A Digitally Enabled Strategic Sourcing Process to Mitigate Risk

Abstract

A South African insurance company is considering how to automate the process of handling home insurance repair claims in order to make the process more efficient and improve the customer experience. Should they stick with the status quo, develop their own system, purchase existing technology or employ a hybrid solution? ABC Insurance was a leading short-term insurer in South Africa. The FSB (Financial Services Board) of South Africa defined short term insurance cover as indemnification secured by the insurance purchaser over their fixed and movable assets (FSB, n.d.). Such insurable assets could be one’s home (the actual building) or motor vehicle (https://www.fsb.co.za). The purchased insurance cover protected the policyholder (customer) against total loss or accidental damage, as a result of insurable events like fires or floods. In exchange, payment for insurance cover (referred to as the “premium”), was collected by the insurance company from its customers. Andrew Cohen, commodity manager for the Non-Automobile Property and Casualty procurement division at ABC Insurance, was faced with the choice of either digitizing the day to day claims fulfillment procedures within his portfolio, or to continue his business unit’s activities “as is.” The main function of Cohen’s business unit was to ensure that home owners (policyholders) who purchased insurance cover over their fixed assets (i.e., buildings insurance) could access and receive the required repair services as per the provisions set out in their insurance policies. In delivering these services to the policyholders, Cohen’s immediate challenges were that he had to increase efficiency within the claims environment, meet customer demand and enhance operational processes while concurrently accelerating daily business operations. In opposition to maintaining the status quo, his options were to either build an in-house solution, or purchase an existing tool and customize it to his organization’s requirements. His preliminary cost benefit analysis showed that choosing to remain “as is” would cost the firm nothing in terms of immediate cash outflows, but in the long term would expose management to the risk of not capitalizing on opportunities to service their customers quickly and efficiently, infuse transparency into the appointment procedure of suppliers on repair claims, and gain line of sight of interactions between the firm, its service providers, and its customers. He furthermore surmised that whatever the solution was it might require the firm to make initial investments of time for the re-organization of internal processes and new information technology competencies to acquire. To select an ideal solution, he would need to weigh the risks of remaining “as is” against the benefits of infusing mobile technology such as a mobile app into his portfolio, and ultimately, into the core day-to-day operations of the firm as well.