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The insurer’s guide: To identifying value and capturing it– A 4-step framework that uses value to guide decision making
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Contents of this guide
3 Getting started
7 The Value Identification Framework 9 Step 1 Determining your point of departure and your direction
11 Step 2 Quantifying the potential value available
15 Step 3 Identifying and evaluating the possibilities
19 Step 4 Defining your point of arrival
21 The next step
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According to a 2013 survey from Ernst & Young, almost 80% of responding insurers do not see themselves as
digital leaders.1)
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Welcome.
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Getting startedThere are many forces of change facing the insurance industry today: shifting consumer power, increasing regulation, the abun-dance of data and the analytical power to exploit it, just to mention a few. Dealing effectively with these opportunities and challenges requires significant change by your organization – usually revolving around the technology you use – but where do you start? We think it makes sense to start where you get the most bang for your buck. Don’t you?
By the end of this guide you will be able to quantify the potential value of the range of strategic moves that you are exploring to digitalize your business. Once you under-stand which of these moves creates the most value, you can use this information as the foundation of a business case for the digitalization of your company.
That’s why we have written this guide. To get you started.
1) Insurance in a digital world: the time is now published by Ernst & Young, May 2014http://www.ey.com/GL/en/Industries/Financial-Services/Insurance/Insurance-in-a-digital-world--The-time-is-now
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Wait a minute... What’s that? You’re wondering why you should take time to read this guide. What does TIA Technology know about identifying business value drivers for the insurance industry?
Well, we know a lot about the insurance industry – our company is built by insurance experts. On top of having an award-winning standard insurance software solution that is used by insurers around the world, we have guided numerous insurers through the process of finding business value and creating a solid business case. In fact, we have done it so often that we have a successful framework and methodology in place to do just that.
Once you have your business case in place, TIA can help you capture the value you have identified. Our comprehensive insurance solution puts your business in a position to profit from every customer interaction. You will read more about the importance of focusing on your customers later in the guide.
Anything else you need to know about us should be available on our website at www.tiatechnology.com, so check it out.
Enough with the small talk – let’s get started.
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Are we all on the same page?Before we jump into the four steps of the value identification framework, let’s get aligned on the meaning of “value”. You must think clearly about the shape of your organization and how you might capture the value that lies inside it before you can actually do it.
There are two essential ways to create value for your company. So when you plan an initiative you must be able to answer yes to one of the following. Will it:
If it can’t do one of the above, then dump it. It’s not worth it.
Psst! Even if you don’t have a market growth agenda and your primary focus is on defending your position by protecting your revenue or preserving your costs, you still need to look for ways to identify and capture value in your organization.
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Increase revenue?Decrease costs?
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Some questions to start you thinkingAs we mentioned in our Value Identification Checklist, there are five key questions you can ask to help you understand how to position the needs of the customer at the heart of your business and unlock that hidden value. They are listed below but discussed in more detail in the checklist mentioned above.
These questions can start you thinking about your next strategic move, but there are still many different directions your organization can go. If you haven’t seen it yet, please take a look at the checklist – your answers to these questions will help you use the framework presented in this guide.
Do you want to create a unique customer experience?
Could you benefit by simplifying the products and portfolio you
offer customers?
Is there a way to improve cross-channel interaction with customers?
Is it possible to use the data you collect and the data you gather
externally to optimize your business?
How will you streamline processes and achieve operational savings while
still focusing on your customers?
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The Value Identification FrameworkUse value to drive your decision making to propel your business forward and strengthen your competitive advantage.
The framework presented in this guide is the one that TIA uses to guide the insurers we work with. It directs you in mapping needs, finding possible solutions and quan-tifying the potential value that can be found in each scenario. It is based on years of experience working with leading insurers around the world to find and capture value and make a successful transformation – sometimes large, sometimes small. It is a step-by-step process with the explicit objective of aligning your digital strategy and investments with your organization’s strategy.
With the myriad of options facing insurers, it can be difficult to choose where to spend time and money. Decision makers need to be able to compare options effectively and ensure that the potential value is realized
The Value Creation Framework is both a high-level framework and a step-by-step process that guides an insurer through all the aspects of creating a business case
• You effectively compare options and make informed decisions aligned with your organization’s strategy• You identify the changes needed to unleash identified value within the organization• You increase buy-in and support from the organization, increasing the likelihood of success
Why?
How?
What are the
benefits?
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An introduction to the stepsThe Value Identification Framework will guide you through the process of value identification in four simple steps.
Step 1 Determining your point of departure and your direction – are there any gaps?
Step 2 Quantifying the potential value available – what is the benefit case?
Step 3 Identifying and evaluating the possibilities – what enablers and changes are needed? Step 4 Defining your point of arrival – how to measure success?
Step 1
Step 2
Step 3
Step 4
Point ofdeparture
Enablers &changesValue Point of
arrivalDirection Iterate
We will go deeper into each step now.
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Determining your point of departure and your directionThe first step toward identifying and reaping value for your organization is to know your point of departure and the direction you want to go. This revolves around your company strategy and requires a deep understanding of your organization, its aspirations and goals.
The point of departure is the baseline for all further analysis. You need to know what your organization looks like right now and how each part is performing – independently and jointly. To do so, you need to analyze organizational charts, the IT landscape and current KPI levels. By doing this you will have a strong view of your organization’s current structure and level of performance, which will be used further along in the process.
The direction is the way your organization should move to be successful going for-ward. You decide on the direction of change based on your strategy, vision, culture, external forces and other relevant factors. Once this is set, you can settle on which areas you would like to improve.
Point ofdeparture
Enablers &changesValue Point of
arrivalDirection Iterate
Step 1
Are you trying to achieve operational efficiency, exceed customer expectations, or gain product leadership?
Regardless, you need to start by putting your customers at the center of everything you do.
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You might think that spending time on the point of departure and direction is a waste of time and you would prefer to jump straight into defining your point of arrival, but if you do that you lose one important thing:
And, perhaps even more importantly, you might miss out on information that can help you make a decision that creates a lot of value. We don’t believe taking time to ensure that you have enough information to make the correct decisions about your company’s future is a waste of time. Do you?
A prioritization framework analysis compares reality to where you want to be. A helpful tool that shows you gaps in your capabilities.
Key questions Input Output
• What is the current structure of your organization?• How is your organization performing?• In which direction should your organization focus its improvements?
• Organizational chart• IT landscape• Business reporting• Strategy & vision• Competitive benchmark
• Current structure• Level of performance• Target areas for improvement
The ability to measure the value you create
If you start by measuring where you are today, it is easier to calculate the value that you have added from any changes
you make. If you don’t measure your starting point, you will never know the true story.
Prioritization Framework AnalysisMiscellaneous(10.-13.)
Source: TIA Survey April 2013: N=30
Today
Within 2-3 years
1. Availability ofcustomer information
2. Agent Management
3. Competitiveness
4. Time to market
5. System supportedprice optimization
6. Segmentation &product strategy
7. Product excellence8. Claims handling
9. Policy administration
10. Reportingcapabilities
11. User accessManagement
12. Reinsurance
13. Customer rating
Operationalexcellence (8.-9.)
Distribution/customer service(1.-3.)
Productoptimization(4.-7.)
5.04.54.03.53.02.52.01.51.00.50.0
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Quantifying the potential value available Quantifying value is about realizing just how much potential the direction you have chosen holds. Quantifying the benefits of digi- talization is difficult and too often insurers don’t have an effective way to measure the potential value they identify. Nevertheless, it’s a crucial element of building a solid business case.
TIA often spends a lot of time with clients to create a strong and flexible business value model that can quantify the effects of digitalization on their organization. Although difficult, once the model is created, it is a very powerful decision making tool that provides the insurer with a complete overview of value drivers and quantifies the impact of each key initiative.
Value can come from many places, but the key is being able to measure what you create. What is the quantifiable value of improving any certain aspect of your business? To answer this, you will need your company’s financial data as well as make sensible as-sumptions based on benchmarks, expert input and your industry knowledge. The out-put is a highly flexible business value model, which is a useful decision-making tool.
In this digital era, much of the value will be created from sources you probably didn’t quan-tify in the past. Traditionally, most business cases would focus on IT simplification bene-fits and productivity gains, such as reducing head count. However, digitalization is about more than streamlining IT and operations; it is about revenue and margin improvements.
If you can tap into big data and use it to increase pricing granularity you should seek to quantify what this means for risk selection and underwriting margins. If you digitalize your customer experience, consider what that means for customer satisfaction and, ultimately, customer retention. What about cross- and up-selling? Or attracting new customers? To grasp the full value potential, you need to consider these effects and quantify them.
Point ofdeparture
Enablers &changesValue Point of
arrivalDirection Iterate
Step 2
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Additionally, if the details of the actual changes you will be making have not been thought through, the change process will be more difficult and project risk increases. To us, taking extra time to make sure that things are less difficult and less risky down the line seems like a good use of your time.
Bad investments Poor decisions
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Key questions Input Output
• What is the value of a given improvement?
• Company financial data• Business assumptions• Customer satisfaction benchmark
• Business value model
Spend time on the important details now and your project will run smoother later. You will have a North Star for your implementation project – ensuring you make the
right decisions along the way.
Many insurers have a tendency to spend too little time building the business value model. While it is important to use your time efficiently, if you fail to conduct a rigorous analysis, you run the risk of making:
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To begin building the business value model, consider how changes in a KPI will affect the desired direction of improvement. Quantify the impact a change in the KPI has on 1) revenues and 2) cost by asking what immediate effect will be realized when altering the KPI.
Quantifying value
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The KPI “Handling Time per Claim” measures the average time it takes to pro-cess a claim. Let’s imagine we find a change that cuts it by 20%. How do we quantify the bottom-line impact of this?
This change impacts cost. If there are currently 100 FTEs handling claims and that is reduced by 20%, it will save 20 times the average claim handler cost.
Let’s take a look at the timing: The change management plan is to have the improvement in place during Year 1; with two deployments after six and 12 months, each time freeing up 10 FTEs. So even though the number of FTEs performing claims handling is reduced, it does not directly impact the organi-zation’s interaction with the outside world: The same service is offered more efficiently.
10 FTEs will be let go and 10 FTEs will be reassigned to investigate fraud more meticulously. The decision to invest 10 FTEs in fraud investigation is a completely separate investment decision and should have its own business case. It will change the way the organization interacts with the outside world. In conclusion, the “Handling Time per Claim” initiative reduces cost at constant revenue and thus bottom-line impact equals the cost savings of 20 FTEs.
Example:
You are after the bottom-line impact which is the sum of revenue increases and cost savings.
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There are a few best practices to keep in mind while building your business value model. Using them not only saves you time and resources, but also ensures that you reap the full value of your work.
Build a highly flexible model: Make sure assumptions and data are easily change-able. In other words – avoid hard coding! Doing it right allows you to compare your op-tions easily and facilitates sensitivity analysis so you can answer important questions. It also allows you reuse the model if circumstances change.
Strike a reasonable balance: Any model can be made more accurate, but only at the addition of complexity. Your model must be detailed enough to provide the in-formation you need, but not so complex that it is next to impossible to analyze. Once you have determined that a particular direction of change is important, you can do a detailed analysis.
Use your industry expertise: The business value model uses real data from your organization to a large extent, but it is inherently concerned with the future so you will need to make many assumptions. This is where top management’s industry expertise is a great resource. Benchmarks can also provide a good first indication.
If you follow these guidelines, you are sure to build a business value model that provides significant value for your organization. The figure below shows an example.
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Excerpts from a business value model. In front: key input, assumptions and a sum-mary of the bottom-line impact. In back: the detailed calculations.
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Identifying and evaluating the possibilities By now you know what you want to improve and you know its value. It is time to find out how you actually unleash the value your organization wishes to profit from. To do this you need to add enablers and make changes.
An enabler is something that needs to be added to your organization from the out-side. Examples of enablers are acquiring a new IT-system or hiring two new senior inspectors.
A change is adapting the use of something already present in your organization. For example, you might tell your claims inspectors to spend more time looking into cases of stolen cars.
Just as it is important to quantify all benefits to assess the value of your endeavor, it is equally important to assess the full cost impact of the enablers you’re bringing into the organization and the changes needed to reap the benefits. Estimating the cost of the implementation also requires rigor: you need to determine the number of resources needed to implement the change – both internal and possibly external. Don’t overlook the need for training, communication and change management as well as software and hardware costs.
Typically, you will estimate with varying degrees of contingency to cater for the un- foreseen and ensure that you make sound decisions. TIA has created a compre- hensive methodology for estimating projects that is built on our experience working with many insurers on their digitalization strategy.
Point ofdeparture
Enablers &changesValue Point of
arrivalDirection Iterate
Step 3
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Key questions Input Output
• Which enablers support your mission?• Which changes are required?
• Total list of enablers • Transformation diagram• Short list of enablers• Implementation costs
There are many ways to find and evaluate enablers. Some businesses have a dedicated procurement department; some have senior employees who know the ins and outs of the industry, others might resort to desktop research. These are all feasible ways and the beauty is that they are all improved by the process you have just gone through.Weeding out the options is a matter of using your vision and KPIs to decide what areas you are looking to improve.
The real value of this framework is that it is an excellent evaluation tool. With it, you can compare solutions to see
which one adds the most tangible value and gives you the best ROI once the level of investment has been
determined.
Evaluating enablers
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In order to reap the benefits of the enabler, something in your organization has to change. Tying the enablers to the benefits requires that you foresee what changes are needed. A transformation diagram like the example below can guide your process.
Determining needed change
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A transformation diagram maps out the enablers, required changes and the benefits for any strategic objective you have.
No value can be added to your organization without change.
MobileAppraisal App
Enablers
Required changes
Benefits
Strategic objectivesTraining of appraisal
personnelBe a trusted advisor
to customers
Efficient processes lower costs & better
responsiveness
Reduce churn rate
Lower fraud
Speed up claimshandling
Identify cross/up-sellopportunities
Improved conversionrate
Lower cost of sales
Integrate mobile appswith core systems
Training of salespersonnel
MobileSales App
The change might be as simple as upgrading a piece of software that will decrease processing time for a certain calculation by 50% or it might involve drastic, large-scale change, such as a core system replacement and retraining of all employees. Either way, you will have to link the enabler to one or more benefits via changes.
Using a transformation diagram ensures that you highlight the strategic rationale and value for every enabler you introduce and change you propose.
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Step back and reexamine
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Each change requires exactly the linked enablers identified
and no others
Each benefit needs exactly the changes listed and no others
Once you created a transformation diagram and have mapped the enablers to the respective benefits via changes, you must take a step back and take a second look. Have you caught everything?
Iterate: The analysis is repeated until you reach a magnitude that suits your circum-stances. The input is chiefly the business value model and the transformation diagram, which will eventually result in a final version that accurately reflects your organization’s situation and plans.
You should check that:
If you find gaps, you might have to add links to your transformation diagram or even additional changes and enablers.
We have now explained how you evaluate the enablers and determine the changes needed in order to realize benefits. In the final section, we look at how you transfer this work and make it come to life into your organization.
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Defining your point of arrival Now it is time to put all the pieces together and create a clear picture of the desired point of arrival. This is a vital part of project realization and must be included in the hand-over to your change management process and the implementation project.
Point of arrival: What you want your organization to look like when the project is finished and how you want it to perform. You join the pieces of your previous work to reach your point of arrival and to set your organization up for success through a strong vision.
Point ofdeparture
Enablers &changesValue Point of
arrivalDirection Iterate
Step 4
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Get buy-in from key people: Digitalization projects are often feared by the business for their high complexity and substantial risk. Yet, much of that risk has been mitigated with the work done up to this point. Furthermore, being able to clearly communicate the value the project will add to the organization motivates colleagues to get behind the project.
Empower employees: It is much easier to motivate and involve your organization if there is a strong vision with tangible benefits that are clear to everyone. This enables employees to prioritize and empowers them to make day-to-day decisions, which to a large extent ensures that the project moves forward.
Adapt to changing circumstances: No matter how well-researched, analyzed and planned a digitalization project is, there will always be changes en route. It is important to respond to changes effectively without jeopardizing the project outcome. Having a clear point of arrival and a strong vision allows your organization to continue to make the right choices. And should you need to analyze further, you have the tools to do so.
Measure your success and evaluate your decisions
This guide has shown you a solid framework to identify value – and given you some ideas on how to capture it in your organization. After spending considerable resources on determining the nature and content of the project, you need to do two things.
Here are some important aspects to consider:
Follow up on your success by evaluating the project
Extract learnings from the process and adapt them so you become even
better next time
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Next step.
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Reach out and move forwardNow you’ve reached the end of this guide and we hope you enjoyed being walked through the process. Are you still contem-plating how to identify the value hidden in your organization and interested in developing a business value model to help you cap-ture it?
We hope you will contact us.
We would love to arrange a business value workshop, where we work together to explore future strategic scenarios and identify the value that is hidden in your organization. For more information about the workshop we offer, please visit www.tiatechnology.com/valueworkshop
We are TIA.
Our business has been created by helping insurance companies such as Allianz, Alm. Brand, Liberty Direct, RSA and Zurich, get closer to their customers and understand their needs. And with 100,000 insurance professionals in over 60 companies using the TIA solution across 40 countries, we’re the market leader in what we offer.
Work with TIA to capture the value in your organization.
+45 70 22 76 20 [email protected]
What happens next is up to you.
This guide is a SIM publication. SIM is in charge of driving strategic innovation and marketing initiatives at TIA Technology. The team creates innovative ideas and content that provide insurers with the information and insights they need to help move their business in the right direction.
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The contributors
Pamela Simms-Borre
Marketing Specialist
Jette Børsting Lundquist
Marketing Director
Steen Vingaard Larsen
Business Advisory Director
Peter Braad Olesen
Chief Innovation & Marketing Officer
