How to Apply Six Sigma Concepts to Home & Auto Insurance Companies
- 1). Identify personnel to fill quality management functions. Six Sigma uses martial arts terminology for its hierarchy of roles that cross through various business functions. The project team must include representation from each business area that touches the process (such as underwriting, claims, sales and customer service). "Champions" work under the top executive leadership, over a hierarchy of "Master Black Belts," "Black Belts," "Green Belts" and "Yellow Belts."
- 2). Train and certify quality assurance team members. The American Society for Quality (ASQ) and the Institute of Industrial Engineers (IIE) are the premiere institutional providers of high-level training and certification. There are also many certified Six Sigma consultants in most markets available to train at your location. Certified Champions and Black Belts within your organization may also be qualified to train your additional personnel.
- 3). Identify each of your business processes with clear output specifications. For example, underwriting casualty projections are directly measurable against actual claims. Sales performance targets, claims processing metrics and customer service satisfaction statistics are also measurable. Analyze and quantify every aspect of underwriting, claims processing, customer service and sales to establish and document processes with measurable outcomes.
- 4). Charge each project team with applying Six Sigma methodology to new or existing processes. New processes are created using DMADV methodology (define, measure, analyze, design and verify). Existing processes are improved using DMAIC methodology (define, measure, analyze, improve and control).
- 5). Express the tolerance specification for each process in a quantifiable manner for comparison to real-world performance. This may be a symmetrical value (such as 9.2 minutes plus or minus 1.65 minutes per customer service call) or an asymmetrical value (such as 94.25 percent plus 5.75 percent or minus 2.25 percent auto policy renewal rate). Variance may be expressed as a percentage or factor of the nominal quality value.
- 6). Calculate the process "Sigma Shift." Six Sigma accepts a 1.5 shift in standard deviation ("sigma shift") to account for long-term effects. This means that an optimal business process will still result in failed outcomes 3.4 times per million opportunities. Within the insurance industry, this "act of God" factor is well known (especially by underwriters) and can be accounted for and minimized by using Six Sigma methodology.
- 7). Establish appropriate systems for continuously measuring and improving outcomes for each process using Six Sigma management methods and tools. At a minimum, this includes business process mapping adjustment, control plans and charts, failure modes and effects analysis, run charts and analysis of variance.
- 8). Modify processes within underwriting, claims, customer service, sales and other aspects of your business as the competitive requirements of the home and auto insurance industry evolve. For each adjustment to an insurance product, re-evaluate every process affected by the adjustment. Never neglect to analyze the effects of change across all business lines. Beyond the major verticals of underwriting, claims and sales, departments such as Information Technology (IT) and Human Resources (training, communications and personnel) must have input into the process change.