Future Planning

INDUSTRY RECRUITMENT

The insurance industry needs to take into account four different generations of workers — as well as the major differences between them — when it plans succession strategies, according to speakers at the CIP Symposium 2007 in Toronto.

Succession planning ranked most often among the Top 5 lists of insurance company CEOs who spoke about critical issues facing the industry at a symposium leadership panel.

“As we all know, demographics are not on our side,” ACE Canada president and CEO Karen Barkley told the leadership panel. “We need to revisit training efforts and how to handle the retirements as they happen. I believe companies will have to consider balancing their work force age groups, capabilities and expertise to take them forward and through succession.

“As much as we’ve all complained over the past few years, the insurance industry is a great place to work. And I think we all need to change the perception that the public has about the insurance industry.”

Silvy Wright, the president and CEO of Markel Insurance Company of Canada, observed that recruitment into the industry has historically been based on random chance. “You talk to different people in our industry and ask: ‘How did you end up in insurance?’ and it’s always, ‘We fell into this industry.’ We need to turn that around.”

Andrea Plotnick, the national expertise director of organizational effectiveness at the Hay Group, a human resources consulting company, noted in an education seminar that the insurance industry is not unique in having to face a large number of Baby Boomers anticipated to retire over the next decade.

Plotnick cited statistics that show the number of available executive positions worldwide is projected to increase between 10% and 20% by 2012, coinciding with a mass retirement of Baby Boomers (those born between 1947 and 1964). At the same time, Hay Group studies in the United Kingdom show only 20% of CEOs have expressed confidence that their talent management processes can deliver on the required executive candidates to fill the gaps.

Plotnick noted a common mistake insurers make when doing their succession planning is to treat all of their employees as having the same needs and wants. She noted two generations of young employees in most companies, each of which has its own code of values and views about what it wants from the workplace.

TALKIN’ ABOUT A NEW GENERATION

Generation X employees (born between 1961 and 1974) are more likely than younger employees to work comfortably within a system, sacrifice their personal lives for the sake of advancement, depend on close supervision, dedicate themselves to goal achievement, and show signs of insecurity (manifesting itself in a desire for recognition and job security).

Generation Y employees (born between 1975 and 1990), on the other hand, are more likely than Generation X employees to desire independence and autonomy, a good work-life balance, entrepreneurial business opportunities, challenge and variety, and a fun and communal work place. Another thing that distinguishes a Generation Y employee is a characteristic lack of loyalty or unwillingness to commit to a company.

Plotnick observed 12 typical errors companies make in terms of succession strategies. “The first one is trying to take a one-size-fits-all approach to succession planning, to motivating and rewarding people, and not recognizing there’s different generations with different needs and wants,” she said. “Even within the generations, there are big differences – in particular with Generation Y, in which there are lots of individual differences as to what motivates them.”

Scott Tannas, the president and CEO of Western Financial Group Inc., said the industry must meet the expectations of the young generation. “We are constantly going to have to challenge them and find them interesting things to do in an industry in which there are a lot of simple, straightforward, data-entry tasks that need to get done,” he said. “It’s going to be a challenge.”

One thing that motivates young workers is a dynamic work environment, agreed George Cooke, the president and CEO of Dominion of Canada General Insurance Company. “If you’re looking for IS [information systems] graduates and your principle operating system is 50-year-old data-processing technology, you’re not going to get the best and brightest out of [The University of] Waterloo. They’re going to go someplace else, and so you need to reinvest,” he said.

The issue, Cooke added, is to be more creative in the way the industry recruits and trains its young personnel. It’s also about retraining the existing workforce so that it can keep up with the technological changes happening within the industry. “You can’t, with good conscience, displace people who have been loyal employees for 10, 15, 20 years without giving them the opportunity to find their way in the new worlds,” he said.

Tannas said contemporary demographics are particularly challenging for industry recruiters because of the proportion of “pink collar workers” in the industry who may opt to retire when external circumstances dictate (such as retiring when a spouse happens to retire) instead of making a more predictable choice such as retiring at a certain age. “For us, that makes it increasingly difficult for us to plan when to bring people on and when not to,” he said. “That’s a particular challenge for us that other brokers face as well.”

John Kartechner, the senior vice president and executive committee member of Aon Re Canada, said recruitment into the insurance industry should occur much earlier in the cycle. “The industry is a good industry to be in, and people have become very successful in this industry and somehow we have to promote that by talking to people and getting into the schools,” he said. “I think you have to get to the students in the schools much earlier.

“I can remember growing up having the professions come in to talk to us in high school, but I can’t remember the insurance industry coming in to talk to us in high school. But I think you have to start at a lower [grade] level.”

In fact, the Insurance Institute of Canada has a program in place, called Career Connections, that reaches out to young students. The program is an education strategy designed to heighten awareness among junior high, high school and post-secondary students about career opportunities available in the insurance industry.

PLANNING FOR CATASTROPHES

The definition of a catastrophe is shifting, and corporations need to adjust their contingency plans to adapt, warned Susan Meltzer, assistant vice president of risk management at Aviva Canada. She was speaking at a “Planning for and Dealing With a Catastrophe” seminar at the CIP Symposium.

Traditionally a catastrophe has been defined as a low-frequency, high-severity event that is difficult to predict, she observed. But today catastrophes are becoming more frequent. In addition, their severity has changed, and therefore risk managers need to talk about catastrophes both from the standpoint of financial consequences, as well as reputation consequences.

“We don’t know how big the next one is going to be, or what it looks like, but all we know is that it’s not going to look like the one we just had,” Meltzer told her audience. That said, “how do we make sure that we’re planning for the right thing?” she asked. “The other thing is that you could have a very, very small event that creates a catastrophe.”

To illustrate her points, Meltzer pointed to a recent event in which a software glitch at a major bank disrupted the direct deposit of city workers’ salaries and mayhem ensued. Meltzer observed that bank branches were sending out mixed messages to clients, executives failed to return from their vacation to handle the ordeal and company spokespeople remained silent. “This small incident,” she said, “almost became a catastrophe because of a company’s response.”

Few people th
ink of a glitch in software as an event of catastrophic proportions, she said. But a simple IT glitch could have multiple dimensions that have both major financial and reputation consequences.

“We are so focused on financial implications of a catastrophe that we forget to look at the breadth of what would constitute a catastrophe,” she said. “This is what I mean when I say that our definition of severity has changed.”

When thinking of financial consequences, one often thinks of revenues, increased expenses, the cost of settlement, loss of revenue and impact on capital. But the risk to a corporation’s reputation is the piece that could make the catastrophe bigger, she said.

“The way that we respond could result in decreased market share, decreased capitalization, decreased share value, increased supervision and ultimately legislative changes,” she said. A catastrophe, she added, has the potential to impact one organization, one sector or society as a whole.

To adapt, Meltzer suggested creating more than just a single business continuity plan. She urged companies to try a ready-for-anything triage approach to catastrophe planning.

“‘Non-traditional’ catastrophe planning, is what we’re doing now,” she said.

This is essentially an approach to determining which response plan or combination of response plans is appropriate, depending upon the catastrophe that faces the organization. In other words, she said, corporations need to take a triage approach to identifying and assessing the type of catastrophe and mobilizing appropriate resources.

While the concept seems simple and straightforward, it is still new to some corporations, she said. Returning to the bank example, fixing a software glitch was not the appropriate disaster recovery step. The bank only needed to trigger an appropriate communications plan, Meltzer said. “That was the only part of their disaster plan that they needed to trigger.”