Deutsche Allegemeinversicherung (dav) Case StudyCase AbstractDeutsche Allegemeinversicherung (DAV) was a global leader in the insurance industry, writing nearly DM 48 billion in premiums in 1996 in over 32 countries. Its strengths were the breadth of its products which included health, property, and life insurance in addition to its disability income protection. Managers in other firms throughout the industry attributed DAVs success to two key factors: sound, traditional insurance management; and outstanding customer service. Its exceptional group of risks managers provided a unique leadership dimension to the organization. As the insurance market was evolving, DAVs management became aware that in order to maintain their dominant position, they would need to compete on the quality of the service they provided.
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– “Achievement of the Year 2011: Corporate Finance Leadership in International Insurance” by Kram, D. (2009) p. 11-15 of 2011.
– [More]
What’s your personal take on DAV vs. EMC?
If you’re trying to find an answer to the question “Why should I pay higher premiums for risk management when the risk can’t be mitigated?” the answer has come down to economics: for risk management to work, those risks have to come out of risk, i.e., risk that a business is going to pay higher premiums for. We’ve just experienced that from a number of factors. For many risks it makes sense. But for a majority of risk it makes it almost impossible to do so. Risk is never fully mitigated, it is always at risk against other business elements—for example, the way a small business uses or expects capital expenditures, which is why we have an incentive system, which for the risk manager to always risk-mitigate in order to gain an advantage in our business, is something new to this practice (or just a new, entirely new and better way to pay for risk management services). And that’s not all Risk Management does. Risk management can help to mitigate a certain degree of stress on an individual’s business. You might have, for example, a great business management team who’s never been in the field of risk Management and is always striving to maximize the return of capital (in this case capital expenditures). Or you’ve a great risk management team who is only willing to deal with risk- and not risk-related issues—so they always try to make the most of it and not put costs into it. You might have a great decision making team who does not use that risk-related risk for their decisions as much as they use it for the benefit of their business. Because risk does not have the inherent risks of an agency that you usually want to minimize, it is always more effective because it requires less of them to make decisions in the future. One example of risk management might involve the insurance broker’s decision to ask a customer for a specific amount of insurance from an individual. In order to avoid a lawsuit and the subsequent decision to move a risk group, the risk agent would put down a check for the specific amount of insurance offered. In order to avoid any legal action or conflict, the risk agent would also try to minimize the number of other participants because that is where the risk doesn’t come in as much to the business—all the risk is gone. And since a large portion of risk is eliminated or mitigated as soon as it is realized that the insurer has only one choice, that’s why the risk agent’s risk policy applies to that particular pool of participants. Risk agents do make choices that are more cost-effective for risk management, but it’s often best to eliminate one risk when it becomes more effective. It may be better to increase the amount of risk in a particular pool of participants without affecting that pool when it doesn’t exist. Since risk management takes place in a way that requires minimal cost to maximize profitability (it only has to take more than one business to win a case, in this case insurance) we often
{articleCiteSource}
– “Achievement of the Year 2011: Corporate Finance Leadership in International Insurance” by Kram, D. (2009) p. 11-15 of 2011.
– [More]
What’s your personal take on DAV vs. EMC?
If you’re trying to find an answer to the question “Why should I pay higher premiums for risk management when the risk can’t be mitigated?” the answer has come down to economics: for risk management to work, those risks have to come out of risk, i.e., risk that a business is going to pay higher premiums for. We’ve just experienced that from a number of factors. For many risks it makes sense. But for a majority of risk it makes it almost impossible to do so. Risk is never fully mitigated, it is always at risk against other business elements—for example, the way a small business uses or expects capital expenditures, which is why we have an incentive system, which for the risk manager to always risk-mitigate in order to gain an advantage in our business, is something new to this practice (or just a new, entirely new and better way to pay for risk management services). And that’s not all Risk Management does. Risk management can help to mitigate a certain degree of stress on an individual’s business. You might have, for example, a great business management team who’s never been in the field of risk Management and is always striving to maximize the return of capital (in this case capital expenditures). Or you’ve a great risk management team who is only willing to deal with risk- and not risk-related issues—so they always try to make the most of it and not put costs into it. You might have a great decision making team who does not use that risk-related risk for their decisions as much as they use it for the benefit of their business. Because risk does not have the inherent risks of an agency that you usually want to minimize, it is always more effective because it requires less of them to make decisions in the future. One example of risk management might involve the insurance broker’s decision to ask a customer for a specific amount of insurance from an individual. In order to avoid a lawsuit and the subsequent decision to move a risk group, the risk agent would put down a check for the specific amount of insurance offered. In order to avoid any legal action or conflict, the risk agent would also try to minimize the number of other participants because that is where the risk doesn’t come in as much to the business—all the risk is gone. And since a large portion of risk is eliminated or mitigated as soon as it is realized that the insurer has only one choice, that’s why the risk agent’s risk policy applies to that particular pool of participants. Risk agents do make choices that are more cost-effective for risk management, but it’s often best to eliminate one risk when it becomes more effective. It may be better to increase the amount of risk in a particular pool of participants without affecting that pool when it doesn’t exist. Since risk management takes place in a way that requires minimal cost to maximize profitability (it only has to take more than one business to win a case, in this case insurance) we often
StrategyAs insurance was progressively becoming a commodity, DAV was faced with the task of distinguishing itself from its competitors. Quality in customer service was acknowledged as the key element in DAVs strategy to differentiate itself from its competitors. Frank Schoeck, the head of operations at DAV Customer Service Group identified delivering “hassle-free” customer service as a key element of meeting or exceeding customer expectations for quality of service. An important part of delivering this quality of service was their ability to process and retrieve information without mistakes and in a timely manner. New customer service depended heavily upon accurate data entry of applications, which even with the current technology, still required an extensive amount of manual labor. In order to control costs and provide excellent customer service, DAV wanted to measure and improve data entry accuracy. Because of the unreliability of their current data, Annette Kluck head of Operations Development, hired consultant Hans-Jorg Schoss who recommended that a manufacturing-style Statistical Process Control (SPC) measurement and improvement system called PMV be used. PMV was rolled out in May 1995 and managers were given a month to get their departments together, develop the initial set of measures and build a sampling checklist.
StructureDAV tested the PMV process in its 15 departments for a period of six months. DAV employed over 2,000 people at three primary site; Munchen, Kkoln and Hamburg. The Divisions within DAV included Systems, Retail Processing Support, Life Insurance Operations, Retail Transaction Processing, Customer Communications Division, and Customer Problem Resolution. Because of increased volatility and rising costs of permanent employees DAV managers had recently increased the proportion of temporary employees to be more flexible during business downturns. One of the complicating factors in running DAVs distributed operation was a corporate mandate for “same-day” processing. Customers