Case Studies

1. Workforce Analysis
2. Expense Reduction


Workforce Analysis

Challenge

An insurance company needed to evaluate and identify a targeted operating model based on other similar insurance carriers and broader industry benchmarks. The main objective of the project was to provide staffing and expenses benchmark for the major corporate functions modeled after Ward functional definitions for operating performance.

The symptoms of this problem varied:

  • Revenue declined by nearly 90% over a five year period, resulting in costs and staffing being much higher than industry averages.
  • Staffing declined by only 21%, despite the dramatic drop in premium volume and market share since that time.

Solution

Ward Group collected accounting, human resource, and statistical information and normalized the company to the benchmark. In addition, Ward consultants interviewed the executive staff and other management over a one-week period to understand and document the organizational structure.

Ward Group provided an objective and comprehensive analysis of the cost structure of the company, quantified the differences in staffing and expenses, and prioritized the areas with greatest opportunity for reduction. The project identified substantial differences in external and internal resources. Ward Group evaluated the operating performance and provided feedback regarding methods to improve performance.

Results

The company developed a plan to cut about 25% of its workforce, over the following 12 month period as part of a $350 million cost-saving plan and redesigned its operations to cut down on expenses and losses. Office closures resulted in an estimated cost savings of $200 million annually. In addition, job cuts saved the company about $150 million per year. Ward Group continues to benchmark the company’s operations to monitor performance and measure progress towards expense reduction goals.


Expense Reduction

Challenge

A personal and commercial lines carrier operating in the U.S. contracted Ward Group to perform a benchmarking analysis at the company and assist with an expense-reduction initiative spanning several years. The symptom of this problem:
  • Corporate expenses were too high

Solution

  • Ward conducted benchmarking exercises at the company to analyze staffing, expenses and revenue for the total enterprise, and for the information technology, claims and underwriting operations
  • Ward Group benchmarking identified several major gaps relative to peers, including:
    • Employee compensation was 39% greater than the benchmark
    • Higher commissions expense as compared to competitors
    • Information technology expense was above the industry
    • High staffing in personal lines operations due to lack of automation to compete with straight through processing capabilities of peers
    • Fleet and travel expenses 42% greater than peers

Results

The following projects were executed to align closer to benchmarks, including:
  • Redesigned employee compensation via a multiyear initiative to reduce the incentive compensation and have market-based pay ranges for all employees. The result was that employees now receive 4% higher compensation than the benchmark (35% reduction), which equates to 2.4 points of expense ratio reduction.
  • Examination of agent commission rates, and the agent force was placed into multiple tiers. The highest tier—partner brokers—continued to receive high commission payouts as driven through their production volumes and superior loss performance. The rest of the broker force received a redesigned compensation plan which resulted in a reduction of 1.6 points of the expense ratio.
  • Drill-down analysis to determine the cost drivers for the IT expense gap, incorporating areas to reduce staff and reduce external expenses. Components of the reductions included staff reductions, renegotiation of mainframe and DR contracts, and a reduction of external sourcing for major development initiatives. The result was a 1% expense reduction with limited impact to capabilities. Projects are delivered more efficiently than in the past.
  • Assistance in the creation of a business case for the need for process automation. We drafted a mapping of the current state and ideal process. Ward Group monitored the improvements on an annual basis. Through elimination of processing tasks with automation, staffing was reduced 33%, and the expense ratio savings was 90 basis points.
  • Evaluation of the company practices identified the opportunity to consolidate staff with a company car. The officer fleet was eliminated, and field cars were reduced by 50%. The expense ratio impact was a reduction of 33 basis points. Ward Group continues to benchmark the company’s operations to monitor performance and measure progress towards expense reduction goals.




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