Gm Insurance Case Study

1. The increasing popularity of voluntary insurance enrolment programs created opportunities for insurance carriers to sell their group benefits to employers wanting to offer cafeteria benefit plans. GM’s competitors who serviced these businesses provided poor service ato the corporate clients and the employees they ensured and to the intermediaries who serviced these clients for the sale of these benefit plans. The clients were hence hassled and bates was well aware of this. Furthermore, the insurance companies organized their function into silos which further compounded the problem since the personnel did not communicate with each other. This resulted in a high cost system where the information was not effectively managed that further frustrated the corporate clients. Bates saw an opportunity to target this segment.

Bob Bates realized the importance of servicing the small to medium businesses which were the easy to serve customer segment. They did not have unusual insurance needs and a good underwriter would be able to identify this segment. Furthermore, Bates realized the importance of centralizing the service and giving the sales force the time and resources to focus on sales. Initially the service was decentralized and this led to many issues like customer errors, less focus on sales by the field sales force etc. Furthermore, the employers of the businesses targeted by Bates and his team were already hassled by the problems that were caused by healthcare inflation and managed care quality problems and Bates targeted this gap. By targeting good, clean risks with routine risk profile, the focus would be on clients who were predictable and reasonably low cost to service.

2. By following the strategy of centralizing the service and decentralizing the sales, GM closed many gaps that were earlier plaguing the insurance sector. The customer service improved owing to the improvement in data entry and the back-end work since it was done centrally. Furthermore, the field sales force now had an incentives to focus their energy on sales and this resulted in an increase in employee sales efforts and the opening of new sales offices. Since Bates targeted the easy to serve customers who were frustrated with the earlier insurance plans, with its new strategy that provided better service, GM soon became a preferred group insurance provider.

However in 1994 and 1995, centralizing the service also opened other wide gaps. While the sales were exploding, the support functions throughout the channel were imploding because the home office was not equipped to handle the increased load and the strategy had failed to consider the fact that the increased load at the back-end by centralization would be too much to handle. There were several causes of this. Firstly, non-medical group benefits customers was fundamentally different from the set of individual life insurance policy holders and group benefits business was much more service intensive. The data entry work, information sharing work etc. ha increased and the post sale service was high. The GM office was not equipped to handle the extra work that came with the aggressive sales brought in by the sales force. The headquarters was unable to keep up with the sales load and service suffered as a result threatening the company’s