Lean works in any type of business, including all sorts of non-manufacturing organizations ranging from health care to financial services. Let me share the work I did at a life insurance company. When I joined the board of a mid-sized ($23 billion in assets) life insurance company, I pushed them to make the lean conversion. At first they were reluctant to try lean, which they saw only as “some manufacturing thing.” The company had recently named a new CEO from within the company, and I was able to convince him to try the lean approach.
We started with a couple of small kaizen events to get the CEO comfortable. Folks then asked me to help with their underwriting department, which is a major and critical function for a life insurance company. It was taking them on average 48 days to underwrite a new policy, compared to the industry average that was closer to 40 days. So we scheduled a kaizen to see what could be done.
The underwriting part of the business was comprised of two parts: the underwriters, and the case managers whose job it was to assist the underwriters. They all sat in the same general area, but each reported to their own manager, who in turn reported to an overall manager for underwriting. Most of the managers had been with the company for many years in this general underwriting area. The underwriters were critical to the long-term success of the business, as they did the risk assessment and determined what customers they were willing to take on and at what price. These were highly trained professionals who could command $120,000 to $150,000 in annual salary. The case managers, who were much more clerical in nature, were paid less than half of what the underwriters received.
We started off with a kaizen group of 15-20 people that included all the key managers. We kicked off by getting an overview of the process, to get a feel for why it took 48 days to simply issue a quote for new business.
Start By Discovering Your Layers of Waste
Lean works in any type of business, including all sorts of non-manufacturing organizations ranging from health care to financial services.We immediately discovered layers upon layers of waste. The very first step in the process, receiving the request for a quote from insurance agents, did not come directly to the company, but was sent instead to an outside firm that entered all the data on a computer program. This added more than three days before the underwriting department even saw it. After that the request for an insurance quote wandered through the department in a sequential way. The quotes were frequently outsourced to third party firms for the scheduling of physical exams, getting letters from doctors, or obtaining financial information. The case managers, for example, could request a physical exam by entering the information into a computer program and pushing the “send” button to the outside servicing firm, whose job it was to actually schedule the exam. This could take more than ten days, and even then, the results might sit on the case managers’ computer for another 7-10 days before they discovered the results had come back.
As we examined this, a bright young guy stood up and started an impassioned speech about the importance of the tracking program they were using, which helped answer the insurance agents when they called to ask the status of their insurance requests. About half way through his speech I told him to sit down, and said, “Look, the only reason you need this program is because it takes you 48 days to respond to a request for insurance. Let’s focus on getting the turnaround time under 20 days, and you won’t need this program any more because the calls will cease.” I said. That kind of took the air out of the room, as they couldn’t possibly conceive of getting the turnaround time under 20 days. They would have been ecstatic to get it to what they believed to be the industry average of 40 days.
Next I asked: “how long does it take for an underwriter to underwrite a life once all the data needed are present?” Well, surprise, surprise; these professionals, whose whole careers had been in underwriting, didn’t know. I asked them to guess how long it would take. They said it would depend on the size of the policy and the type of insurance, but, they would expect it to take between two and four hours. So we then went to find out.
We broke into teams and I showed them how to do time observations on the floor. Then I asked them to observe at least ten cases where all the information was present, using several different underwriters and different types of insurance, and time how long it took. They came back about three hours later and said, “Well it took between 9 and 12 minutes to underwrite a life once all the information needed was present; and it didn’t seem to matter how big the policy was or what type of insurance it was.” They seemed to be a bit shocked.
I suggested that, to be safe, we round up your observations to 15 minutes per life. Assuming all the data were present, an underwriter should be able to underwrite 150 lives per week (4 per hour x 8 hours = 32 per day x 5 days = 150 per week). Then I asked: how many lives does an underwriter do per week now? The answer was 15. I almost fainted. These underwriters were making about $120-150,000 per year. You could imagine that none of this really computed for them. Thinking about it kind of hurt their heads! But seeing how they were the ones who did the observations they couldn’t really deny it either.
Then Remove All The Waste that You Can
Speed is a tremendous competitive advantage. That’s why I always think of lean as a time-based growth strategy, and not some “cost reduction program.”The next step was to remove all the waste we could. This was difficult with a team who had, for ever and ever, only done it one way. We set up an experimental cell with four case managers and one underwriter sitting around a big table. Each case manager’s job was to hand the underwriter one fully developed case (i.e. all the information needed was present) per hour. We found lots of data entry work that the case managers were doing that was taking up lots of their time but was completely unnecessary. After all we were only quoting. The hit rate was about 16% so there was no need to collect and store a lot of information in case we got the business. They made a lot of progress. I put up a chart on the wall that showed the target of four completed cases per hour in one column and the actual result in the column next to it on an hour by hour basis throughout the day. We called that visual control. They said it was way too unprofessional. But we made it stick.
Before long the underwriter was doing 88 lives per week, and more than 50% of the quotes were completed in less than 20 days. We still had numerous improvement but the CEO retired and the financial crisis occurred, so we never went much further. They had asked me early on where I thought we could get from the starting point of 48 days. I said 5 days. They of course dismissed this out of hand. But once we got over 50% in less than 20 days the path to 5 days was pretty clear.
It was very disappointing that the financial crisis intervened in this case. The competitive implications for the company, even though management couldn’t see them yet, were huge. Most insurance agents carry several lines. It may take them a long period of time to talk a new client into a life insurance policy. Once they do they don’t want to wait 48 days to get a quote. Even the industry average of 40 days is too long. But if one firm could reliably turnaround a request for insurance in less than 20 days, which we proved possible, then the chances that the agent will funnel most of his business to that carrier are very high. He doesn’t want the hassle of waiting and having to call to find out where is policies are in the queue. In fact, I would be willing to bet that this would be the case even if the fast turnaround insurer were consistently 10-20% high on his quotes. You would have the wonderful case of gaining market share at premium prices.
Speed is a tremendous competitive advantage. That’s why I always think of lean as a time-based growth strategy, and not some “cost reduction program.”