Six Sigma Still Delivering Significant Savings
Insurance Networking News, May 1, 2008
Six Sigma, a process improvement discipline that made headlines in the 1980s and 1990s, may no longer be in the spotlight, but it’s still thriving in the insurance industry, at least among some larger carriers. Given the potential savings, it’s no mystery why.
Douglas Mader, CEO of SigmaPro Inc., a Six Sigma training and consulting company in Fort Collins, Colo., says companies should expect net savings of $300,000 to $400,000 per project the first year.
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Marla Friedman, VP for Allstate Insurance Co.’s Six Sigma Center of Expertise in Northbrook, Ill., says, “Certainly the amount of expense that we incur in Six Sigma is dwarfed by the financial benefits we have seen from the projects. On average, we see about a 30% improvement in process from the time we begin a Six Sigma project to the time the improvements are put in place for a particular process.”
Yet, the methodology so far has failed to penetrate the industry much beyond its largest companies. Mader believes conservative management among carriers may be the reason. Carrier managers “maybe are not so in tune with what goes on in the manufacturing world, which is, of course, where all this came from originally,” he says.
Six Sigma’s appeal may be greater among larger carriers, Mader suggests, because their processes are likelier to be more complex and in greater need of repair.
“It sounds facetious, but the results a company sees from Six Sigma are directly proportional to how screwed up it is before they start,” Mader says. “If a company is larger, it tends to have more opportunities because many smaller processes have fallen through the cracks.”
Smaller companies, by contrast, have fewer resources and are more likely to have streamlined their processes because of that. “I think the larger companies will see a bigger opportunity and, therefore, see a bigger return on investment simply because of that fact,” Mader says.
Smaller carriers may actually be using some elements of Six Sigma, but they’re likely to be buried in business process management (BPM) systems, says Cindy Maike, founder of Smallwood, Maike & Associates, industry consultants in Overland Park, Kan. “More insurance companies are focused on using some techniques and blending the process,” she says. “They may not actually call it Six Sigma, but they’re using balanced scorecard concepts along with process optimization, so it’s kind of a mixture of the two.”
Maike suggests it may be Six Sigma’s rigorous approach that scares smaller carriers. “Six Sigma comes with a persona of being a very disciplined approach,” she says. “It almost has a negative connotation when you say Six Sigma.”
Cindy Maike
THEN AND NOW
Six Sigma originated at Motorola Inc. in the mid-1980s as a manufacturing quality improvement technique. The name refers to a statistical measurement that works out to 3.4 defects per million opportunities. According to Mader, the methodology soon began spreading to other firms, notably GE—where President Jack Welch was a big proponent—and Allied Signal, now part of Honeywell.
“There were no transactional or service topics whatsoever,” Mader recalls. “In most of GE’s businesses, that was fine because that’s what they needed. But it was within GE Capital that they took the manufacturing program and shaped it to meet their needs.”
By the late 1990s, Six Sigma began spreading to other, non-manufacturing organizations. One of the earliest adopters in the insurance industry, Allstate, began using Six Sigma in 2001.
At Allstate, new Six Sigma projects begin at the director or officer level. Friedman, whose goal is to complete 130 projects in 2008, has a team that works with high-level personnel to determine whether the process is appropriate for Six Sigma.
“We always make sure that projects are approved by a high-level person, either a director or an officer, before the work starts,” she says. “It goes through a governance process because you need resources to work on the project.”
Among the resources needed at Allstate are a project leader who’s able to spend at least a third of his time on the effort, and a project champion who can manage those resources and support the project leader.
“It takes about six months to complete a project, so it’s a fairly big deal,” Friedman says. “We want to make sure it’s addressing key operating priorities. It’s got to be something that makes a difference—that has the interest of the director and the officer in that part of the organization.”
Some carriers may believe diminishing returns would eventually limit the value of Six Sigma and other BPM efforts. Once carriers optimize high-value processes, subsequent projects would deliver progressively lower returns until the marginal value of new projects falls below their cost.
But that turns out not to be the case, according to Friedman. “The business world keeps changing; customer requirements change,” she says. “New lines of business might call for fresh Six Sigma projects. So might new technologies that affect existing processes. And, though it hasn’t happened often, some Six Sigma projects get revisited to reduce process defects further.”
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