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Understanding & Improving the Cost of High Productivity & Industry Leading Services
Chubb Insurance is a large global commercial insurance company that serves organizations such as businesses, municipalities, not-for -profits etc., and also very high net worth individuals. At the time of this case study they were among the 10 largest in the world. Today, they are the largest commercial insurer.
This case study is about Chubb Insurance Company’s Northeast Region. Jim Romanelli was VP Field Operations, and was responsible for branch performance of their commercial, business insurance, operations. He needed better information about products, processes and resources and a more effective way of managing costs and productivity.
Jim Romanelli stated the problem, “We have never been able to get at where cost reductions and productivity gains might be made in our basic business.”
He explained “Chubb has always had a sterling reputation for the service and support it provides to its agents. Continuing these high levels of quality support requires high productivity and the best use of its capacity- its people’s time. Chubb knew some customers were very profitable while others seemed to require large amounts of time and were incurring large cost… but Chubb didn’t know why, what these customers needed that were raising costs. Chubb also recognized that any cost it incurred was also correspondingly incurred by its customers, so finding and reducing these interactive costs would make its customers (agents) more profitable and improve their ability to serve their customers- the companies who are insured by Chubb.”
Jim continued with this, “There is no formal method, model, tool or application for managing costs at the precise level where service quality is optimized, yet there is no excess cost or redundancy. Understanding a branch organization’s productivity dynamics and improving productivity across a large branch organization cannot be achieved with time & motion studies, surveys, and observations; the traditional methods.”
Jim Romanelli addresses the problems – and frustrations – of determining how to determine and manage the costs of Property & Casualty Insurance applications submitted by broker/agent customers. “We have never been able to get at where cost reductions and productivity gains might be made in our basic business.” Typically, technology has not provided quick productivity gains, and changes became eroded with other things creeping back into the workflow. Those ‘other things’ include the activities of Chubb itself, our business partners or other customers “
Chubb engaged Orient Point Consulting to conduct an AIM – Activity Information Modeling project of its branch operations that produce and deliver its commercial (business policyholders) insurance products. Chubb’s White Plains, New York branch office, was selected as the central location to coordinate with Chubb’s subject experts and branch managers.
“The thing that personally attracted me to AIM was its ability to provide accurate information. AIM gets down to a very granular level and the data is at a 99% accuracy level, so it can be extrapolated with confidence.” Jim Romanelli.
Orient Point designed an AIModel with the usual CP2R fields: Customers, Products, Processes, and Resources. They used their AIM Design Guide to determine 1) the results needed & desired, 2) the new decisions these results would require, 3) The new information these decisions would require, 4) The AIM data fields, attributes, and metadata that were needed to provide this information.
After a one-week test with a few SMEs (Subject Matter Experts), a four week data collection effort was launched.
Chubbs’ managers received numerous AIM reports and models, the most significant were:
- Activity and process costs that were used to analyze and improve their productivity.
- The cost of each line of business (their products) that were used to analyze what drove profitability and caused some LOBs to be more expensive than others.
- The cost of each customer (agent) and the time spent handling that customer’s business that were used to calculate and benchmark what their customer costs really should be by different categories of customer.
Gary Meyer of Orient Point Consulting introduced Chubb’s managers to AIM reports and models. Gary led the managers through a structured analysis that looked at known problems first, then widened to discover unknown problems and opportunities, and finally looked at scenarios, “what if analysis” of solutions that included costs and resource capacity.
AIM gave Jim Romanelli’s management team high level views, such as the total cost of life cycles and customer segments. It also provided microscopic views at the activity level. It answered everyone’s fundamental questions; how peoples’ time (resource capacity) is spent, what is produced, what the service levels are, and what it costs.
Jim Romanelli reviewed their thoughts and feelings after the AIM analysis was completed. “What’s really exciting is that for the first time we can get at productivity and find out what is actually helping with our customers (agents). We found, just from the initial data, some things that had previously not been obvious to us, and that we could extrapolate out to address cost and productivity issues.”
“We have had our eyes opened to all kinds of things. Our primary customers (in the initial project this was 270 brokers in the Northeast region), provide most of our input in the form of submissions – business applications for all types of P&C insurance. AIM allows us to get the right cuts of information so we can judge things, such as variability in volume, that we could never get a fix on before. Even from the preliminary date, we could see that some agencies are much more expensive for us to do business with than others. We can actually determine the unit cost level for transactions for each of our agents AIM lets us find the real reasons for how productivity can be truly improved and costs can truly be reduced.”
“Because of AIM, we can now directly address changing the behaviors of Chubb and our agents to dramatically reduce redundancy, which will have a quick and direct effect on our costs and productivity. We can now tell our agents, for example, that given the cost per application, that they will have to have a ‘hit’ rate of say, 40%, of their business applications being underwritten by us. If they fall below whatever that rate is, every application will result in their being charged. The flip side is that reduction of redundancy will allow us to be much better able to compete. We have the ability to tell our agents why we should be the first source to whom they send applications.”
Jim Romanelli summed up with these thoughts, “I think the most exciting things about AIM to date have been:
“For a very minimal investment we can now get information that we can validate across multiple areas that is accurate and can be extrapolated.
We can now work with our customers (agents) to increase productivity and cut costs.
It allows me to ‘connect the dots’ so I can quickly get preliminary financial relationships between various types of transactions.
That means I can determine what we can do with cost relationships to find out what is ballooning costs and shrinking productivity and act to change that equation.”
About ten years after this AIM project, Jim Romanelli joined CNA, a similar commercial insurer and direct competitor of Chubb. He is now Sr. VP and head of the New York office and the Eastern Zone Mgr. In 2015 he was instrumental in influencing the CNA board to engage Orient Point throughout CNA on projects that continued into 2019.
Findings & Recommendations
Package policies (policies with multiple coverages for small businesses) consumed half the resource capacity and incurred the cost of the entire operation. The Package Policy processes were not specialized, they were not handled by a designated group, and no special technology plans existed for them. The Package Policy Life Cycle processes were less complex than the other (Mono) lines of business, yet they had the same processes as all of the other lines that were designed for more complex policy transactions.
Management knew that Package Policy were significant but did not know they were half of the total workload and expense. Package policies were 60% of the premium growth for Chubb’s Northeast Region. This mandated that they have adequate capacity for the new business Life Cycle processes, in particular producing fast quotes and revising quotes quickly to win the new business.
Our recommendations were:
- Create a specialized Package Policy department.
- Simplify & streamline the Package processes to increase productivity. After the productivity increases have been realized, re-balance the workforce with the workload.
- Design a new, specialized new business quote process that was faster and more flexible than the current quote process.
- Assign the most skilled resources to handle the new business quote requests.
- Prioritize the Package department processes for technology initiatives.
The AIM process model was used to analyze all of the life cycles along with their associated processes and establish normal levels of process workload. When the agents’ life cycle process hours and cost were analyzed, the Chubb managers immediately saw a couple of large agents’ endorsement process jump out at them for being far more time consuming and costly than the norm.
AIM enabled Orient Point and the Chubb managers to look deeper into these agents’ endorsement activities. It was discovered that a few agents routinely renewed policies with the same terms and conditions as expiring, and later made changes to the terms and conditions to correct the policies after renewal. Withholding information about a company’s risk until after the renewal borders on deliberate misleading practices. Moreover, these corrections now required endorsements, formal, often complex policy forms and wordings.
It was discovered that two agents routinely made “corrections” to recently renewed policies that involved changes to the nature of the risks, thus materially affecting the rates and the underwriting price. On many occasions the new risk was not picked up during the policy correction process, thus Chubb was insuring risk at lower than normal rates.
Our recommendations were:
- Present the evidence from the AIModels and the policy history investigation that Chubb conducted to the Office Managers of the Agents.
- Establish a “no correction” policy. Policies will no longer be “corrected” with endorsements shortly after renewal. They will be “re-written” which means they will go through the entire risk assessment, underwriting, rating, and pricing processes like new policies. This is certain to pick up and price new risks and discourage agents from this practice.
The average annual cost of all Northeast agents endorsement process is $21,481
This is a partial exhibit list of the 270 Northeast agents.
Each Chubb Branch Office in the Northeast was analyzed. The “book”, the Lines of Business with the hours and cost was one of the priority areas. Performance ratios were prepared by incorporating volumes and premium information.