People Power

Canada’s property and casualty insurers recorded an underwriting profit of $368.7 million based on $48.5 billion of written premiums in 2011, according to MSA Research, representing an underwriting profit of less than 1% for every dollar of premium. While certainly better than recording an underwriting loss, it does underscore how thin the margin of underwriting profit can be.

The general insurance industry in Canada is both highly competitive and tightly regulated. This makes it very difficult to stand apart from the crowd when it comes to the ‘Four Ps’ of marketing: price, product, promotion and place. Given the nature of the market, even if a carrier makes a successful change in any one of these four areas, chances are good its competitors will quickly follow. As a result, whatever competitive edge was gained will prove to be temporary.

On the other hand, if an employer is able to create a highly skilled and motivated workforce, it stands to achieve a sustainable, competitive advantage that would be difficult for competitors to replicate. In order to put together a pool of superior employees, it is necessary to attract the talent to the organization in the first place. Then, having attracted the talent, the objective is to retain people with those superior skills.

RECRUITING TALENT

There are only two sources when recruiting new talent to an organization: employees new to the industry and those who are already in it.

Attracting new talent to the industry is important at all times, but it is particularly relevant now: demographic studies indicate a significant portion of the existing workforce will be retiring in the next few years. Most graduates do not consider insurance a career choice. Only a very small percentage of people are able to say they grew up dreaming of working in general insurance. With the exception of those who have a connection to a family-run brokerage, most of us stumbled into the industry.

In the report, Building a Talent Magnet, McKinsey & Company notes that the property and casualty insurance industry faces a number of challenges when it comes to attracting high-quality talent: a poor reputation, a limited understanding of the industry’s career opportunities and a limited pool of trained talent. This particular study was conducted south of the border, but it is fair to assume that the same problems exist in Canada, to some extent.

There is much to recommend a career in general insurance. As the McKinsey study shows, the industry offers many qualities sought by young job-seekers: stability, a good work/life balance, intellectual challenge, strong professional development possibilities and the chance to make a difference.

At a time when many sectors of the Canadian economy have been hard hit by a global economic downturn, the issue of stability takes on new meaning. The property and casualty industry is not recession-proof, but it is certainly recession-resistant. During an economic downturn, consumers will take a hard look at discretionary spending such as travel, but the need to insure homes, businesses and automobiles remains.

In promoting the merits of general insurance as a career choice for new graduates, it is worth mentioning the economic impact of the industry. A Conference Board of Canada study released late last year by the Insurance Bureau of Canada estimated the industry accounts for $7.5 billion in direct and indirect contributions to GDP in Ontario alone. The study noted that Ontario insurers directly employ 22,000 people with an additional 41,000 jobs created indirectly.

ATTRACTING TALENT

Given the stability and sheer size of the property and casualty industry, the industry has much to offer young graduates. On the other side of the equation, the industry needs new entrants to fill the jobs that are being created, in addition to existing jobs that will be vacated by retirees.

Whether attracting new talent to the industry or recruiting existing talent from within the industry, it is important that recruitment efforts be well thought out. As noted by the Society for Human Resource Management (SHRM) in its report, Recruiting and Attracting Talent, a poorly managed recruitment process can produce unqualified job applicants and a lack of diversity, or result in good prospects declining job offers.

Also, a poorly conceived process can fail to attract the right job candidates — including those who work for competitors — because these potential candidates never find out about the position in the first place.

The SHRM report defines a model recruitment process as containing the following steps:

• establish recruitment objectives;

• develop a recruitment strategy;

• carry out recruitment activities; and

• evaluate recruitment results.

The first step includes establishing the number of positions to be filled, the date by which the positions should be filled, the number of applicants desired, the qualifications of applicants being sought, the job performance goals of new hires and the expected retention rate of new hires.

The second step, developing a recruitment strategy, involves answering such questions as where to look for suitable candidates, how best to reach these candidates, what recruitment message to deliver, what type of recruiter to use and what to include in the job offer.

The third step, carrying out the actual recruitment, may involve internal or external resources or possibly a combination of both. This step will necessarily include making the openings known; identifying, screening and interviewing the candidates; and, finally, filling the open positions.

Once the recruitment effort is completed, the final step of evaluating the program should include metrics such as time-to-hire, the cost of filling the position, the retention rate of new employees, the performance level of new employees, the hiring manager’s satisfaction with the recruitment process and the applicant’s perceptions of that process. This final step should also allow the human resources department to demonstrate to functional managers that the entire recruitment process is of net value to the organization.

RETAINING TALENT

In his report entitled, Retaining Talent: A Guide to Analyzing and Managing Employee Turnover, David G. Allen, PhD, SPHR, makes the point that turnover is expensive. Direct replacement costs can run as high as 50% to 60% of an employee’s annual salary. If indirect costs are included, the total costs associated with turnover range from 90% to 200% of an employee’s annual salary. Although these costs may not create a problem for an employer if an employee leaves due to poor performance, these costs only add to the problem if a valuable employee decides to leave.

When analyzing retention, it is worth considering why good staff opt to leave current employers. One model identifies four different paths to turnover:

• dissatisfaction with the current job;

• leaving for something better, even though there may have been no dissatisfaction with the current job;

• following a plan — examples of this type of pre-planned departure include leaving in the event of pregnancy, being accepted into a desired educational program or departing following receipt of a bonus; and

• leaving without a plan — this typically occurs following a negative shock, such as being passed over for a promotion or having a family member suffer a critical illness that requires the employee’s care.

Reviewing the above list, clearly employees voluntarily depart for reasons that may or may not be related to what goes on in the workplace. Sometimes employees leave jobs they like. As a result, it is unrealistic for an employer to expect to retain all good staff.

Nevertheless, employers consciously strive to retain as many of their valuable emplo
yees as possible. In some instances, it is fairly easy to determine which employees are valuable and that should be retained. Many times, however, it can be difficult to make the right selection. Subtle biases may come into play as we make judgments. A marginal employee with an engaging personality may be misjudged as more valuable to the organization than a highly productive employee who happens to be somewhat acerbic. In the same way, an eloquent employee may be seen as more valuable than an employee who struggles with words. However, even though the second employee may not say much, his or her few words may have more value to the organization than all of the fine speeches of the first.

Here in Canada, the difficulties associated with determining the value an employee brings to the firm are particularly acute in multicultural communities, where cultural influences may cause some employees to keep to themselves. It may take an effort to gather insights and suggestions for improvement from employees whose culture teaches them to be quietly respectful of authority. But the effort can pay big dividends.

In his report, Allen outlines this four-step retention management plan.

Is turnover a problem?

Turnover of poor performers might allow a firm to come out ahead and, therefore, may not be a problem. Turnover becomes a problem when it involves a company’s best employees, or when the turnover rate becomes so high that the accompanying costs and instability outweigh benefits. To determine if turnover is a problem, an organization should start by analyzing its turnover in terms of how many people are leaving, who is leaving and the relative costs and benefits of current turnover. Benchmarking to the industry helps put a given turnover rate in perspective, with different benchmarks for different levels in the firm.

How to proceed

If the first step reveals turnover is not a problem, the best course may be to maintain the status quo and continue to monitor turnover. If turnover is a problem, the employer may turn to broad-based strategies and/or targeted retention strategies, depending on the situation. Broad-based strategies are directed at either the whole organization or large parts of it and are intended to address overall retention rates. These might include across-the-board, market-based salary increases or improvements to the work environment.

As the name suggests, targeted strategies are focused on specific areas within an organization. Data sources for creating the strategy include exit interviews; post-exit surveys; current-employee focus groups; research that compares cross-company employee survey data to survey results within business units; predictive studies that identify direct relationships between individual survey responses and individual turnover decisions; and qualitative studies that attempt to uncover the complex, harder-to-measure decision-making processes that may underlie departures.

Implementing the plan

Specific actions involved in this step will depend on the strategies being pursued and the unique circumstances of the organization. As with any program involving organizational change, it is important to obtain support from top management. It is also important to develop a communications plan that ensures front-line managers understand the plan and support it.

Evaluating the plan

Retention efforts may involve a substantial investment. As such, when assessing if a retention plan has accomplished its objectives, it is important to assess the impact of the plan relative to its cost.

Admittedly, attracting and retaining top-quality talent requires management time and attention. But as insurers, brokerages and other industry-related organizations look for ways to obtain a sustainable competitive advantage, it is worth considering the rewards a pool of superior talent can deliver.