The Folly of Over-Zealousness

We know Six Sigma has wide applications – and great successes – in the service sector. Six Sigma is no fad; it is a comprehensive collection of tools and techniques that have evolved over many years to comprise the best known way to reduce variation from processes and products, and, as a result, drive customer satisfaction.

But have you seen the Six Sigma Body of Knowledge? My own Six Sigma training involved 40 hours in the classroom over 12 weeks, 125 hours of online training and more than 100 hours of self-directed study and project work. How many of us have that extra 265+ hours to become certified? It took many weeknights and weekends as I immersed myself in ANOVA and Design of Experiments, Statistical Process Control, Quality Function Deployment, Failure Mode Effects Analysis, probability theory and hypothesis testing. By the time the exam came around I was a basket case, dreaming of Goodness-of-Fit tests and fractional factorials. There is an intense commitment required for any single person to undertake the level of study required to embrace the entirety of the Six Sigma BOK. Multiply that singular effort by a department full of staff, and you get controlled chaos at best, anarchy at worst.

In reality we’ll most likely use just a part of the BOK in our daily work. As a management consultant working exclusively in the insurance industry, I find little use for the repeatability and reproducibility studies used to determine the precision and accuracy of gauges. Nor are the Mohs hardness scale, optical comparators or eddy current testing likely to find their way into my consultant’s bag of tricks. The point? A better approach to teaching process improvement skills is to start small, with a few big-picture ideas, and then drill down into ever-more complex techniques until the desired results are attainable. Throwing everything at staff all at once, in some sort of one-size-fits-all approach to skills development is bad form. Further, by doing so you’ll see many pairs of eyes rolling as a once-familiar grade school mantra begins to resurface: “When are we ever going to use this...?”

Outsourcing Insurance Operations

No doubt you’re well aware of an increasing trend to re-deploy certain insurance operations using outsourcing vendors. Customer support functions, including claims handling, general policy inquiries and many back office processes are being relegated to these service providers, allowing insurers to focus on what they do best: create new products, market them and drive new premium. The evolution of (and consequent cost reductions afforded by) telecommunications and the increasing sophistication of supply-chain management has made it far easier for a company to implement an outsourcing strategy – regardless of whether the provider is in Bayonne or Bangalore. This “first generation” outsourcing has been going on for many, many years, though it only recently gained widespread attention as jobs began shifting overseas. The point of this article is not to advocate offshoring, rather to provide some insight on new outsourcing models that mark the continuing progress of supply chain management, all facilitated by better, faster and cheaper communications and compounded by the experiences of years gone by.

That next generation of outsourcing – the “second generation” – encroaches on more highly-skilled domains, and, as such, is not without its critics. However, the economies an insurance company can derive by intelligently supplementing existing internal operations with a vendor who operates with greater efficiency surely validates the strategy – especially in an industry where small gains in net margin amount to substantially increased income.

Take for example the state filings process. Traditionally an internal function, over the past several years more insurers have begun realizing that professional service firms focused exclusively on managing the filing process for multiple insurers simply have evolved better procedures, greater efficiencies and, as a result, more cost-effective operations. Further, the market cycles that betray the insurance industry are more easily weathered, as the inevitable force reductions that accompany softening markets can be addressed simply by scaling back the outsourcing vendor’s services.

Product research is another great example. Imagine the tedium of collecting rate filings from fifty states, digitizing and indexing them for easy access and archiving them all in a massive searchable database. Better, access an existing database from a vendor who manages the continuous updating and maintenance and provides access on a pay-per-use basis.

Finally, there’s technology selection. The process of identifying the appropriate vendor for a major systems overhaul is daunting. The selection process alone can take a year or more; implementation can take several years more. Between the requests for information, requests for proposal, product demonstrations, requirements gathering, project management, training and ongoing support, systems implementations – especially those for critical processes like policy issuance or claims handling – weigh heavily on an organization. Bringing in a firm that has deep knowledge of leading vendors’ systems and the processes they enable can shave months or years from the process.

Outsourcing insurance operations support can help insurers focus on what they do best, concentrating their efforts on the premium generation and customer-facing processes that separate competitors. Outsourcing makes sense; outsourcing judiciously, with an understanding of those areas most suitable for it, makes profit.