Tillinghast Briefing

No. 41 February 1996

For the Financial Services Industry Incorporating Insurance Matters

What Happens when the Dust Settles?

By Max Underhill

The consumer protection legislation being introduced into the life insurance industry is driving a shift in focus the extent of which has never before been experienced in this industry.

These legislative changes are imposing enormous pressures on the way insurers go about doing business and the way their people are managed.

The legislation, in particular the Code of Practice, will have a major influence on how the business is organised and how the services are delivered. However, we need to be careful to ensure that this “code” is built into their business strategies and not merely used as a substitute for developing strategies.

Clarification of the business direction, identification of the necessary capabilities and development of competent people will become paramount to survival in this regulated but highly competitive industry. The big question, which organizations are asking, is “where will our organization be when the dust settles?”

The answer will be dependent on how well this transition phase is managed. Today product discrimination is becoming much more difficult to maintain and technological advantages are only short-lived. Where will the competitive edge come from?

It is becoming clear that this competitive-advantage will come from the people – it is people that manage well or poorly, it is people that are innovative or indifferent, it is people that which deliver good service or poor service.

Organizations often find the people issues difficult to deal with. If your car had worn out brake pads and was only operating at 80% efficiency, you would get it assessed against the specification, and brought back to expected efficiency levels.With people, we need to know what are the expected efficiency levels and what keeps them at this level. This is known as the “People Programs”.

To better understand the people issues and to develop People Programs, organizations need to have a clear picture of their business dynamics; organizations need to have a clear picture of their business dynamics.The business strategy needs to be comprehensive and includes financial, market, product and people strategies.The steps involved are:

The capabilities are the collective abilities required to deliver the business strategies.These will include both people and non-people capabilities; for example, delivering customer service standards involve customer commitment and an information system.

The people drivers are usually described in outcome-based competencies. These outcomes are measurable and observable. Competencies define the roles and expectation.They are the link between the role expectations and the individual’s ability to deliver.

People Programs include; training and development, recognition and reward, recruitment and selection, performance management, career and succession planning. These programs must be integrated and all driven from the common “people driver” framework.

In broad terms, your competitive edge is your most important resource – your people.These people will operate in tune with your organization only if you align the People Programs with the organization’s business direction and focus.

Part three of the Code of Practice places the responsibility for “Training and Competence” with the life offices and brokers. The choice is to provide technical training in the traditional way or be innovative and competitive by putting in place an integrated approach to People Programs.These People Programs need to consider all the roles: Sales Manager, Agents (tied and multi-agents) as well as other management, “sales” and support roles.

The People Program needs to be driven by the people drivers, which in turn are propelled by the organization’s strategic direction. Integrated People Programs should include:

• Structure and Job Roles

This provides the fabric for an efficient, flexible and responsive insurance organization.An appropriate structure enables organizations to respond quickly to changes such as legislative change or competitive focus. Depending on the circumstances the job roles can be highly flexible or specialised.

• Training and Development

The first question needs to be, what is the range of competencies and how should they be clustered? These are likely to include technical, business, customer and people competencies.For example, the competency mix will be different for a Customer Service Manager and a Tied Agent. The nature of training delivery is changing – the approach is now more “outcome focus” rather than specific skill or task based.This enables people to apply these broader abilities in new and varying situations.

• Recruitment and Promotion

The Code of Practice places more responsibility on life companies and brokers to have “the right person for the right job”.The use of competencies ensures that the right person is in the job through the use of situation simulation, which demonstrates outcomes.

• Reward and Recognition

The degree to which the people drivers are aligned with the recognition and reward system will be critical to the success of the business. The traditional “volume based bonus” will no longer be appropriate in reinforcing desired behaviours. Recognition and reward has three distinct components, which need to be established for each level of service provider and manager.These are:

 

base salary and benefits; variable or performance pay; and non financial recognition.

• Performance Management

Performance management drives the organization’s performance.A component of the performance management system relates to the individual’s and/or group’s contribution. While competencies drive the base pay component of remuneration, they also support the performance management system, ensuring a meshing between the measures and the roles.For example, the competencies for a Sales Manager will reflect the people competencies as well as the business and customer orientated competencies.The agent competencies will focus more on the customer and technical competencies. Now ask yourself where will you be in the mob when the dust settles? The answer will depend on two criteria: How well you have consolidated your business direction; and How well you have aligned your people programmes with this business direction.