F.E².A.R — The Four Towers — Applying the Framework
As we discussed in the previous article, four parameters influence the success of a solution — Fast, Accurate, Economic, and Reliable. In addition, understanding Ecosystem synergies and building win-win strategies are critical.
I will use a real-world example where the application of this methodology has helped in determining the next course of action. When we decided to move forward and build a solution, I have also seen considerable success in using the parameters as the baseline for defining and monitoring product success.
Electronic Signatures to manage Total Loss
Background
I am sure most of us have signed a document electronically. What about an electronic Notary? Like me, the chances are that you haven’t been through the process. Shockingly enough, paper is the default mode for insurance transactions when a vehicle is declared a Total Loss (the car is uneconomical to repair). The parameters that determine if e-signing is feasible are complex — including the state, loan status of the vehicle, and the need for notarization. Most states allow electronic signatures where possible and allow notarization electronically. Still, only a handful, such as Florida, allow remote notarization (no, the pandemic didn’t transform this!). Less than ten states have specific laws for accepting electronic signatures in a total loss.
Your view of “Glass-half-full” might directly conflict with your customer’s “Glass-half-empty.”
Imagine this from the point of view of an Insurance company. Their fundamental interests are:
- Speed — to close the claim (Cycle time) — Paper documents can add over ten days.
- Consistency — A new solution cannot make some claims faster at the cost of making the Business Process considerably more complex.
- Simple — Training is crucial, but adherence requires the solution to be intuitive and straightforward.
- Cost-Effective — How much is the organization saving annually due to the offering?
- Compliant — As a highly regulated industry, can the solution guarantee that the rules are applied consistently?
Let’s apply the FE²AR framework in this scenario (the numbers I state below are realistic but not actuals for obvious reasons):
Fast
The use of E-signature speeds up the process in three ways. It reduces turnaround time, reduces errors, and automates reminders. From initiation of the paperwork, the total time to complete the paperwork process is ~10 days. ~25% are in error. Consumers do not always return the paperwork, resulting in additional lag (~5 days) in 30% of the claims. The net is 14 days to complete the paperwork. The Insurance company would expect between 5 and 10 days of reduction in this process.
Economic
Every day a vehicle is in the yard implies a $15 loss for the insurance company (storage costs + depreciation). Assume the time to prepare and send the paperwork costs $20, and an additional reminder costs $5. The value creation is between $100 and $175 per claim. Your offering price will be $20 and $40 per transaction. At approximately 5M claims, the TAM is $150M annually.
How much of this can you capture? What do fixed and variable costs look like on your end? A sensitivity analysis with this data should inform you if the solution is worth pursuing and a key parameter you should track.
Accurate
We described consistency, simplicity, and compliance are crucial considerations for the offering. On the other hand, we also explained the complexity of the solution.
The details are in the Appendix. The summary is below:
Volume possible with Electronic Signatures: 40%
Volume possible with Electronic Notary: 20%
Volume requiring Physical paperwork: 40%
Your point of view might be “Electronic resolution of 60%”. Your customers will most likely ask, “What is your solution for the remaining 40%?”.
Summary stats only tell one side of a story. Using data to feed your confirmation bias is a trap!
The devil is in the details! For example, many companies centralize their operations. Training them on one of possibly six scenarios can be a hard sell!
This results in some choices:
- Offer the solution initially only in states with laws for electronic signatures in a Total Loss. Electronic notaries are a different beast (more on this later) and might imply deferral of this capability. Solving for only 30% of the addressable market can be hard to swallow but might be necessary.
- Build an operational arm that manages the remainder of claims. Continue to push your capabilities over time to reduce the manual volume from 70% to 10%. The offering might not be profitable initially, but good execution will eradicate that problem. From a customer viewpoint, the solution delivers 100% coverage. Note: Building a BPO is easier said than done!
These are KPIs you should monitor as you scale the offering.
Reliable
In this specific use case, adoption among the Insurance carriers was crucial. Even more critical are the end-users of the solution. Imagine a scenario where the vehicle owner has access to the electronic signature only from a smartphone. It could result in an adoption risk (and break every economic assumption). Data showed that more than 50% of consumers used a larger device to sign (not including B2B transactions). For the solution to prove value, at least 75% of the vehicle owners needed to adopt electronic signatures. Understanding these metrics is crucial to determine a target take-rate for the offering.
In scenarios involving physical paperwork, it is still possible to engage with the end-user using digital methods that could drive a reduction in days. For example:
- Validating the paperwork before shipping it
- Pre-fill most details to make it simple to sign and return
- QR codes to scan a pre-build shipping label
- Sending automated reminders
Review each feature from the lens of:
- “How does it reduce the overall cost?”
- “How complex is it, especially when partners are involved?
- “How does it improve end-user adoption?”
- “How does it improve the overall outcome for the company?”
Ecosystem
I said this earlier, E-Notary is a beast in itself. There are multiple ways to notarize electronically (Remote Notary called RON and In-person Online called IPEN). RON is not available in most states. The IPEN notary network wasn’t well-established by the big-box vendor (we couldn’t tell the vehicle owner where to go to complete the process, implying poor adoption). The second vendor that did offer a decent network wasn’t reliable to engage. The automation of paperwork when physical shipments were required was critical as well. The ecosystem lens sets the stage for a co-innovation challenge where a myopic execution focus alone is insufficient.
Eventually, we needed to find a set of willing partners with skin in the game. In this case, the MVE (Minimum Viable Product) was to collaborate with one (i mean, literally!) partner to support e-signatures and automation of email delivery. Subsequently, a second partner to automate documents that needed to be physically printed (secure documents). The network of this partner also implied print and sending from the closest location to the vehicle owner’s address, shrinking cycle time. Step three was to add an E-notary partner (for states that enable RON).
Conclusions
Moving the needle on one factor typically negates another. The key is to identify synergies that positively affect multiple factors..
When considering any solution, the need to push one element in the right direction will almost always imply that you move another factor in the wrong direction. Consider where improving the solution’s reliability incurs a cost (both fixed and variable). In a different case, moving one element also positively affected another aspect. Increasing automation increased the initial capital but minimized cycle time and variable expenses.
While there is no magic wand to optimize all the levers, understanding how one impacts another allows for informed decisions.
In my next post, I will explain how we used these to build a pilot and scale while continuously monitoring the FE²AR.
Appendix
- States require that the paperwork be notarized on vehicles with active loans (50% of all total losses). They allow electronic notary on such claims. These states constitute 30% of the overall volume.
- States don’t require any notarization and allow electronic signatures on all claims. These states constitute 30% of the overall volume.
- States require a Notary on all paperwork and do not allow an electronic notary. These constitute 20% of the volume.
- States allow Electronic signatures without an active loan. They require a notary for other claims and do not allow electronic notarization. These constitute 20% of the volume.
