Reinventing Yourself

When Physicians Mutual Insurance made the decision to transform its business model to become a more customer-focused insurance carrier, it set off what likely will be a six-year journey to completion. More than 30 years of doing business a certain way made change a challenge, according to Dan Simpson, senior vice president and CIO for Physicians Mutual, an individual health, individual life, long-term care, and annuities carrier.

"Our legacy systems were built, designed, and implemented from a different business model," says Simpson. "Doing things one way for so long makes it hard to change to another approach."

Physicians Mutual took its core business processes and documented what Simpson calls the "as-is state" and then, through a lengthy process of business process design, created the "to-be state." It took 18 months to develop the new business processes, which defined where the carrier wanted to go and what it wanted to accomplish.

Physicians Mutual turned to consultants from Sapient in mid-2004 because Sapient had the expertise to do the business process engineering work. The insurer identified six to eight qualified vendors through the RFI process, cut the group to three, and then assessed their ability, cost, methods, and experience. "Sapient came out on top," Simpson reports. "It led us through the as-is and the to-be processes." Sapient consultants spent approximately 15 months with Physicians Mutual on a full-time basis.

The carrier put together a holistic view of its processes. "We defined where we want to be in the future, architected a new business process model around the customer, and then automated those processes onto the new service-oriented architecture through systems development," explains Simpson.

Physicians Mutual has completed the business process design and the technology infrastructure and now is building the first two systems, which will be delivered later this year. The company is starting with a new billing system, and the second project is the distribution management system–how Physicians Mutual manages its field forces, especially targeting commissions, payments, incentives, and sales.

"We do a build-buy-outsource decision in each case," says Simpson. "For the most part we're building our own infrastructure with service-oriented architecture. You buy hardware from vendors, you buy systems software from vendors, and you buy components from vendors, but we are designing and managing it ourselves." Physicians Mutual planned to buy its billing system, but after it completed its analysis, Simpson found it was more advantageous to build.

How successful the entire project is won't be known for certain until IT delivers the systems this fall, but Simpson is pleased with the business process designs, and the company has begun to develop use cases from them. "The billing system is doing quite well. It is ahead of expectations. The distribution management system, which is larger and more complex, is a little behind what we expected, but we're confident we're going to hit the mark this fall," he says.

The project involves a little art and science, Simpson claims. "You have to rely on a lot of subject-matter expertise, and those knowledge experts already are busy doing things such as running the current business plans, doing operations, processing claims, underwriting, and supporting customers," he says.

The first benefit is Physicians Mutual will be able to achieve its vision of being what Simpson describes as "a neighborhood store, being number one in customer referrals and repeat business." The improvements will allow the company to be faster to market in understanding its customers' needs. "We then can design and implement products faster than we could with our old processes," he says. "It will lower our technology costs because it will be on a more flexible technology infrastructure. And it will improve our operational efficiency. We should be able to operate 20 percent to 30 percent more efficiently than we can today."