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Continuous Performance Improvement

Deming's Point #9 as Applied to the Insurance Industry

John Pryor | March 1, 2006

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Twenty-four years ago, Dr. W. Edwards Deming made the following very succinct point—years ahead of others both in its intent as well as in its far-reaching significance.

Dr. Deming's Point #9:

Break down barriers between staff areas.

Out of this brief sentence has grown a long overdue understanding of the disadvantages—and even the dangers—of a "silo mindset." It also has triggered an explosion throughout local and global organizations of what we now call "cross-functional" thinking, cross-functional communication, and cross-functional teams—all based on this very simple yet highly effective notion.

One insurance executive's recent comment put it this way:

For today's insurance company, faced with the demands of increased competition, rising claim costs, and the collapse of capital markets, it is essential to translate business strategy into actions that can be quickly measured and monitored throughout the enterprise … the common "silo" mindset among business units slows the delivery of information to those who need it….

For your own company, agency/brokerage, or third-party administrator (TPA), ask yourself these questions: How often do our underwriters meet with our claims people? Or our producers with our CSRs? Or our loss control staff with claims and underwriting—all at the same time?

We see some outstanding examples of cross-functional communication and, in certain cases, cross-functional teams. However, its absence still is all too prevalent.

A "silo"—as the metaphor implies—is a vertical orientation within a single department or in a "staff area," as Dr. Deming characterizes it. Underwriters talk only with underwriters. Claims people meet and confer only among themselves. Loss control specialists "do their thing" in relative isolation. What's needed is a "horizontal" orientation that crosses functional lines and departmental barriers. How much more effective all of these separate and distinct processes would be if they were no longer performed in isolation but within the context of all other systems and processes of the organization, especially those that interface with external customers.

Over the years—and even over decades—agents in the Federal Bureau of Investigation (FBI) and those in the U.S. Drug Enforcement Agency (DEA) rarely, if ever, shared information. One retired FBI agent told me recently they'd try to give DEA information on drug dealers, but such offerings were met almost with disdain, and clearly without reciprocity.

More recently, multiagency drug enforcement is in the form of what's called a High Intensity Drug Trafficking Area (HIDTA) program. Each HIDTA team is formed in different regions to combat drug dealers, eliminate "meth labs," etc. They are uniquely composed of city police officers, county sheriff deputies, FBI agents, and DEA agents in a cross-functional mode. Results have been phenomenal—and far superior to the outcome any individual agency could have expected or accomplished on its own.

In 2006, the highest profile examples of this principle are what happened in the aftermaths of September 11, 2001, and Hurricane Katrina. The traditional "model" of interagency silo thinking became enormously evident in the wake of 9/11. Out of this "revelation" came formation of the Department of Homeland Security to bring all relevant agencies under a single, cross-functional umbrella. Each agency was encouraged—if not ordered or directed—to share information to prevent a second attack and to work together to apprehend terrorists before they are able to carry out their dastardly plans.

More than 4 years have passed without incident; however, the jury is still out as this is a very long-term proposition. Now, in the wake of Katrina and other Gulf Coast hurricanes, many are saying that the Federal Emergency Management Agency (FEMA) was too constrained by its subservience to Homeland Security leadership. They seem to be saying that FEMA should be restored to its former silo and enable it to act with more independence. Here, too, the jury is still out—as is most of the "hard evidence" of what really occurred.

One final comment on this overriding issue:

  • Cross-functional efforts between federal, state, and local agencies appear to have been nonexistent. Everyone expected others to be "first responders." It sounds as though Homeland Security needs to expand its otherwise excellent cross-functional efforts to include state and local agencies in some effective manner—as they're all part of the same "system." Time will tell as this scenario plays out.

The ultimate solution lies in what author Peter Senge calls "The Fifth Discipline" or systems thinking. If what we do within an insurance organization—or within Homeland Security—is a system, as Dr. Senge defines it, the need for cross-functional efforts should be given high priority. This is true whether the people and organizations are one or if they are separate and distinct insurance companies or insurance agencies. If they're part of the same system, cross-functional communication, planning, and execution are essential.

As Dr. Senge reports, what happens in one sector of a system can have a major impact on what happens in another sector of the same system. For example, insurers who operate within the independent agency system—what we used to call the American Agency System—should find it imperative for cross-functional teams to include their agents and brokers.

In the past, agency advisory councils were utilized to some degree, and this was a good step in the right direction. However, such councils usually included only management and marketing people with agents and brokers.

These councils can be considerably more effective if underwriters, adjusters, safety consultants—even accounting people!—are included as well. (You can't believe some of the problems created by accounting processes where insurance company employees don't fully understand the needs of external customers. On the other hand, I suspect you can.)

In this same context, Dr. Deming concludes his section on Point #9 with a credit department comment:

An example of possible cooperation between departments may be illustrated by service to the company that could be rendered by the credit department. The credit department may be the earliest source in the company to learn about troubles that customers have for … poor quality. The customer with such a complaint may send his cheque with a deduction and explanation therefore. The credit department can help to put out fires by rapid referral of such complaints to the right people in customer service, and to salesmen … This information from the credit department, if used with intelligence, can contribute to improvement of quality and service.

Lessons Learned

  • Whether you're an insurance company executive or agency principal, strategies will be better defined and more readily executed if a "silo mindset" is avoided and cross-functional communication and teaming are used.
  • In addition to "cross-functional" thinking, it's also critical to practice "systems thinking." (Read Peter Senge's The Fifth Discipline for more information of the topic of systems thinking than can be related here.)

Both mindsets are essential to implement any insurance organization's strategies for continuous performance improvement.

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