Insuring Lean Operations - How JPF Learned to be Lean
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by Cynthia Swank of Jefferson Pilot Financial shown at the Lean Service Summit on 23rd June 2004 ran by the Lean Enterprise Academy
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Insuring Lean Operations - How JPF Learned to be Lean
- 1. Insuring Lean Operations: How JPF Learned to Think Like a World- Class Manufacturer By Cynthia K. Swank
- 2. INSURING LEAN OPERATIONS Agenda •Who is Jefferson Pilot Financial •JPF’s Premier Partnership strategy •Learning from the automobile industry •Moving from model cell to model facility •Broadening the lean scope •Key learnings and implications for service operations
- 3. Individual Annuities 16% Communication 9% Corporate and Other 6% JEFFERSON PILOT FINANCIAL (“JPF”) IS A LEADING U.S. COMPANY PRIMARILY FOCUSED ON LIFE INSURANCE. Fortune 500 (Ranked by Revenues) . 458 USG 459 Bed Bath & Beyond 460 JPF 461 NTL 462 Universal Health Svs . Fortune 500 (Ranked by Profits as a % of Revenues) . 67 Boston Scientific 68 Erie Ins. Group 69 JPF 70 Marsh & McLennan 71 Pepsico . Mix of Business (2003 Reportable Segment Results) Group Insurance 10% Individual Life Insurance 59%
- 4. 0 4 8 12 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 IN 2000, JPF NEEDED A NEW STRATEGY TO CONTINUE BEATING SLOW INDUSTRY GROWTH Total Return to Shareholders Percent, Indexed to 1 CHALLENGES •Product proliferation •Specialized niche attackers •Obvious structural moves already undertaken S&P 500 Jefferson Pilot S&P 500-Property & Casualty Insurance* S&P 1500-Insurance Composite** *Up to January 1998 **Begins at January 1998 Source: Research Insight/Compustat (May 5, 2004)
- 5. JPF’S PREMIER PARTNERSHIP STRATEGY SET THE STAGE FOR MAKING ATTRACTIVE BUT POTENTIALLY RISKY OPERATIONAL IMPROVEMENTS. PREMIER PARTNER STRATEGY Jefferson Pilot Financial strives to be the partner of choice for high performing producers and marketing organizations who target specific markets and demand in-depth expertise, exceptional efficiency, and quality communication from their carriers. We seek strong relationships by providing a superior product portfolio, distinctive market driven sales support, consistent service, advanced technology, and rewards for growth, persistency, and loyalty. UPSIDE •Move from “no mistakes” operational approach to differentiated services •Meaningful improvements could open up significant incremental sales DOWNSIDE •Any disruption of service could drive away business •Service improvements that raise costs increase threat from focused attackers OPERATIONAL IMPROVEMENTS
- 6. Raw materials transformed into finished goods with – Maximum speed – Minimum waste – Unwavering quality Lean = LEARNING FROM THE AUTOMOBILE INDUSTRY
- 7. LEAN APPROACH SEEMED APPLICABLE Product development Agent development Agent marketing support New business processing and under- writing In-force service Life Insurance Core Business System Application Exchanges/ conversions Underwriting Issue/Place Policy Commissions payment • Receive/sort forms • System entry • Order requirements
- 8. LEAN APPROACH SEEMED APPLICABLE Product development Agent development Agent marketing support New business processing and under- writing In-force service Life Insurance Core Business System Application Exchanges/ conversions Issue/Place Policy Commissions payment Underwriting • Receive pending requirements • Assess risk • Determine policy disposition
- 9. LEAN APPROACH SEEMED APPLICABLE Product development Agent development Agent marketing support New business processing and under- writing In-force service Life Insurance Core Business System Application Exchanges/ conversions Underwriting Issue/Place Policy Commissions payment • Issue policy • Collect payment • Process payment
- 10. LEAN APPROACH SEEMED APPLICABLE Product development Agent development Agent marketing support New business processing and under- writing In-force service Life Insurance Core Business System Application Exchanges/ conversions Underwriting Issue/Place Policy Commissions payment • System feed to Commissions • Mail payment and statement
- 11. LEAN TOOLS SEEMED APPLICABLE Flow processing Load balancing Work leveling Standard operations Segregating complexity Speed applications by removing kinks Make sure individuals processing forms shoulder comparable burdens Synchronize process-step workloads with incoming demand Establish best practices in cells and then spread through entire organization Form separate channels for complicated tasks so that simple ones are not held up
- 12. POTENTIAL VALUE OF LEAN IMPROVEMENTS WAS CLEAR 15-35% increase in paid annual premiums 15-35% increase in paid annual premiums REQUIRED IMPROVEMENTS –Increase turnaround speed and predictability –Enhance customer focus –Reduce complexity –Increase quality/eliminate errors –Eliminate cost differentiation
- 13. MOVING FROM MODEL CELL TO MODEL FACILITY Establish “Lean Team” Define Model Cell Train Team Members Establish Performance Goals Communicate Changes to Premier Partners ROLLOUT TO FACILITIES
- 14. LEAN CHANGED JPF’S WAY OF THINKING WAY WE WERE WAY WE ARE WHY Removes blinders Management driven decision-making Improves service levelsCut costs Eliminate waste Viewed as outside-in vs. inside-out Silo organizational structure Linear organizational structure Eliminates uncertainty Management by instincts Management by metrics Vendors often drive performance Vendor viewed as servant Vendor viewed as partner Front-line resources involved
- 15. VISIBLE METRICS ARE THE OPERATIONAL CORNERSTONES • Turnaround time (days) - Receipt to underwriting - Underwriting - Approval to mail • Variability TIME • Reissue percent due to error • Call answer rate • Customer satisfaction score QUALITY • Cost per submitted app - Labor - Exams and APSs - Other • Productivity by job function COST
- 16. LINKING CEO PERFORMANCE TO SHOP-FLOOR GOALS Acquisition Expense Per Paid Premium CEO Underwriter Expenses Per Paid Premium Underwriter Sr. Vice President Productivity by Job Function Underwriter Vice President Number of Applications Input by Team Per Hour Input Supervisor Number of Applications Input Per Hour Input Clerk
- 17. IMPLEMENTING LEAN RESULTED IN DRAMATIC IMPROVEMENTS IN BOTH SALES AND NEW BUSINESS OPERATIONAL METRICS 126 131 139 202 216 99 00 01 02 03 JPF Individual Life Insurance Sales ($ millions) -3 33 65 54 6 -20 0 20 40 60 80 01 02 03 % Increase over 2000 Sales Industry JPF Stretch Goal Target Goal 35% 15% *Turnaround time = time from receipt of application to issuance of policy Reduced by 40%Reduce by 40%Reissues due to errorsQUALITY Reduced by 26%Reduce by 28%Total labor costs for all applicationsCOST Reduced by 84%Reduce by 84%Apps w/o meds turnaround time*TIME Reduced by 70%Reduce by 60%Apps w/ med reports turnaround time*TIME ResultLong-term GoalMetric New Business Improvements
- 18. GENERAL EXPENSE AS A % OF TOTAL INDIVIDUAL LIFE PREMIUM 14.8 17.9 15.8 17.0 15.4 8.38.1 7.07.1 9.6 1998 1999 2000 2001 2002 JPF BECOMING LEAN ENABLED JPF TO INCREASE MARKET SHARE WHILE MAINTAINING OUR STRATEGIC EXPENSE ADVANTAGE 20% 10% 0% Industry 2.0%20% 1.0% 0% 10% 0% 93 94 95 96 97 98 99 00 01 02 03 MARKET SHARE GROWTH AND EFFECTIVE EXPENSE MANAGEMENT Expense Ratio Market Share
- 19. JEFFERSON PILOT’S REVENUES RANK 9TH AMONG PUBLIC INSURERS BUT HAS HIGHEST PROFIT AS A PERCENTAGE OF REVENUE Note: Conseco results have been excluded due to one-time accounting adjustments. Source: Research Insight/Compustat (May 5, 2004); Hoover’s (www.hoovers.com) *(defined as net income as percentage of revenue) 2003 Revenue $ Billion MetLife Prudential AFLAC Unum Provident John Hancock Principal Financial Lincoln National Pacific Life JEFFERSON PILOT 3.7 4.7 5.3 9.4 10.1 10.4 11.4 27.9 36.3 2003 Profit Profit as a Percentage of Revenue JEFFERSON PILOT Lincoln National Pacific Life AFLAC MetLife Prudential Financial Unum Provident Principal Financial John Hancock -3.9 4.5 6.2 6.9 7.9 8.0 8.9 9.7 13.8
- 20. LEAN CONCEPTS HAVE WON WIDESPREAD ACCEPTANCE Segregating Complexity • Separating clean cases from complex cases reduced Fixed Annuities turnaround time by 80% • Teaching Customer Service Reps how to prioritize work and evaluating their performance on that basis improved all call center service metrics Load Leveling • Flexible commission payments may revolutionalize relationship with agent Pulling Demand • By appointing agents only when they submit business we reduced set up time waste (45/min per set-up) and associated annual fees of $100 per agent Visible Metrics • Whiteboards, automated databases, and scorecards now used throughout organization • Individuals and teams see the impact of their contributions
- 21. LEAN PRINCIPLES ALSO GUIDE FUTURE TECHNOLOGY INVESTMENTS •Implement lean before deploying technology •Focus on investments with demonstrable improvements –Increased efficiency –Remove friction from process –Automation of processes •Deploy technology where you can change behavior •Standardization and separation
- 22. KEY LEARNINGS • Manufacturing and relationships must be balanced • Lean staffing model can create HR challenges – Little excess capacity to handle volume spikes and turnover – Training lead time of as much as 12-15 weeks makes plugging gaps difficult • Need to develop skills at flexing the model •Automation complicates flexing of system
- 23. IMPLICATIONS: A NEW PARADIGM FOR SERVICE IS EMERGING • The game is changing for financial services companies, and likely all other service-oriented industries. The minimum acceptable level of performance is rising as increasingly sophisticated customers demand better service and more competitors approach lean-levels of efficiency. •Piecemeal solutions won’t get the job done. Only an approach that tackles the entire service delivery system can produce lasting improvements to time, cost, and quality. •Model cell pilots are the best crucibles for creating lean improvements. The only way to be sure you are not creating new second-order problems is to run real-world tests of each modification to the system before rolling out redesigned processes.