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The Risk and Insurance Industry Needs to Get Younger

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One of the biggest risks facing the risk management and insurance industry was summed up very well yesterday by Joanne Wojcik (@BusInsJWojcik) on Twitter: There is “only one risk manager entering the profession for every five who are retiring.”

The last decade has seen a tremendous growth of the discipline from an intellectual standpoint. What was formerly little more than insurance buying is now closer than ever to becoming ingrained into strategic business planning. After 9/11 and Enron and Katrina and H1N1 and Lehman Brothers and Haiti and Japan, the concept of risk management is now almost mainstream.

Given this, it is somewhat surprising and certainly not helpful for the industry that it is losing many more people than it is recruiting. And while the one-to-five rate cited above by Wojcik is troubling for risk management, the same problem exists in insurance, a sector that may have even greater trouble if it can’t attract more young talent.

To their credit, both higher education and the insurance sector are now making concerted efforts to stem the tide and encourage an influx of talent into the market.

Here’s another tweet from Joanne Wojcik of BI.

University of Colorado-Denver to launch risk management curriculum, perhaps pumping new blood into the industry!#RIMS2011

And here’s a comment on Gallagher’s efforts from IRMI President Jack P. Gibson (@UGAJack)

Gallagher has 150 student summer interns as part of its effort to bring young people into the business says CEO Pat Gallagher @ #RIMS2011.

This morning, I also got the chance to speak about all these matters with Russ Quilley, the Calgary-based national broking director for Aon, who served on the RIMS 2011 panel “Recruiting and Retaining Risk Management Talent for the Millennium” yesterday. He has been integral in helping Aon acquire those “millennial generation” employees that will eventually replace those entering retirement and has a much more positive outlook on the situation than I do.

Part of this is because he seems to think his company is on the vanguard of these efforts. And another key reason he sees this as much of an opportunity as a concern is due to the energy, ambition and capabilities he is seeing from those students he helps integrate into his company. Aon plucks Canadian interns and recent graduates for a program it calls The Wheel. This consists of an 18-month rotation in which students complete three six-month stints in different parts of the company. The first gets their feet wet. The second tries to place them somewhere aligned with their skill set. After this, their performance is evaluated, and the broker moves them onto a third rotation during which they learn from their managers as well as independent mentors who try to teach them all about the industry.

The most encouraging aspect for Quilley is how technological savvy this generation is. He is routinely impressed with how this group can find new solutions to problems and not just rely on how things have been done in the past. And he believes this technological and cultural influence will be invaluable to making his firm more efficient in the future.

“It is really interesting to see a group that sees no hurdles,” said Quilley. “I like to challenge the status quo and they like to challenge the status quo.”

Another positive benefit is that these millennials will be very effective dealing with customers in the future. “Ten years from now they’re going to be our mid-level [brokers and managers],” said Quilley. “But they’re also going to be our clients. And this group will able to talk to clients and be very well-versed in their demands.”

This stuff is all great, and many other companies and universities are making similar efforts. Even so, there are not enough young, future insurers and brokers being churned out by academia, according to Quilley.

“I still don’t think there are enough of them coming through,” said Quilley. “If you look at the programs, there’s a 90% hiring rate. Not a lot of industries have levels that high. That’s a great indication that there aren’t enough to meet industry demand.”

To me, the whole industrywide effort to recruit young talent feels a little bit like trying to create energy independence in the United States by starting to drill offshore today; it sounds helpful and some day it certainly may be — but it’s going to be a long time, we’re talking at least a decade, before the work being done now will pay off. And considering that the talent that insurers and brokers are losing consists of graybeards with perhaps 20 or more years of experience in risk and insurance, even if the industry can get closer to a one-out/one-in ratio, it’s still not exactly an even trade when you replace a retiring, battle-worn executive who has been through multiple market cycles with an eager, 22-year-old who has a bachelor’s degree in actuarial science, an iPhone and a smile. That fledgling risk manager or future underwriter can one day be just as knowledgable and wise as the VP she is replacing, but it takes time. Experience can’t be taught and all that.

Frankly, the insurance industry is simply late to the game.

This is a major strategic risk for many companies — and one they have known about for years — yet many have still failed to really start addressing it seriously until now. The financial crisis and economic slowdown didn’t help. Hiring lagged, and now there must be a renewed urgency for insurers to find, train and retain young talent.

“I don’t think [the insurance industry has] the reputation among that young group that you can have an interesting career in insurance,” said Quilley. “We need to do a better job promoting that. You have to be aware of the demographics of your staff and have a plan in place. And starting now is key.”

With all the great institutions now educating the youth of America about risk and insurance, there is no doubt that the future of the industry is in good hands.

But the hand-off of the baton might be a little sloppy.

Let’s just hope it doesn’t get dropped.

If the sprinters in this photo were industries, insurance would be from Poland.

The Top 10 Risks of 2011

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With five straight months of improving employment numbers across the nation, it seems as though real economic recovery is fully underway. Overall, the consensus among economists believes that the U.S. GDP will grow 2% in 2011. Throw in the continued growth for emerging market powerhouses like Brazil, Russia, India and China, and the worldwide picture looks a lot rosier than it did just 12 months ago.

Still, for executives across the world, a sluggish economy remains the greatest risk they see for their organizations. It ranked first for the nearly 1,000 business professionals from 58 countries surveyed for the 2011 Global Risk Management Survey that Aon unveiled yesterday at RIMS 2011 Vancouver.

The top ten included several other familiar threats on the rise during the past few years (regulatory risk, commodity prices, liquidity), but it also seem to reflect a strategic risk outlook that was surfacing just before the economic crisis monopolized the world’s attention in 2008. Specifically, the worries over failing to attract top talent (which, in the graying-by-the-minute insurance industry at least, I presume includes attracting young talent) and failing to innovate involve looking at the far-off risks a few years down the road that the company must navigate not just to improve its bottom line for 2011, but to ensure the company can retain — and increase — market share in the future. The newspaper and music industries, to name two, are probably wishing they had put “failing to innovate” on their radar screen around the turn of the millennium.

Here’s the full list:

  1. Economic slowdown
  2. Regulatory/legislative changes
  3. Increasing competition
  4. Damage to reputation/brand
  5. Business interruption
  6. Failure to innovate/meet customer needs
  7. Failure to attract top talent
  8. Commodity price risk
  9. Technology failure/system failure
  10. Cash flow/liquidity risk

I’ve been seeing these top ten risks lists for the past seven years, and it’s always interesting to note how they change over time. Some concerns never leave (like technology risk) while others have appeared with increasing frequency and continually moved higher up on in the rankings (like reputation risk).

Based upon all the conversations I’ve had so far in Vancouver, I would be willing to bet good money that supply chain risk cracks the 2012 list. And, hopefully for everyone’s sake, the threat of economic slowdown is one that seems much less likely.

Coca-Cola Jumps on the Captive Bandwagon

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One of the world’s largest beverage companies has successfully embraced the somewhat modern practice of funding employee benefits through captive utilization.

Coca-Cola recently began reinsuring some of its international pension liabilities through its Dublin-based captive, Coca-Cola Reinsurance Services Ltd. The captive reinsures about 0 million in annuities written by insurers for benefits provided to enrollees in three Coca-Cola pension plans in the United Kingdom and Ireland.

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After years of operating their own captive, Coca-Cola Reinsurance Services Ltd.

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, to fund a portion of their employee benefits, the beverage giant will now cover international benefit liabilities through a captive.

Coca-Cola had been handling “quite significant” property/casualty risks in its captives for “quite some time,” said Stacy Apter, senior global benefits consultant with Coca-Cola and a panelist at the conference. “Why would we not be taking advantage of the same efficiencies on the employee benefits side when they are more predictable risks?

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Apter stated that medical coverage, as an example, is similar to a cash flow operation, in that it is not difficult to predict yearly costs. It seems that employee benefit captives would be a good move most sizable companies, though only a handful have fully embraced it.

A few online resources for learning more about the world of employee benefit captives:

  • Captive.com — “Using Captives for Employee Benefits” covers why employers are using their captive for employee benefits, who has done it so far, how existing transactions have been structured and the primary issues that employers need to evaluate.
  • TowersPerrin.com — “Employee Benefits: Captive Manager’s Key Roles” explores the importance of having the right external partners when choosing a captive and how to ensure appropriate coordination among the internal and external parties involved.
  • Aon.com — “Employee Benefit Captives: Their Role in Managing Enterprise Risk” is a concise reference that can serve as a reference for further examination of the business issues involved in the placement of employee benefits risks in captive insurers.

18 Insurance Companies Among the Best Companies for LGBT Employees to Work For

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In our print publication, Risk Management magazine, we have spent some time highlighting the diversity — or lack thereof — in the risk management and insurance industries. In November 2008, I wrote a cover story about the racial makeup of the insurance industry, and this month, our editor Emily Holbrook wrote a cover story on Women in Risk, providing insight of her own as well as six first-hand stories from women who have overcome the gender bias to succeed.

While I think most would agree that diversity of all types is improving not just in risk and insurance, but in most all industries, the corporate world by and large remains the domain of white, heterosexual males. Don’t get me wrong, there are obviously countless others of different backgrounds who are thriving in all sectors, but the mold of the typical power exec has not really changed since the days of Mad Men.

That’s why all signs of progress are encouraging.

And for the insurance industry, the 2011 Corporate Equality Index from the Human Rights Campaign (HRC) is a great sign that the industry really is advancing in terms of encouraging diversity in its workforce. A full 18 companies in the industry, including power brokers Aon and Marsh & McLennan scored a perfect 100% as a Best Place to Work for their “support equality for lesbian, gay, bisexual and transgender employees,” according to HRC. (via PropertyCasualty360.com)

Kudos to all those on the list.