Agility and Risk Management at Pacific Life:
Optimizing Business Unit Autonomy
* Pacific Life (PL) holds its culture as central to 139 years in business. * 5 strengths:
(a) Risk management;
(b) Customer service culture (both distributor and customer levels); (c) Team orientation (different expertise combined);
(d) Continuity of operations and company identity; and
(e) Integrity (providing value to clients).
* Need to balance business unit autonomy with central control. * Original standpoint was business unit autonomy with decentralisation allowing for business units to be nimble. IT made this possible. * Business unit autonomy complicated risk management at an enterprise level as need infrastructure and system that is complimentary, consistent and not duplicative or conflicting. Thus the necessary balance between autonomy and centralisation. * Enterprise-wide projects such as info security, business continuity planning and document management should be centrally coordinated for efficiency sake. * PL needed to address tradeoffs between business unit autonomy and corporate risk management through enterprise initiatives that would increase standardisation across PL. IT was central to those changes. Pacific Life Background
* PL provided life insurance products, annuities and mutual funds, and offered a variety of investment products and services to individuals, business and pension plans. * PL grew organically and through mergers/acquisitions.
* Only 20-50% of the assets of principal competitors, but still the largest California-based insurance company. Designing Business Unit Autonomy
* PL had 5 independent divisions:
(a) Life Insurance and Investments (original business over 100 yrs old); (b) Annuities and Mutual Funds Division (est 1994);
(c) Real estate division;
(d) Corporate division;
(e) Investment Management.
* Few synergies between divisions so operated autonomously. * The two largest divisions (Life Insurance and Annuities) which were 80% of the company relied on the same 33 mutual funds for their underlying investments, but shared few producers or end customers. * Fewer than 5% of their producers sold both annuities and life insurance (as they are such different sales). Annuities are like selling a stock whereas life insurance can take a matter of months and is a process. * PL’s decentralised structure was driven by lack of synergies among business units and by management’s belief that centralisation imposed constraints on individual business unit excellence. The Life Division
* Life Insurance division among top 5 US companies in sales of variable universal life and top 10 in total life insurance sales. * 2001 - 2005 growth in sales of greater than 10%.
* Mantra being “make it as simple and as easy as possible for that producer and give him choices”. * So have full range of products; the more one company can fulfil a producers needs, the less likely they are to go somewhere else. * Life division designed systems and processes to maximize flexibility for the producer. * At the heart of Life’s capabilities was the administrative system (which issued documents and managed billing and payments). Single admin system for all products which provided competitive advantage - when new product launched it only had to be tied into 20 systems. Life only issues new business on one administrative system. * Competitive advantage also through more and better information to producers. * Investment in Plan Performance Tracking (PPT). This system allows producer to show client comparison of the expected (“as sold”) and actual (“in force”) performance of their policy’s cash value (in the form of “illustrations”). Thus producers could work with clients to review their plans and make adjustments. Annuities and Mutual Funds Division (AMF)
* AMF division offered variable annuities, fixed annuities...
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