Here is something some people might not know about the property/casualty insurance professionals: they are very generous folks.
Property/casualty insurance industry’s charitable giving reached $500 million in 2010. That amount is comparable with other major industries, according to a report from consulting firm McKinsey & Co. As a percent of pre-tax earnings, the contributions are above average compared to other businesses.
But many in the industry feel their charitable efforts and the money can be spent more wisely.
Executives surveyed in the McKinsey report say they are not yet satisfied with their charity programs and their “return on giving.” The majority of executives said the industry could receive more recognition for its efforts and that the charitable giving could have more social and business impact.
The p/c industry generally supports many of the same major causes as other major businesses including education, health, social services and the arts. But some 45 percent of executives also expressed their doubt that charitable giving in their industry is allocated to the right causes. Across all industries, only one in five companies believes that its corporate philanthropy programs are very effective at meeting their goals.
The report also found that geography is a key factor in allocating funds. Charitable giving is concentrated in regions where corporate headquarters and major operations are located.
The report and its survey results are drawn from responses from over 30 companies in the p/c insurance industry, together representing around 50 percent of the overall industry revenue. It also incorporates interviews with executives and board members, surveys, focus groups and comparative analysis of other industries’ charitable giving programs.
Benchmark for P/C Community
“It’s valuable for the industry to have a benchmark for the entire p/c community. It becomes a tool and a reference point for the future,” said Bill Ross, CEO of Insurance Industry Charitable Foundation (IICF). The foundation is a nonprofit funded and directed by the insurance industry, combining the collective strength of the industry to provide grants, volunteer services and leadership. IICF served as an advisor on the McKinsey research.
Ross told Insurance Journal that nobody really knew what to expect from the study since this is the first time a survey like this has been done. But frankly, he said, “I think the results are very impressive. This industry has made significant contributions to society and I think it’s reflected in the survey results.”
In the insurance industry, there are probably well over 100,000 employees across the nation that are involved in volunteer activities every year, he said. “Many insurance executives personally have private foundations. Many companies have corporate foundations that are very engaged in supporting a number of community nonprofit organizations.”
To Move From Good to Great
The foundation CEO recommended that for the industry’s charitable activities to move from good to great, “we would have to do better at measuring and collaborating and communicating, which all seems to be reflected in the survey results.”
Here are the main findings and recommendations from the McKinsey report, titled “Charitable Giving in The Property-Casualty Insurance Industry.” The report, released on Oct. 19, is the first of its kind to comprehensively measure p/c industry’s charitable giving.
1. Most of the $500 million in charitable giving was in the form of direct cash contributions from companies (78 percent). The remaining 22 percent includes estimated employee donations of cash and volunteer hours.
2. Most charitable giving was directed to causes that are widely supported by corporate America, including education (34 percent), health and social services (20 percent), community and economic development (18 percent), and culture and arts (7 percent).
3. In overall charitable giving and impact, the industry mirrors other industries, but more can be done.
4. To deliver maximum impact and achieve greater recognition, companies should alter their approach to giving by:
- Improving the link between business and social goals.
- Committing to causes that utilize unique insurance-related skills. The industry could play a major role in addressing pressing problems where there is a need for insurance knowledge. But right now, only 12 percent of those surveyed consider the ability to leverage corporate capabilities a key determinant in shaping their charitable giving. The report points out that the p/c industry can play a transformative role in addressing some of the most critical, highest-profile problems facing society today, especially around disaster prevention and preparedness.
- Managing charitable giving like any major business investment, by setting objectives, measuring results and raising awareness of charitable giving in new ways (for example, greater use of third-party voices to tell the story).
5. Property/casualty companies will have the greatest impact if they increase collaboration. But only one in seven companies surveyed expressed interest in collaborating more closely as an industry. Concerns include brand dilution and the higher transaction costs by coordinating with competitors. To overcome these reservations, the industry must agree on important causes where it has unique expertise and where it can benefit from scale.
Meeting Both Business and Social Goals
The report said companies can reap benefits by successfully linking business and social goals.
One example the report cites is the case of global financial services company Wells Fargo. While supporting ethnic communities through its charitable programs, Wells also developed insights into new markets that helped its business.
The report cites Wells Fargo CEO John Stumpf who said the bank’s charitable giving significantly accelerated its learning curve on branch design in ethnic neighborhoods. “When we build in ethnic communities, we build ethnic stores. Might we have gotten that concept without our community outreach? Maybe, but we wouldn’t have gotten there as fast,” according to the Wells Fargo CEO.
The report also shows how Citigroup uses its banking expertise to reduce financial vulnerability and improve economic self-sufficiency in emerging markets. The company now offers customized financing for micro-finance and micro-enterprise programs in 60 countries. A company’s unique expertise or knowledge can be more highly valued than cash by beneficiaries and is often more advantageous to the donor, the report said.
In the insurance sector, the McKinsey report highlighted a global insurer that created micro life insurance products that offer low-cost protection to rural communities in developing countries. The report said these products benefited the local market by making insurance coverage available for the first time. It also benefited the insurer’s business by allowing the insurer to develop new types of coverage.
IICF CEO Ross said there are numerous good examples of the insurance industry working together with community organizations. One example is St. Baldrick’s Foundation, a nonprofit children’s cancer research group that is funded by significant donations from insurance executives. There is also a longstanding partnership between the insurance industry and the City of Hope, a medical research center.
The insurance industry is also a major provider of support during natural disasters, Ross said. “The industry steps forward very quickly with support philanthropically beyond their claims operations.”
Sharing Skills and Knowledge
The insurance industry has a very dynamic set of skills and knowledge, Ross said, “and they should share this knowledge and leadership more freely in their role as community leaders and good corporate citizens.”
Adam McDonough, CEO of insurance broker Lockton’s San Francisco operations and a board member of IICF western division, commented that the report shows how much good the insurance industry is doing. But he also sees the need for greater industry-wide collaboration. His San Fransisco office raises and donates on its own upwards of $50,000 a year.
“If members of our industry come together and work together for a set of common causes, there would be greater visibility both within and without the industry,” he said. “If we were to unite around common causes, we would have a greater impact on our communities.”
Communities need help especially in these times of economic uncertainty, McDonough said. “In times like this, we should be grateful for the opportunities that we have and the employment that we enjoy. We are very fortunate. We are employed. We are successful. We need to give back during these times more so than during times of economic prosperity.”
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