Lessons Learned in Program Execution

…. Over the Rainbow…or How to Avoid Potholes in the Yellow

Brick Road….

Lessons Learned in Program Execution

2 © AIG 2005

Discussion Topics

Who is AIG?

Why PMP?

What is PMP?

How does it work ?

Project Success

Lessons Learned in Program Execution … follow the Yellow Brick change road

3 © AIG 2005

Category AIG Top Score1 Trust & Reliability 68 842 Builds Partnerships 56 833 Operating Efficiency 65 804 Claims 54 785 2 way Communication 56 846 Id's Needs & Solutions 62 757 Policy Delivery, Accuracy 64 84

RIMS Survey

Ranked 23rd of 23!

Why PMP?



Ranked 16th out of 16!

Ranked 16th out of 16!

Independent Survey #1

Independent Survey #2

4 © AIG 2005

Why PMP? Long Term Benefits

Operational Advantage

• Substantial long term change• Reduce frustration & turnover• Improve capacity and efficiency

Reverse Adverse Selection

Excellent service is required for long term growth

Competitive Opportunity

There is an opportunity for any insurer, who can deliver quality service to attract and retain business

5 © AIG 2005

What is the Performance Management Program (PMP) ?

A process improvement methodology based on the six sigma principles grounded in a project management discipline

Purpose: Improve Customer Satisfaction through Service Excellence -- driven by “critical customer requirements and performance vs. the “must haves”

Based on facts and data, measures performance, drives continuous improvement

Started in 1999 with AIG’s largest business group – Domestic Brokerage Services (DBG) on the Underwriting side

Large End-to-End Projects tied to Business Drivers distilled down to small scope projects

New projects started in 2003 in the Claims organization when it became part of DBG

New projects started in Underwriting in 2004

6 © AIG 2005

Change Management: Transform or else!!

A vehicle for strategic change … an organizational approach to performance excellence.

TRANSFORMATIONAL CHANGEAcross-the-board. Large-scale integration of fundamental changes throughout the organization --- processes, culture, and customers --- to achieve and sustain breakaway results.

TRANSACTIONAL CHANGEBusiness processes. Tools and methodologies targeted at reducing variation and defects, and dramatically improving business results.

7 © AIG 2005

PMP Is A 4-phased Integrated Business Strategy That Requires A Comprehensive Approach To Implementation:

TECHNOLOGY

PROCESS MANAGEMENT

CHANGE MANAGEMENT

BUSINESS STRATEGY

PMP implementation linked to business strategy

Manage core processes; develop a process-oriented culture

Committed leaders, communications, training, incentives

Enabler of process improvement & flow of data

Typical PMP Deployment

ANALYZE PLAN FOCUS BUILD

8 © AIG 2005

Critical Success Factors

There are a seven key contributors to PMP’s success. All of these must be addressed for PMP to be successful.

9 © AIG 2005

Critical Success Factors

Committed Leadership The rest of the organization looks to senior leadership for signals about what is important, so commitment, ownership & responsibility from the top is crucial for PMP.

A well-developed Customer & Market Network provides constant

customer feedback

High impact results come from well-selected projects that support the business

strategy.

In order to drive accountability and rapid results, full-time,

dedicated resources are critical to a successful PMP initiative.

The ability to sustain the gains of PMP relies upon creating a culture which values the ongoing management of core business

processes

A measurement “infrastructure” must exist to be able to reliably

track process performance against key business metrics.

The ability to sustain the gains of PMP relies upon creating a culture

which values the ongoing management of core business

processes

10 © AIG 2005

Program Highlights

Over 175 strategically aligned projects started and completed over 5 years. Implementation philosophy “do not to do projects for project sake.”

Have generated over $375 million in bottom line savings for DBG over 5 years. Primary savings driven by the capacity to sell more by streamlining processes and improved customer satisfaction.

Have trained cadre of Project Managers (BBs & GBs) – 200 fulltime resources over 5 years.

2005-2006 Focus Areas: Revitalize PMP in Underwriting Business: Since 1999 … next

generation? Ensure Claims Projects are successful: started in 2004 Work on supporting critical enabling functions: IT, & Regulatory

Reporting, Human Resources. Grow PMP across AIG – Internationally: Use the formula for success

11 © AIG 2005

The process by which our customer defines our business -- Issuing A Policy, (for example) --

crosses the functional boundaries of Underwriting, Underwriting Assistance, Service

Delivery Centers, etc.

Mar

keti

ng

Sal

es

Un

der

wri

tin

g

Un

der

wri

tin

g A

ssis

tan

ce

Bil

lin

g

Co

llec

tio

ns

Act

ua

rial

How Does It Work? PMP: Views a Business as Processes

Binding & Booking a Policy

Premium Collection

Issuing A Policy

Claims Processing

• Horizontal – Involves Many Departments

• Focused on Customer Needs

• Information Flows Across Departments

• Customer-Focused Measures

12 © AIG 2005

Design for Six Sigma

SIGM

A Impr

ovem

ent P

roce

ss

Process Management

PMP Methodologies

PMP Improvement Process (DMAIC) - a process improvement methodology used to solve business problems on existing processes, products and/or services that are directly aligned to the customer requirements and the business strategy.

Design for Six Sigma (DMEDI / DFSS) - a process development methodology used to develop new or significantly change a processes, products and/or services that are directly aligned to the customer requirements and the business strategy.

Process Management - achieving breakthrough business performance by managing the alignment and integration of strategy, culture and structure, and managing process and event analysis. The system that enables leverage and sustaining gains achieved by DFSS and DMAIC

13 © AIG 2005

PMP Program Management Office

TrainingGroup

CommunicationsGroup

Metrics Group

Project Facilitators

PMPTeams

14 © AIG 2005

Steering Committee

PMP Director

Organization and

Recruitment

Budget and Financials

Training

Assistance from the Experts

Infrastructure and Design (1 of 4)

Roles and Responsibilities:

Review/approve strategic plan.

Develop organization structure.

Provide resources.

Review performance and recommend improvements.

Prioritize projects.

Update CEO, etc.

Meeting frequency: Bi-weekly in the first 6 months, then monthly.

Membership: Chairman, PMP Senior VP, HR Sr. VP, IT Director , COO, Chief Acturial Officer, Chief Underwriting Officer

Job description: Enhance customer satisfaction and loyalty, productivity enhancement through process improvement.

Requirements: AIG veteran , knowledge of AIG structure/functions, personal network, experience in process and change management, numerical, not necessarily Six Sigma expert.

Reporting line: Report directly to AIG President, EVP/SVP level.

Performance measurement: The PMP Group’s setup, impact of improvement delivered, staff development.

15 © AIG 2005


Steering Committee

PMP Director

Organization and

Recruitment


Training


Headcount. ~7-10 by month 6, reaches full initial targeted capacity of ~25 by month 12, eventually ~50 (?).

Structure. 4 key functional teams at full strength:

Project Facilitation. (16 headcounts at full strength on first anniversary) Experienced PMP project managers who utilize PMP/Six Sigma methodologies to conduct projects for various AIA units in the field.

Training. (3) Develop and deliver training to both PMP staff and clients. Initially as guided by theSix Sigma Expert, and be supported by PMP Training Department going forward.

Performance Metrics. (3) Define relevant performance metrics for individual AIA units, regularly monitor them and report to management.

Marketing. (1) Raise and maintain awareness of the PMP Group within AIG.

Recruitment. Most PMP Project Managers will be experienced external hires, the rest will be provided with intensive internal training.

16 © AIG 2005


Steering Committee

PMP Director

Organization and

Recruitment


Training


$3.70$0.20

$0.20

$1.70

65%

29%

3%3%

Salary + relatedTravel +

Misc

Marketing

Other SG&A

Second Year Operating Expense Breakdown

US$ MM per annum, percent

100% = $5.8MM

* For ~30 client unit managers dedicated to PMP projects within individual business units/profit centers** For ~25 staff within the PMP Group

PMP’s Total Cost to AIG

US$ MM per annum

0.0

2.0

4.0

1st Yr 2nd Yr 3rd Yr

Total opex

Client unit expenses*

PMP Group expenses**

17 © AIG 2005


Steering Committee

PMP Director

Organization and

Recruitment


Training


Multiple training modules developed by NY PMO can be used to train AIA PMP staff, management and unit heads with minimal customization. These include a 3-day executive orientation for AIA top management.

More advanced training for PMP project managers will be developed in the first half year and delivered as new hires come on board.

While Six Sigma-qualified staff in the PMP Training Team will act as the core technical trainers, help from Consultants should also be sought in coordinating and facilitating the on-going delivery of quality training to PMP Project Managers.

Six Sigma Consultant(s) to work with the PMP Director on a daily basis and assist him in developing the group and its internal client base.

18 © AIG 2005

Executive Sponsors/Champions

Subject Matter Experts

Team Leads/Active Project Sponsors

MBB/FacilitatorsSupport

Project Managers >>>> Black Belts

Projects >>>>> Green Belts

Part Time Team Members

Full Time Team Members

Business Goals

PMP Roles/Responsibilities: Evolving at AIG to “Belts”

19 © AIG 2005

Success Case Study 1 – Policy Issuance at DBG

• Challenge – The team was charged with improving the quality and timeliness of policies. Feedback from customers revealed policies were inaccurate and were not issued in a timely manner and not accurate.

• Solution – Five projects were identified to improve policy issuance and timeliness. The accuracy or rework team identified ways to improve accuracy and avoid rework. A forms team developed a process for appropriate and simplified use of forms. The quality control or inspected-by team developed a process for improved document quality. Another team reviewed use of renewal certificates, as opposed to issuing an entire policy, in order to improve policy issuance, timeliness and accuracy. The roles and responsibilities team determined responsibilities associated with issuing and servicing a policy.

• Results – Refinements in the underwriting issuance process reduced rework and produced a 90 percent increase in policy accuracy and timeliness within one year of implementing process improvements.

20 © AIG 2005

DBG Results Policy Issuance: Reduction in Defects

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Trend Cosmetic Defect Critical Defect

…. From 2000 to 2003

21 © AIG 2005

Success Case Study 2 – Billing at DBG

• Challenge – The Billing and Collections team was established to improve premium collections and customer satisfaction for more timely acknowledgement and resolution of premium collection issues.

• Solution – Project teams worked to streamline premium collection issues into one central repository, established business rules and standards, developed common parameters for similar issues, and improved internal and external client communications. Management reports were created for root cause analysis and continuous improvement. Outsourcing opportunities were identified for printing and mailing and use of electronic filing rescissions. A database was developed to track returned mail and targeting returned mail to the collections department.

• Results – Premium collection issues were funneled into one central repository that allowed better tracking and more timely resolution of issues with customers. New dispute resolution processes were developed for call center coordination and communication. Cycle time to resolve disputes was decreased from 60+ days to an average of eight days. The team also implemented an email notification for cancellation activities. This improved account information for underwriting follow through and broker satisfaction.

22 © AIG 2005

PMP Sample Successes

DBG Completed Major Projects Policy Issues Initiative

Eliminated $1.6 M Cost of Re-work by Reducing Policy Issuance Defects by 82%

Identified $5M in Cost Avoidance through Process Improvements

Reduced Cycle Time to Improve Investment Income Benefit by Over $1M

Reinsurance Coding Project Improved Cash Flows by $24 M Through Correction of Reinsurance Coding Problems

U/W Quality Project Established Underwriting Rules, Training and Communication and Audit Procedures

Total Combined Benefit for the Projects above: 1/10 of 1% GPW annually or $210 million – all related to improved customer service and the capacity to issue more with only incremental additions to headcount

23 © AIG 2005

DBG Completed Projects, cont. MARI Project Established a New Multinational Servicing Advisory (MAS) Unit,

Established Global Metrics, Developed Uniform Training and is Developing a New Technology Platform to Manage Multinational Deals annual savings of $8.6M & new business opportunity of $100M!

Account Transfer & Communications Project Implemented solutions to keep underwriting contact information current and

available. Solutions include eStart Best Practice Guide, Training & U/W information in InfoExchange GOLD

benefit: $300K a year


24 © AIG 2005

DBG Completed Projects, Cont. Environmental Post Issuance Endorsement Project

(Houston)Reduce UW efforts spent on post issuance

endorsement that do not need the expertise of the UW. Deliver completed deals to the broker/agents within 30 days.

benefit: $700K and being replicated in other regional offices


25 © AIG 2005

PMP Success

Performance Management Program Receives Arthur Quern

Quality AwardThe Risk and Insurance Management Society

(RIMS) recognized the Performance Management

Program (PMP) policy issuance quality andtimeliness initiative as the recipient of the Arthur Quern Quality Award presented at

the40th RIMS Conference and Exhibition.The Quern Award is presented for a

product orprogram that personifies quality in risk

management,and has contributed towards raising the

quality of products and/or services offered within the

field of risk management

26 © AIG 2005

Lessons Learned: Over the Rainbow…. or How to Avoid Pot Holes in the Yellow Brick Road

….. “Toto, I have a feeling we’re not in Kansas anymore!” Dorothy

Define:

To Discover or not to Discover

Scope Creep …Son of The Blob …

Time to Process Map … “Wow, this is hard work”

VOC…. “Who is our Customer?”

Measure:

Baseline What?

Lots of Data, Little Information

Integrity of the data collected? …. I will get you my pretty .. And your little dog too! ….The Wicked Witch of the West

27 © AIG 2005

Lessons Learned: Over the Rainbow …. or How to Avoid Pot Holes in the Yellow Brick Road

“How do I get to Oz?” “Follow the Yellow Brick Road” The Munchkins

Analyze:

How do you Spell Stratification? You have entered the twilight zone

“We don’t have the right type and amount of data to get to cause and effect.”

Avoid Analysis by Paralysis: Tool Time with Tim the Tool Man

“ Let’s look at the data just one more way;”

“Oh, maybe we will get a better answer if we use this tool!”

Validation of Root Cause: Treating the symptom not the cause

“ We are behind schedule .. We have some root causes, we don’t have time to collect more data … let’s just get on to it and move to improve”

…. Lions, Tigers and Bears, Oh My!

28 © AIG 2005

Lessons Learned: Over the Rainbow…. or How to Avoid Pot Holes in the Yellow Brick Road

“We’re off to see the Wizard, the wonderful Wizard of Oz” Dorothy, Scarecrow, Tin Man, Lion

Improve: Correlate Ideas for Improvement with Root Cause

“I know the answer…. this idea box technique is a waste of time”

Not Invented Here …. The Idea Assassin “Been there, done that .. “tried that before and it didn’t work”

“We are industry leaders, why do we need to benchmark best-in-class?”

Adopt an Accountant “How do I know this Cost benefit analysis is correct .. It doesn’t look real”

Death of a Salesman? …. Sell your recommendations “The MGP and the Stakeholder Analysis is only done in Define”

29 © AIG 2005


… “Pay no attention to that man behind the curtain” The Wizard of Oz

Control: Process Owner Identified? Who is accountable for the implementation,

who owns the solution? The earlier the better … rely on Project Sponsor Plan, Pilot, Check, Plan, Do, and Act .. Establish accountability for

meeting implementation deadlines Apply Change Management Practices: lower resistance to change

Communicate, Train, “Incent,” Measure

Process Control System: Document & Dashboards Replicate Solutions CELEBRATE ….

30 © AIG 2005


“….. There is no place like home, there is no place like home”Dorothy

Process Management & Change Management: Manage the alignment & integration of strategy, culture, & structure Monitor specific performance measures and scorecards focused on the

Customer: f(x) Y

Prioritize six sigma projects where core process steps are not meeting performance targets and not consistently meeting customer requirements

Sustain leadership commitment and accountability to the process framework

Manage the change management “formula” Align + Communicate + Incent + Measure + Training > Resistance to Change

Documents

Lessons Learned in Program Execution