Realgood Insurance
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Problem: RealGood Insurance is a factory and household item insurance company with an emphasis on selling low-cost insurance “to individuals with a favorable risk profile”. However, in the past 13 fiscal periods there has been a deviation from the normal settlement costs, with property claims on household items increasing nearly 40%. Oakley Wilson, the Director of Operations with responsibility for general claims processing in RealGood’s Sacramento office, is faced with the issue of identifying why settlement costs have increased and determining future actions to lower settlement costs and increase profits.

Why does this problem exist?
Normative Behavior Theory- These are the changes that RealGood Management implemented to increase profits, but actually were detrimental to the company, because their thoughts on how employees should behave was significantly different than how they actually behaved.

RealGood Insurance made it their goal to increase customer satisfaction without increasing costs. To accomplish this, they decided to institute a pay-for performance incentive program that focused on reducing claim wait times, lower settlement costs, and lower the number of claims pending. RealGood’s management team believed that implementing a reward system that increased salaries by 15% would pay off, because they would have happier customers, higher retention rates, and lower settlement costs.

To reduce absenteeism on Mondays and Fridays RealGood Management implemented a company policy that if you took off a Monday or Friday it would be reduced from your allotted vacation time, but if you took off a Monday & Tuesday, or Thursday & Friday, you could then reduce this from your allotted sick days. This set up a culture where the employees were rewarded for taking off more time instead of less, leading to massive time off.

Reinforcements
By adding the Pay for Performance model, RealGood has introduced a positive reinforcement aimed to improve customer satisfaction and reduce claim costs. Unfortunately, this reinforcement has had a different impact.

Since employees were incentivized to close claims faster and increase customer happiness, they simply approved more finances to be disbursed for claims. This is the main reason that property claims on household items increased by 40%. The graphs included in the article lead to the conclusion that employees

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Realgood Insurance And Increase Profits. (July 14, 2021). Retrieved from https://www.freeessays.education/realgood-insurance-and-increase-profits-essay/