Deming's Point #5 as Applied to the Insurance Industry

Process Mapping

The typical form of planning Dr. Deming recommends is not only strategic planning at the senior level but what we now call "process mapping" at the operational level. Several years ago, ACORD had the right idea in its "Power of Change" offering to improve customer service and lower costs. Unfortunately, it was presented in isolation rather than as part of an overall system and, as far as I know, disbanded. Most unfortunate!

But that's not to say process mapping isn't in practice today. I'm told employees of insurance subsidiaries of General Electric are required by management to map—and improve—two individual processes they each "own" each year—year after year after year. Just think of the cumulative benefit of this frontline empowerment practice!

Dr. Deming is clear. This is a management (leadership) responsibility to build quality (and minimal variation) into all systems and processes. This is not to say the steps needed to do so cannot be delegated to frontline (empowered) employees where customer realities and customer expectations are clearly understood.

Continuous process improvement, through process mapping, has transformed insurance companies, agencies, and other insurance organizations where employed if (and this is a major "if") each process is focused on the customer of that process. In other words, the customer is whoever it is who receives the "output" of the process. It could be either an internal customer (a colleague) or an external customer (the consumer).

Each customer—whether internal or external—will have expectations concerning the output. The goal is not only to meet each such expectation but to exceed it. That's when customers are delighted with your service, will more than likely continue with you, and recommend you to others. If a customer's expectation is not met, you "know the drill." He or she will tell "everyone."

As important as is this notion of designing quality into processes and systems at the outset, it is essential to employ all of the disciplines and "points" of Dr. Deming. That's why many refer to this overall quality effort as "total" quality.

Package Policies

One very fundamental insurance industry example is the manner in which "package" policies are indeed "packaged." This is particularly common for those of us who are brokers. A commercial package policy is received from the insurer by the broker, and it may be very broad in its coverage and competitive in its price; however, in too many instances, the broker finds it necessary to "repackage" the package policy. The sequence of sections and subsections are in such disarray that they have to be reconfigured in a way that will make sense to the customer. Moreover, the property and liability endorsements seem to be attached at random with no reference to the section of the policy to which they refer.

Most brokers will transform this problem into an opportunity—and a way to differentiate themselves from other brokers who aren't as customer focused. For example, they'll insert the policy into a three-ring binder with dividers that separate each segment of the policy in a sequence that makes sense from the perspective of the customer. Also, all endorsements are included in the sections to which they refer or apply.

Insurer websites

On the positive side, we are seeing more and more processes incorporated into insurer websites. Not only are rating processes facilitated, but access to forms—even actual policies—and other information (loss runs, etc.) are available. These are processes in which agents and brokers are usually the customers because they are the recipient of the output of the process. However, more and more examples of "co-production"—participation in the production process by consumers—are becoming prevalent. When such efforts are focused on the customer (agent, broker, or consumer), these processes and systems usually work very well. When they're designed from the perspective of the insurer, they usually do not.

This is what Dr. Deming means by "… better understanding of the customer's needs and of the way he uses—and misuses—a product."

Not only will application of this Principle #5 improve the bottom line, it will help all players become more proactive rather than reactive. "Putting out fires," as Dr. Deming puts it, is not process improvement. The challenge is to be proactive by factoring quality into the process before the fact, not after customers are already complaining or taking their business elsewhere.

Another way senior leadership can bring many of these principles together in a proactive manner is to employ a tool that Jerry Isom used as CEO of CIGNA in the 1990s. This tool—called the Balanced Scorecard—was designed by Drs. Robert Kaplan and David Norton of Harvard. Its genius is in its bringing together most of the elements advocated by Dr. Deming. It's a response to the practice of too many boards of directors whose members tend to focus singularly on financial results. As important as financial issues are (and can't be ignored), it's at least equally important to focus on the drivers of financial outcomes.

These drivers are:

• Continuous improvement—the subject of Dr. Deming's Point #5.
• Customer focus—an inherent principle throughout Dr. Deming's writings.
• Professional development of an organization's people—Dr. Deming's Point #6 (and also Point #13) which will be covered in our next installment in this series.

The principle of the Balanced Scorecard (BSC) is this: If senior management will monitor these three elements, the financial outcomes will tend to take care of themselves. Anyone interested in learning more about the BSC need only enter this name in their search engine. Also, Drs. Kaplan and Norton's excellent books are available in just about any bookstore.

Implicit in these drivers of financial outcomes is that they will be result in higher revenues as well as Dr. Deming's projection of lower costs—the best of both financial results.