When an organization encounters a pressing problem or opportunity, there’s usually a demand to deliver the solution quickly. And, very often, the expected solution is the complete answer to the identified challenge, with all the bells and whistles. Unfortunately, this presents a quandary to the decision makers: go for the quick fix with its associated pitfalls or hold out for the ideal solution with the time and cost penalties. The answer, of course: if in doubt, pilot.
In this post, we’ll review an executive’s response to his company’s revenue declines brought about by the financial meltdown in 2008. We’ll see how he relied on his customers’ feedback and used a piloting and staging strategy to reduce his risks and deliver rapid responses to his company’s challenges.
Thanks to reader A.D. for providing the details on this case.
This mid-sized insurance organization offered life insurance to individuals across the country. Its highest volume product was a competitively priced term life insurance contract that was sold through a network of independent agents and brokers. Most of the business was monthly pay automatic bank withdrawals or cash payments.
When the financial meltdown hit, the company noticed an increase in non-payment of premiums and subsequent contract terminations. At the end of 2009, the termination rate was 40% above their normal rate prior to the global financial crisis. And the rate was increasing month by month. This was a serious development that threatened the company’s long term health.
The VP Administration surveyed a number of agents and clients across the country to determine the reasons for the increase in the termination rate. He found consistent responses from both agents and clients across all regions. The increase in terminations was caused by:
- Clients couldn’t afford the premium
- Clients were unable to pay when due
- Clients moved without forwarding change of address or new banking arrangements
- Clients lacked an understanding of the value of the insurance contract
In reviewing the survey results and the feedback from agents and clients, it became clear the primary cause for the increase in termination rates was financial distress caused by the financial troubles of the time. Clients were losing jobs, making less money, forced to deal with threats of foreclosure on their homes and dealing with family members who were experiencing the same difficulties. In that environment, the premium for an insurance contract that wouldn’t yield a return perhaps for years or decades was an easy expense to cut.
The survey also asked for suggestions that would make it easier for clients to pay and keep the insurance coverage in place. The top four suggestions were:
- Allow premium payment by credit card to provide budgeting flexibility
- Allow the client to select the premium due date to coincide with pay dates and other automatic deposits
- Make it easy for clients to reduce the amount of insurance coverage and the associated premium while times were tough with an option to revert to the original coverage levels when a client’s ability to pay improved.
- Continuously reinforce the reasons the insurance was purchased in the first place – to safeguard loved ones’ standard of living in the event of the premature death of the insured.
All of these suggestions had potentially significant financial implications and required major changes to company processes and systems. The VP wasn’t ready to commit millions of dollars and months of effort to make the necessary changes until he was convinced the investment would actually solve the problem. As well, there was considerable urgency to get solutions in place expeditiously. So he consulted with his fellow executives about the challenge, the survey findings and the best way to proceed. He enlisted the key stakeholders – the CEO, the VP Distribution, the Chief Actuary, the CFO and the CIO. Together they developed an approach that would pilot likely solutions in the hardest hit regions for a short period of time using whatever combination of manual processes and technology got them up and running quickly. The approach involved the following steps:
- Assess the financial implications of each of the four suggestions and discard any that couldn’t be justified
- Select the four hardest hit regions
- Benchmark the performance in each region
- Test each of the justified suggestions, one per region
- Monitor performance for a period of three months.
- If the results showed promise, repeat in another region. Otherwise cancel the test.
- If the second region showed positive results, introduce nationally. Otherwise cancel the test.
- Initiate projects to streamline and automate support for the national rollouts.
The stakeholders agreed to pursue the above strategy with the objective of slowing the rate of terminations to no more than 10% above the annual average experience before the financial turmoil. Two months was allocated to launch the four pilots. There was some concern that the strategy would not explore the potential complimentary or conflicting contributions of the four suggestions together if all proved financially justified and showed positive results in the pilots. However, the stakeholders agreed that urgency trumped the need for further analysis.
The Administration VP appointed one of his managers to guide the initial phases of the project and had her supervisors pick up her responsibilities. The appointed manager had an in depth knowledge of the organization and administrative processes and systems, was well regarded by head office management at all levels, had a great rapport with the agents and a superb, can-do attitude.
She assembled a top talent team including staff from the Distribution organization, Finance, Actuarial, IT Operations, application development and legal as well as a few go-getters from the Administration ranks. She also contacted the organization representing the credit card companies and her organization’s bank to put the credit card processing arrangements and agreements in place.
The financial folks took the four suggestions through a financial due diligence and found each could be supported if they achieved the targeted decline in the rate of terminations. The four hardest hit regions were identified, current non-payment and termination data collected, each of the suggestions assigned to one of the regions and launch plans developed. The launch plans included dialogue with the agents and selected clients in the target areas, process design including agent and client communications, staffing and training, putting in place whatever technology support could be delivered in the two month window and tracking, reporting and control processes to monitor non-payment and termination rates and ensure operational quality and integrity.
In addition to the targeted project communications, the VP Administration distributed a series of updates across the organization, to agents and brokers and in client notices about the challenging times clients were facing, the initiatives the company was pursuing, the results of the pilots and the decisions that were being made. It positioned the project as a corporate priority internally and made it easy for the project manager to secure the staff and time she needed. It also showed the organization as a caring company trying to do what was right for its clients and the agents who supported them.
The pilots yielded some interesting results. Three of the four suggestions showed significant improvement in both the initial pilots and the subsequent pilots and were authorized for national rollout. The fourth suggestion, allowing clients to select a premium due date more in line with their financial calendars, showed no improvement and was cancelled.
The pilots for two of the three remaining suggestions were launched within the two month target window. The adoption of credit card payments took an additional month to get underway. Introduction of credit card payments was the big winner in term of reducing payment delinquency, actually improving termination rates to better than pre financial meltdown figures in both the initial and subsequent pilots. Reinforcing the original need for the insurance coverage through revised client communications, premium notices and agent contact improved results well beyond the 10% target. Finally, providing an option for clients to temporarily reduce coverage and premiums also achieved the target although very few clients actually took advantage of the offer. It seems the offer was just another way of reinforcing the original rationale for the insurance.
The bubble gum and bailing wire arrangements for administering the pilots proved to be a challenge. Limited automated support and lack of integration with the core administrative systems meant lots of manual process work and supporting spreadsheets. On the plus side, it did give staff the opportunity to test and enhance the process design.
Two subsequent projects were launched to improve and automate the national rollouts:
- One project provided full automated and integrated support for credit card payments. However, the card payment option was modified to offer it only on overdue premium notices and not on the initial billing. This still made the option available to the client but reduced costs considerably.
- The second project integrated the coverage reinforcement suggestion through coordinated client and agent communications, including the offer of temporary coverage and premium reduction. Actual automation of the coverage reduction was not done because of the few clients who took advantage of it.
Within a year of conducting the initial surveys, with the full implementation of the targeted solutions, the company’s termination rate was 12% better than their pre financial meltdown experience. In addition, their new sales were up 17%, due largely to a very positive view of the organization in the eyes of both clients and agents. I guess this cloud did have a silver lining.
How a Great Team Succeeded
This project was successful for a number of reasons
- The sponsor, the VP Administration, showed the way by exploring and promoting approaches appropriate to the urgency: engaging affected stakeholders from clients and agents to executive peers, the use of short term pilots to gauge value, confirming results in a subsequent pilot and then going national.
- The sponsor ensured his executive colleagues were fully engaged and onside with the strategy and the execution which gave the undertaking the corporate priority and support it needed to succeed.
- The sponsor’s selection of the project manager ensured he had a talented resource on board with the skills, capabilities, attitudes and support to do the job.
- The stakeholders adopted a risk management plan appropriate to the need. They didn’t know how the three accepted suggestions would interact and what results that would have on the bottom line. They’d figure that out later.
- The staged rollout, from financial justification, the first pilot, the second pilot and national rollout allowed the company to delivery quickly and learn and adjust on the go, accelerating value delivery and reducing risk.
- The sponsor’s communication efforts embraced and informed all affected parties, no doubt making a significant contribution to the overall results.
If in doubt, pilot! This project is a great example of how to tackle uncertainty and external threats in a series of rapid, incremental steps, guided by a rational, overall strategy. If you find yourself in a similar situation, put these points on your checklist of things to do so you too can be part of a Great Team. And remember to use Project Pre-Check’s three building blocks right up front so you don’t overlook those key success factors.
In the interim, if you have a project experience, either good or bad, past or present, that you’d like to have examined through the Project Pre-Check lens and published in this blog, send me the details and we’ll present it for others to learn from and comment on. Thanks
Drew Davison is the owner and principal consultant at Davison Consulting, a senior consultant at Mapador Inc. and a blogger on Project Times. He is the developer of Project Pre-Check, an innovative framework for launching projects and guiding successful project delivery, the author of Project Pre-Check – The Stakeholder Practice for Successful Business and Technology Change and Project Pre-Check FastPath – The Project Manager’s Guide to Stakeholder Management. He works with organizations that are undergoing major business and technology change to implement the empowered stakeholder groups critical to project success. Drew can be reached at email@example.com.