would be used as the single golden source of management information and would enable work to move seamlessly between onshore and offshore locations.
  • Performance Management structure to review and reward correct behaviours based on the comprehensive process driven management information above, allied with defining job roles consistent with service delivery requirements.
  • A processing methodology that uses effective queue management and First In, First Out (FIFO) principles.
  • Task based processing with no case ownership (except on an exception basis), underpinned by automated skills matrices to ensure the right skills in the right place at the right time.

What is OpEX?

So, what is OpEX?  First of all, what it is not: it is not a system, it is not just a set of tools, it is not a new name for workflow management.  OpEX is at its heart a methodology for workload, resource and process management.   Enduring and repeatable efficiency improvements depend more on instilling an operational excellence culture than on any amount of IT functionality of tools.   Implementing and operating OpEX in HCL has enabled us to improve efficiency by at least 20%, entirely independently of other improvements from the established array of offshoring and BPR initiatives.  The key components and enablers of this have been:

  • Moving from casework management approach to a process management approach.  This enables higher skilled and more experienced staff to focus on the elements of a transaction where their expertise is really needed, rather than also working on the (say) 70% of a transaction where a wider group of people will have the necessary capabilities.
  • Ensuring the skills and capabilities of all members of the team are known, updated and monitored.  At its heart, OpEX involves delivering work to whoever is best placed to complete the process, on a ‘get next’ basis rather than allowing people to cherry-pick.  This is a common feature and capability in workflow management systems, but OpEX depends also on continuous reassessment of team members’ capabilities and performance, via embedded quality assurance.
  • Real-time continuous quality assurance, with the flexibility to enable specific processes, individuals or transaction types to be monitored in more detail.  This is effectively a risk-based approach to quality assurance, enabling managers to focus more on higher exposure transactions and use the learnings from these to refine both processes and work distribution.
  • Redefining the role of the team leader.  Very often, the team leader is an experienced subject matter expert and a key part of  his role is to serve as the go-to person for resolving technical queries.  Under OpEX, the core role of the team leader is to manage the workload, quality and throughput of team members.  To do this, real-time management information is the key: the OpEX team leader’s work station looks at first glance more like a forex trader’s screen than an insurance back-office desktop.
  • Instilling a culture of continuous improvement. There is a natural inclination to see comprehensive management information as being a ‘big brother’ management approach.  For OpEX to work as effectively as it can, it needs all team members to buy into the approach that it is setting out to deliver:  excellent, timely and high quality service delivery in the most efficient way possible.

How can OpEX be implemented?

Lots of possibilities, it depends on organisational priorities, but one ingredient is essential: up-front roll-out planning with as much focus on the cultural change aspects as on the systems and process change roll-out.  HCL commenced with in-house insurance servicing activities and subsequently rolled out at  client sites.  Typically, team-by-team or process-by-process roll-out on a phased basis is the optimum approach.  This enables refinement as the roll-out continues and creating a core team of OpEX evangelists at the early stage is an effective way of achieving buy-in.

HCL has established significant capability in enabling clients to benefit from OpEX principles, alongside well established practices in BPR and process optimisation.