INSURANCE SERVICES GROUP 1988-89 Background

The export insurance organization is a Government Department which, since 1919, has insured UK exporters and financiers against the risk of non-payment by foreign buyers. Its Insurance Services Group (ISG), dealing with short term credit business has always been the market leader in its field, but during 1986-87 business insured by ISG decreased at an alarming rate, which led to the developments discussed here. The Insurance Services Group has its head office at Cardiff and nine regional offices which are the main point of contact with the

customers. Internally, IS Group was divided into Underwriting, Claims, Customer Services, Marketing, Planning, Policy and Resource Management. There was only one major competitor in the UK, but as the Group was considering extending business into Europe after 1992, this

situation could change. At the time of the research, ISG was running at a profit and either privatisation or agency status was anticipated for the future. In the event, it was privatised in 1991 by being sold to a Dutch export credit insurer.

Initiation and Objectives

A crisis arose when ISG’s market share declined from 36% in 1978/9 to 20% in 1986/7 of UK non-oil exports insured. Market research revealed competitive weaknesses including the civil service image, and perceptions of the organization as slow, inflexible, and unresponsive. Other disadvantages included price, administrative overheads, and inability to insure domestic trade as well and thus spread risks. Factors giving competitive edge in the industry were: quality and speed of service so that customers can commit to contracts quickly, data on buyers (which the organization had), and non-bureaucratic documentation. At the same time there was continuing Treasury pressure to increase efficiency and reduce numbers of staff, while servicing a large debt caused by the recession of early 80s.

The response was a marketing strategy of improved quality and speed of service, flexibility on price, tailored cover and facilities, quicker response time to credit limit

applications, and (in response to 1992) an expanded database on European buyers. In 1986 ISG’s new management viewed investment in IT as crucial to turning around the business. The first priority was to improve the speed of response to customers’ credit limit applications (below). Implementation

The system had been initiated along with a number of cultural changes, intended to make the Department operate more like a business. The objectives were very clear. The Board in conjunction with IT department had direct responsibility for IT strategy. Financial appraisal was rigorous, formalised, and dealt with at Board level.

ISG had learned from earlier mistakes to involve users and to use formal methodologies.

Participative sociotechnical design was a feature of the process; end users were involved in system development, and there was a Job Design Working Party and an IT agreement with the trades unions which included job satisfaction. The methodologies they used included SSADM,

COMPACT, and PROMPT. There was a training road show, HQ trained regional staff, with one hour training on the screens, optional sessions on keyboard skills, and telephone hot lines. The system was also marketed to users, with monthly bulletins focussing on business decisions and performance, and team briefings focussing on business gained/lost/maintained. They reported no real opposition from staff, and observed that their approach helped them to screen out a potential disaster in Claims. The strategy was incremental, to ’implement the grand plan bit by bit’, give people something they can use quickly even if it has to be thrown away later. However, the total effect was Tike a big bang’, in that it was a move from a totally paper-based system to one which was almost entirely electronic. Overall factors contributing to success were seen as high

management commitment and high business relevance. Design

The new system involved upgrading the mainframe and doubling the number of terminals and printers to 400 dumb terminals and 400 PCs (as of March 1989), at a cost of approximately £10m. over two years. They were also introducing office systems in the OA sense, but were not going for it fully because it was too expensive.

Implementation of CLAM

Before 1985, Credit Limit Applications were all processed manually, with only after­ event computer recording. Broad-based buyer information was only available on paper. All credit limit applications were sent by post from the Regional Offices to be dealt with by underwriters in Cardiff. All applications were regarded as similar insofar as they needed professional underwriters to assess risk and set rates. They were dealt with by different levels of underwriter according to the value only.

The underwriting process was computerised in stages over a period of three years. In 1985-86 they undertook a ’Risk Scoring’ Pilot Study as a consequence of which there was a change in underwriting philosophy which meant that insurance cover could be authorised by the Regional Office in the 45% of applications where the value was under £20,000 and the buyer was within the OECD. The result was an immediate increase of turnaround within 24 hours from 18% to 42% at the Regional Offices. Later this principle of ’standard limits’ was extended, raising 24 hour turnaround to 65% of applications.

The underwriting system was introduced in two phases, CLAM(RO) in October 1987 and CLAM(HQ) in August 1988. The inputs, which are customers’ credit limit applications, and buyer and customer records, were all put on-line. The outputs are the decisions on the

applications, which are recorded on the databases, and letters to the customers which are printed

automatically. Buyer records are also amended automatically. A clerk at the Regional Office entered application details, and if it fell within the standard limits it would be dealt with immediately at the Regional Office, if not, sent to Cardiff for professional underwriting. In Phase 2 the system was extended to the underwriters, who now dealt with applications as electronic records. This was characterised as a decision support system.

Outcomes

This computerisation of part of the underwriting process increased from 18% to 78% the proportion of credit limit applications on which decisions were despatched by close of the

business day following receipt of application, with no deterioration in quality of underwriting decisions. Following this improvement, greater customer satisfaction has been evidenced by market research. In 1987/8 the amount of business ISG handled increased for the first time since

1984, and subsequently increased on an accelerating trend. The initial cost was quickly recovered. There was better use of staff because people could concentrate on the more complicated types of business. There was an increasing focus on the underwriting context of buyer companies, ie. countries, trade sectors, UK exporter, buying country paying history. Underwriters could make regular visits to the markets they underwrote, leading to more informed decisions. Better information was available on buyers. Information was made available for planning by developing a risk portfolio. There was a general perception of success, from top management through middle management, underwriters, to clerical workers.

Organizational Change

The most obvious effect was a change in relations between the Regional Offices and Cardiff, with decentralisation to the regions of 65% or more of underwriting, which they did not do before. There was also centralisation of management control over the regional offices, with better measures of performance. Buyer Sections in ROs had much less contact with Cardiff, but were much closer to customers. At Cardiff, there was a large reorganization of underwriting from six groups to four.

The major effect on work was a shift in the division between routine and nonroutine. A Job Design Working Party found effects to have been mainly on lower-level AO and EO jobs. The regional office clerical staff who now issued guarantees received a change of title, but no promotion or increased pay. They spent up to 70% of their working day on VDUs on-line processing, which is relatively repetitive. The staff accepted the need for this, but didn’t want any more of it. As a result, the Job Design Working Party recommended an organizational change to Account Management, which would merge the Buyer, Guarantee Submission and Issue sections so that one person is the contact for the customer, resulting in a composite, diversified and more worthwhile job with less time spent on VDUs, but at the time of the research this had not yet been implemented.

interesting market and trade sector work to the extent anticipated, but because of the

development of risk scoring EOs had some of the underwriting work they had lost restored to them. The underwriters’ perceptions were that it was an easy system to use, with no major problems. There was increased job satisfaction, more professionalism and more responsiveness to customer enquiries, more tailoring of business to specific customers. However there were also comments about laborious routing through the screens, some underwriters were still resistant, and increased specialisation was possibly leading to increased differentiation and barriers between underwriting groups.

Conclusions

ISG represents the use of IT to computerise a major business function in order to reverse competitive disadvantage and decline. The computerisation of Credit Limit Applications

involved the redesign of a business process, the pulling together of organizational information via computer which made possible a much quicker response to the customer. To do this required the routinisation of part of what had been considered a professional function and its assignment to less skilled workers, and a consequent freeing up of the time of the professionals to devote to the deepening of their knowledge and expertise. Records were also automatically updated, keeping them timely.

13. SHEFFIELD CITY COUNCIL EDUCATION DEPARTMENT 1989