In 1993 the Quality Insurance Congress was formed bringing together customers and suppliers for the first time in the industry's history. The charter of the QIC was developed by the best minds within the industry and guided by the "best of the best" leaders within the Quality revolution, which started in 1980. The QIC first objective was to define "Quality" from the customer’s perspective and the organization published the first ever commercial insurance customer satisfaction survey results. Subsequently industry improvement initiatives were identified with plans for cross-functional industry teams to work on improvements. Three annual reports were published in 1994, 1995 and 1996. In 1997 the QIC was dismantled and efforts to improve quality within the industry were moved to RIMS, Accord, CPCU Society and other industry trade groups. A report titled "Mission Impossible" was published addressing why Quality Improvement could really never be achieved within the insurance industry.
Much of what the industry trade group did was to institute various "quality programs" which fundamentally delegated the function of 'Quality" to nothing more than compliance and new initiatives for workers and middle management.
Move to 2000 and beyond. The new era started out with the Dot.com bubble burst. Today much of the theory of "systemic thinking" has now become new initiatives with many different trade group labels. From RIMS QIP to other trade group program labels the fundamentals have been loss and "Quality" has been delegated to a department rather than being practiced by leadership. The insurance industry's customer base has not rallied around the opportunity to help the entire insurance industry improve rather they have chosen to "work on relationships" and single processes such as the RIMS policy issuance initiative. The Quality of thinking is missing and instead we can see silo efforts unconnected to systemic improvement objectives that are no longer defined.
What are the factors that led to failure of the vital role of systems-thinking leadership within the insurance industry?
1) Weak Customer Input and Participation: The customer using traditional linear thinking when viewing and solving problems that are systemic in nature. It appears as though that the culture of risk managers as a group is still entrenched in old practices with little understanding of Quality as a systemic issue. Quality Leadership is needed if the customer base truly wants "Quality Improvement" throughout the entire supply chain of the system of insurance product and service delivery.
Customer thinking is entrenched in traditional thinking. Traditional decision-making tends to involve linear cause and effect relationships. By taking a systems approach, we can see the whole complex of bidirectional interrelationships. Instead of analyzing a problem in terms of an input and an output, for example, we look at the whole system of inputs, processes, outputs, feedback, and controls. This larger picture will typically provide more useful results than traditional methods. Education of today's customer leadership is required to go "back to the future".
2) Management by Results: Today's risk manager is measured by financial results i.e. budgets, sales, headcount and the cost of the latest insurance purchase. If the results are not what the "boss" expected then a simple resolution is to cut budgets, blame other people or find cheaper insurance through another broker. This method brings no improvement rather further complexity and increased cost. What are the cost of risk? What is the true cost of poor quality? Who would know?
Today's risk manager is also measured by monthly or quarterly results. A timing factor that does not allow a true picture as to how people, processes and customers are behaving over time.
System thinking helps us integrate the temporal dimension of any decision. Instead of looking at discrete "snapshots" at points in time, a systems methodology will allow us to see change as a continuous process. Systems’ Thinking is a worldview based on the perspective of the systems sciences, which seeks to understand interconnectedness, complexity and wholeness of components of systems in specific relationship to each other. Systems thinking is not only constructivist, rather systems thinking embraces the values of reductionism science by understanding the parts, and the constructivist perspectives which seek to understand wholes, and more so, the understanding of the complex relationships that enable 'parts' to become 'wholes'.
3) Short Term vs. Long Term emphasis: The stock market operates around quarterly results. Corporate accounting systems operate around monthly results. Many organizations are driven by their budgets, not by how to improve or innovate product and service thus increasing customer satisfaction and market share. Improvement drives down cost, creating market differential and increasing customer satisfaction drives up sales. Short-term thinking does not enable either to happen effectively. Many risk managers are measured from renewal to renewal and the cost of insurance is the driving factor. Risk Managers are rarely measured on internal and external process improvement initiatives.
4) Politics: Much of the traditional risk management approach and practice has been entrenched for years. We have seen many "unintended" but "logical” consequences of this approach i.e. allowing brokers to double dip on commissions for years. Practices such as these and others have stayed the same to such an extent that "internal industry politics" has become the cultural norm.
The Political factor drives many risk managers to focus on "how to keep in good standing" with their immediate boss or immediate supplier. Never questioning his/her methods, always learning to give the "politically correct answers" rather than simply speaking the truths. Political factors are a dominant cultural trait of organizations that manage by results.
There are many other factors that have kept risk managers trapped into old practices with corresponding loss of profitability and product/service quality. In order for companies to go forward they must go "back to the future" and learn from mistakes in thinking and practice that are robbing their shareholders value, the value of the risk management function and their customers satisfaction.
In my book titled "Fourth Generation Risk Management", published in 1996, a set of predictions concerning risk management practices and the insurance industry were made based on observations at that time. Below are the predictions. Lets see how far the industry has come to fulfilling predictions of ten years ago.
