The following article is a commentary written by an insurance company executive which includes an industry critique and reflection on lifelong lessons learned. The three-part commentary will appear exclusively on Insurance Journal Online July 7-9, 2004.
I have spent my entire professional career in the insurance business. Now, I am bracing to leave the industry—a truly honorable business overall—to enter some form of retirement and the world of unemployed consultants! The insurance business has changed dramatically, since I first entered insurance in the 1960s.
This article is a farewell reflection, and a serious critique about the industry before it fades from my memory “like a straw blowing in the wind.” I hope this may be of some modest value to those who still inhabit the insurance industry. Perhaps you may even begin to understand the reasons why I believe some insurance companies are not successful over an extended period of time and others are.
I must tell you, in advance, some will not like what I say. To this criticism I would suggest you not study the words, but think behind them to what they may reveal. You just may be able to sift out something valuable in the end. Smart people learn from their own mistakes; smarter people learn from the mistakes of others. “Have you noticed that?”
Insurance Company Life Cycle
The company life cycle is a phenomenon that has impacted our insurance world for years and years. This cycle is the product of competition, capacity and competence (or incompetence) – the three problem “C”s.
Good results produce increased capacity, which leads to incompetent price-cutting, which in turn leads to poor results. Middle managers, rarely at the CEO level, take a “beating” during this phase in the cycle. The consequences are demotions, job loss and, of course, reorganization.
During this phase in the cycle, we experience consumer regulatory and legislative backlash. And we wonder why they are doing this to us? Then we observe a reduction in capacity which forces a return to competent pricing as rates increase and eventually profits are generated. Profits cause a return of capacity and incompetent pricing caused by competition – and the cycle goes on again.
In our business, it should be evident that the cycle is the key to profit and loss for those who have found a way to manage a company profitably. Despite the moans and groans which come, or may come, from pollution, asbestos, mold, hurricanes, earthquakes, terrorism, credit scoring, etc. – insurers have done more harm to themselves by simply following the herd and riding their own cycle. “Have you noticed that?”
There is also a human element that takes place. Every company goes through the following stages not necessarily in this order -enthusiasm, complications, disillusionment, search for quality and service, reinvention, punishment of the innocent and decoration of those who did nothing.
I have also observed in performance review programs a significant failure to recognize people’s diversity in corporate life that could help connect the great variety of gifts these differences can bring to insurance work to serve agents and policyholders. People have one thing in common: they are all different. I believe this may be the greatest under-utilized resource in our business. If you stay in insurance long enough, you will observe this all. “Have you noticed that?”
More on the Human Element
Ordinary people (I’m one of them), not stars or hotshots, are the most valuable employees. People with solid experience, even if they lack the spark of brilliance, are the best workers. There is a need for well-educated, even brilliant people, to bring new ideas into the company and help keep up with technological change.
While these often excessively recognized stars “do their thing,” such people often lack the basic experience and skills needed to keep day-to-day business running smoothly. There are no unimportant lives. There is no insignificant work. When is the last time you visited the mailroom? The reliability and steadiness ordinary people provide is absolutely necessary. They are often the glue that holds the company together. Why do consultants spend so much time talking to these people when they come to your organization and often value them more than you do? “Have you noticed that?”
Lee Iacocca wraps it up nicely: “In the end, all business operations can be reduced to three words: people, product and profits. People come first. Unless you’ve got a good team, you can’t do much with the other two.”
Older, Experienced Employees
There is a new demographic happening outside the insurance business. Population is aging as the younger population is shrinking. The fastest growing segment is now more than 55 years old. This segment is benefiting from an extended period of good health, which is largely a consequence of technological advances. I believe the industry is totally under-exploiting the real economic leverage these people can provide.
In our industry, today’s practice is one of pushing older people out of work. (No one has the courage to admit this.) There is virtually little place for the more senior citizens in our industry. As retirement age approaches, most companies do nothing to keep them on. They are certainly among the first to go in an acquisition or reorganization. Human resource functions have become very skilled in managing this exit even under existing law. Demotion is gaining in popularity as a preferred approach.
Retirement can be a traumatic experience for the company because of the accumulated knowledge retirees can take with them when they leave. One way to solve this problem is to work part-time for a few years after they hit retirement. The company benefits because managers can partner older workers with younger employees through job-share programs allowing younger employees to soak up years of experience and accumulated knowledge.
Many older workers would stay past normal or forced retirement and provide years of experienced full-time or part-time service if we simply valued their work and somehow recognized this as “Knowledge Resource,” said by Peter Drucker. Very few companies recognize the experienced knowledge worker as a most valued commodity.
Also, these organizations are beginning to recognize career path progress on a more professional basis is just as important as vertical management development. Job descriptions and grade levels need much developmental work in this regard.
The increasing complexity of this industry and company success now requires a sophistication of knowledge, which is rapidly not being developed, or simply leaving the business for other opportunity. I believe this may be an example of an action in contradiction to what the individual company wants to do and therefore defeats the very purpose it is trying to achieve. “Have you noticed that?” (More about this later.)
Technology has consistently promised a vision of fast and secure paperless efficiencies for the industry. There now appears to be no end to technology’s impact. Add to this that it is extremely expensive – (or haven’t you learned that yet?), as well as the risk of buying terribly poor technology. In your company, simply look at the failure rate of your own initiatives. There may be others you don’t know about! This is the first time in the history of expense management that our industry is willing to pay for instruments that don’t work well.
But big lie of the insurance technological age is: “Computers and computerized information systems saves paperwork.” The truth, they create paper work! And we now work 24/7. “Have you noticed that?”
As an industry, we buy too much and don’t implement technology appropriately. Many think they can install new systems fast and harvest immediate results ballyhooed by expert vendor consultants. More recently, we are now seeing systems implemented on the basis of what’s easiest for technology rather than what’s right for the insurance business and customers.
“Don’t throw away the old bucket until you know whether the new one holds water” – Swedish Proverb.
Tremendous effort has been made to create the necessary infrastructure for new ways of working. We now have power – full desktop machines and impressive data processing capability. Guess what? All require more people to operate, and must be fixed and maintained constantly. Add to this the use of e-mail with its unstructured documents and messages. The use of e-mail fundamentally undermines trusted and efficient verbal collaboration among all of us. The marvel of all history is the patience with which men and women submit to burdens unnecessarily laid upon them by their computer. For a list of all the ways technology has failed to improve the quality of life please press Deleted Items. “Have you noticed that?”
See Insurance Journal’s daily news on July 8, 2004 for Part Two of this commentary titled Farewell Reflections.
Wallace H. Smith joined National Grange Mutual in 1986 as underwriting vice president. He now serves as assistant underwriting vice president, corporate underwriting. His expected retirement date is Dec. 31, 2004.
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