The Holistic Art of BPM

When modernizing the way they do business, insurers should consider implementing a holistic form of business process management (BPM) rather than relying on purely IT-driven technological solutions, speakers told an iter8 education seminar in Toronto.

BPM was defined at the seminar as “a structured approach employing methods, policies, metrics, management practices and software tools to manage and continuously optimize an organization’s activities and processes.” Extending beyond simple process automation, BPM incorporates intelligent processes that take into account many different aspects of an insurance company’s business – distribution, pricing, product configuration, exception-based underwriting technologies, claims, billing, and customer service.

“It has to be holistic,” Kimberly Harris-Ferrante, the research vice president of Gartner (a technology consulting company), said about implementing BPM solutions. “You need to have re-thinking of the organization, which may be one of the most challenging parts for you in the insurance operation. Insurance companies don’t like change, but we have to embrace change.”

Insurance companies, because of the complexity of their systems and cultures, are prime candidates to implement BPM technology platforms, Harris-Ferrante said. For example, insurers operate in a world of accelerated speed of change (consider the speed of regulatory changes, for example), they have a diverse partner network with brokers, they have complex information integration requirements, and yet they also have a large investment in aging legacy systems, as well as redundant systems and applications.

Insurers are often likely to focus on Service-Oriented Architecture (SOA) technology platforms as a means to solve their business issues, Harris-Ferrante said, because SOA is essentially an improvement based on the legacy systems to which many insurers remain committed. But SOA is IT-driven rather than business process-driven, Harris-Ferrante noted. Unlike BPM, SOA is not necessarily focused on improving the business processes they are automating.

“Companies are stuck at process automation,” Harris-Ferrante said. “Companies will say: ‘I have a process problem. The process doesn’t go fast enough.’ So many of their projects are targeted towards speed…

BUSINESS LEADERS MUST WORK WITH TECH LEADERS

“But companies are normally automating today’s [existing] process. And I always go back to these companies and ask them: ‘That’s a good start, but is that process effective? Would you bet your job that, if you took a step back, this is the right process that you as a company need to do to support your claims/adjustment process [for example]?

“Nine times out of 10, the person asking [for a faster process] would say, ‘No, I wouldn’t bet my job on it.'” Hartis-Ferrante said at this point she would inquire why anyone would want to spend time making a problematic process go faster.

Business leaders and the IT people in a company must show more cooperation when automating business processes, Harris-Ferrante noted.

“One insurance company I worked with found some obstacles when it came to getting business subject matter experts involved,” she said. “They tried to get the underwriters involved, but the underwriters said: ‘Why do I want to sit down and teach you all the rules of how we make underwriting decisions, because this technology looks and feels like artificial intelligence?'” In other words: better underwriting technology equals fewer underwriters.

Since the business leaders were on board with the BPM solution, they were able to work the issue through with underwriting staff. The underwriters were promised, for example, that automation would not lead to their elimination, but would rather allow them to focus on the difficult claims for which their expertise was truly needed.

Speaker Javier De La Cuba of Aviva Canada Inc. said Aviva “embraced BPM even before it was called ‘BPM’ about five years ago.” He noted the business challenges included the implementation of a technology infrastructure that was simple, but scalable (i.e. one infrastructure that could account for all of the insurer’s requirements). The problem for Aviva six or seven years ago, De La Cuba noted was not on the scale side, but rather on the simplicity side.

KEEPING IT SIMPLE

For example, he noted that while many things in the property and casualty industry don’t change much, other aspects of the business change very quickly. For example, regulatory changes, risk-sharing, changing consumer expectations, business-to-business system connectivity and system-to-system data transfer are all happening at a rate that makes it difficult to maintain simplicity when implementing new solutions, he noted.

Also, Aviva’s mergers and acquisitions between 1999 and 2002 threatened to complicate matters on the business process side. “Through the acquisitions the company made in 1999-2002, we had multiple lines of business systems that were [to be consolidated] into one system in place going forward,” De La Cuba said. “Because of the approach we took, we really had to make sense of how data was going to be moved from one system to another.”

Early adoption of (iter8’s) BPM platform was key, De La Cuba said. It increased Aviva’s agility to develop a number of different solutions, and allowed the company to focus on modernizing its processes. For Aviva, the resultant technology turned out to include real-time broker systems connectivity, exception-based underwriting, and Web applications for future customer interaction, De La Cuba noted.

Colin Simpson, the vice president and chief operating officer of York Fire & Casualty Insurance Company, said his company required a BPM system to make things as simple as possible for brokers who place the company’s business. “In 2003-04, the York Fire process was anything but simple,” according to Simpson’s presentation slides. “They were manual, laborious and subject to mistakes. York Fire was subjected to the four I’s on a regular basis – incomplete, illegible, ineligible, inaccurate data.”

At the time, Simpson noted, York Fire still used faxes, paper, e-mail and phone calls as the primary means for submitting business. Manual underwriting was labor intensive and staff was making underwriting rule changes through system edits. There was a manual process for retrieving external reports; real-time batch uploads or downloads from broker systems weren’t available.

The upshot of this, Simpson said, was that “everything was coming to us on paper. Our underwriters weren’t actually underwriting. Our underwriters were processing paper…We were talking a bit about underwriting: can you actually automate it? My belief is that you can automate a lot of the transactions to be processed.”

York Fire Insurance implemented a BPM solution, Simpson said, including new processes and rules for sales and service workflow, a new third-party report process, seamless hand-off to underwriters for exceptions and defined and tested underwriting and process rules. The technology side of the equation included a BPM platform with pre-built, insurance-specific processes, imbedded insurance data standards and a service-oriented architecture.

The result, Simpson noted, is that brokers now directly submit 70% of the company’s new auto business through York’s BPM platform, which is accessible even to brokers using a dial-up connection. There is a 100% quotation point of sale accuracy and new business requiring underwriting exceptions [about 20% of the total business] is channeled to the underwriters through a portal integrated with the company’s pre-existing legacy systems.

“There is now a seamless hand-off to underwriters for exceptions,” Simpson noted. “We took all of the efficiencies in this process and focused it back on what we should be doing: we’ve actually given underwriting back to the underwriters. They spend more time looking at these 20% risks where you do need a value judgment as to why this rate and price [should be fixed]. This is very exciting for our staff and for our brokers.”

MANAGEMENT SUPPORT

But while BPM is a candidate for changing an insurance operation, the development of new rules and processes can only be done with the support of senior management, Harris-Ferrante said. And yet BPM is more likely to be championed by executives outside North America, according to figures supplied by Gartner. In North America, the Gartner survey shows, “the IT organization continues to play a visionary role” when it comes to implementing BPM within an organization. Only 51% of North American CEOs, presidents, CIOs and COOs in the 2005 survey reported being a BPM “visionary” within a company.