October 24, 2006
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Transcript of October 24, 2006
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October 24, 2006
BenchmarkingFor Excellence
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Presented by:
Charles Gall
Director, Benchmarking Services
Ward Group
513-791-0303
www.wardinc.com
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AgendaAbout Ward Group
What Makes a Top PerformerBilling and Collections Measurements
Benchmarking Defined
Questions
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About Ward Group• Ward Group is an operational consulting firm specializing in the
insurance industry and . . .
• The leading provider of industry benchmarking and best practices services, using trusted "apples-to-apples" benchmarking methodology to help insurance companies better understand their company operations compared to industry peers.
• We offer benchmarking programs for total company operations, IT operations and claims operations. Separate programs are available for life, health and annuity companies and property-casualty companies and . . .
• Operational Consulting service including process reengineering, productivity improvement, cost reduction, distribution system analysis and cost allocation.
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Benchmarking Defined
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The search for those best practices that will lead to superior performance of a company.
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Search may occur across a wide spectrum of industries.
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Important to Integrate Best Practices and
Financial Comparisons
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One without the other is not benchmarking.
Comparing numbers without understanding the underlying business practices (in detail) of the other companies quickly leads one to the dead end question, “Now what do we do?”.
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Comparing business practices among companies without financial comparisons may lead one to implement a business practice that does not lead to superior performance.
Must have both elements.
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What is a Best Practice?
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BusinessPractice
Lead toSuperior
Performance?
FinancialQualityService
BestPractice
NO
YES(Prove it.)
It’s just abusiness practice.
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BenchmarkingFramework
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Establish Benchmarking Framework
Develop Apples-to-Apples Comparisons
Study Company Operating Practices and Philosophies
Review and Interpret the Results
Identify Best Practices
Step 1
Benchmarking Process
Continuously Monitor the Results
Step 2
Step 3
Step 4
Step 5
Step 6
Property-CasualtyBenchmarking Framework
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XYZ Company
Other Benchmarking Participants
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What makes a Top Performer?
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URBAN LEGENDS• Stock companies are stronger than
mutual companies
• Independent agents cannot compete with direct writers
• Mix of business determines success
• National companies are stronger than regional companies
• Size matters
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THE TRUTHInsurers can be profitable regardless of business mix, distribution channel, size, or geography.
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IndustryObservations
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Benchmark Observations 2003-2005
Excellent Company Results• INCREASE 8.9% premiums in policy
• INCREASE 1.9 points in policy retention
• DECREASE 4.2 points in loss ratio
• DECREASE 14.1% in personal lines claims frequency
Declining Performance• DECREASE 14.7% new policies per
agency
• INCREASE 13.2% LAE paid per claim
• INCREASE 7.5% expense per policy in force
versus
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Profile of Property-Casualty Benchmarking Universe
Mix of Business
31.9%68.1%
37.1%62.9%
Personal Lines
Commercial Lines
U.S. AgencyBenchmark
U.S. HighPerformer
Benchmark
$532 MillionAverage GPW
$829 MillionAverage GPW
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127.4
113.6
0
20
40
60
80
100
120
140
160
U.S. Agency U.S. HighPerformer
FTEs per $100 Million of Gross Premiums WrittenSelected Benchmarks Trend Analysis
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20
40
60
80
100
120
140
160
2003 2004 2005
142.2 136.2 127.4116.6 113.7 113.6
U.S. AgencyU.S. High Performers
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421
563
0
100
200
300
400
500
600
700
800
U.S. Agency U.S. HighPerformer
Policies in Force per FTESelected Benchmarks Trend Analysis
0
100
200
300
400
500
600
700
800
2003 2004 2005
411 407 421564 562 563
U.S. AgencyU.S. High Performers
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$697
$534
$0
$100
$200
$300
$400
$500
$600
$700
$800
U.S. Agency U.S. HighPerformer
Total Expense per Policy in ForceSelected Benchmarks Trend Analysis
$0
$100
$200
$300
$400
$500
$600
$700
$800
2003 2004 2005
$648 $691 $697$497 $528 $534
U.S. AgencyU.S. High Performers
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34.2%37.4%
0%
10%
20%
30%
40%
50%
U.S. Agency U.S. HighPerformer
Gross Expense as a % of Gross PremiumsSelected Benchmarks Trend Analysis
0%
10%
20%
30%
40%
50%
2003 2004 2005
37.9% 38.4% 37.4%32.7% 33.7% 34.2%
U.S. AgencyU.S. High Performers
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Billing and CollectionsMeasurements
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0.44%
0.34%
0.00%
0.25%
0.50%
0.75%
1.00%
U.S. Agency U.S. HighPerformer
Billing and Collections Expense as a % of Gross
PremiumsSelected Benchmarks Trend Analysis
0.00%
0.25%
0.50%
0.75%
1.00%
2003 2004 2005
0.45% 0.44% 0.44%0.32% 0.33% 0.34%
U.S. AgencyU.S. High Performers
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$9
$6
$0
$2
$4
$7
$9
$11
U.S. Agency U.S. High Performer
Billing and Collections Expense per Policy in ForceSelected Benchmarks Trend Analysis
$0
$2
$4
$6
$8
$10
$12
$14
$16
2003 2004 2005
$10 $10 $9$6 $6 $6
U.S. AgencyU.S. High Performers
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IT Consulting 6.82%
Billing Personnel
43.19%
IT Personnel 20.45%
Credit Card Fees 11.36%
Equipment and Software 18.18%
Billing and Collections Expense Distribution
Approximately 45% of the total billing and collections expense is related to information technology support.
Credit card fees have increased 19% each year over the last 3 years.
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Offer online inquiry tools for agents and policyholders
View bill, pay bill, update billing information
Offer EFT and credit card payment options
Achieve superior EFT penetration (and retention)
Centralization of customer service and billing functions allows for better peak-period staffing requirements
Generally have one billing system that supports both direct bill and agency bill
Trends Among High PerformersCash Processing and Customer Service
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3.4
2.9
0
1
2
3
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5
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U.S. Agency U.S. High Performer
Billing and Collections FTEs per $100 Million of GPWSelected Benchmarks Trend Analysis
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2
3
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2003 2004 2005
4.3 3.9 3.43.1 3.0 2.9
U.S. AgencyU.S. High Performers
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$54.6K$57.2K
$20K
$30K
$40K
$50K
$60K
$70K
U.S. Agency U.S. HighPerformer
Average Compensation per Billing and Collections FTESelected Benchmarks Trend Analysis
$20K
$30K
$40K
$50K
$60K
$70K
2003 2004 2005
$50.4K $53.1K $54.6K
$53.0K $56.5K $57.2K
U.S. AgencyU.S. High Performers
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Benefits costs increasing 12% per year since 2003
High performers pay the personnel cost as the industry average
Higher span of control reduces company-wide expense
Trends Among High PerformersPersonnel Costs
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8
9.1
0
2
4
6
8
10
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U.S. Agency U.S. High Performer
Span of Control: Ratio of Staff to ManagementSelected Benchmarks Trend Analysis
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2
4
6
8
10
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2003 2004 2005
7.4 7.4 8.09.0 8.9 9.1
U.S. AgencyU.S. High Performers
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Fewer levels to communicate objectives
Personnel costs differences between management and staff
Top performers generally have higher span of control
Reasons to Consider Span of Control
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Billing Operating PracticesOperating Structure:
Percentage of cash processed by source: Bank lockbox
Process internally
2005
87%
34%51%
Web – (EFT, CC)
15%
Percentage of commercial policies on direct bill
89%
13% 2.7
One locationMultiple locations
Number of locations
67%
Percentage of personal policies on direct bill
Average number of billing systems
1.58
Regional companies have centralized billing function
National companies have consolidated number of locations
Personal lines moving towards 100% direct bill
Consolidating systems to one system that can handle both direct and agency bill
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Telecommunications Expense per FTE
How can technology
help? Voice Over Internet (VOIP)
Call queue, scripting and call center management reducing call length
Web based services
- Online customer service eliminating phone calls
- Self service capabilities
Trend Analysis
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2003 2004 2005
$1,388 $1,327 $1,220$1,138 $1,131 $971
U.S. AgencyHigh Performers
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Credit Card
Credit Card Expense as a % of GPW
Credit Card Utilization - % of Policies:
Personal Lines
Commercial Lines
2005 2004 2003
0.05% 0.04% 0.03%
3.73%
1.32%
All Lines 2.75%
Credit Card Fees as a % of Total Billing and Collections (excludes IT)
20.83%
15.38%
11.11%
2.81% 1.87%
0.99% 0.72%
2.06% 1.38%
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Gained efficiencies in the billing and collections function offset by rise in credit card fees
Credit card fees account for one-fifth of the total billing and collections expense
Companies moving towards the use of third party vendors to reduce credit card expense
Credit Card Trends
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$4.6
$3.5
$0
$2
$4
$7
U.S. Agency U.S. High Performer
Bad Debt Expense per Policy in ForceSelected Benchmarks Trend Analysis
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
2003 2004 2005
$6.5 $5.7 $4.6$4.5 $3.9 $3.5
U.S. AgencyU.S. High Performers
Note: Bad Debt Expense is not a subset of the Billing and Collections Expense metrics
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Offset to higher credit card use is lower bad debt expense
Implementing equity calculation to minimize past due balances
Approximately 6.5% of accounts receivable balance is past due
53% use in-house collections to attempt to collect past due amounts (versus external collection agency)
Average collection rate on accounts transferred into collections is 39%
Collection Trends
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Questions
?