Insurance company boards of directors have changed over the last decade, with golfing buddies making way for actuaries, accountants and even underwriters, said several board members and executives at a recent insurance symposium.
Executive SummaryInsurance company boards of directors have changed over the last decade, with golfing buddies making way for actuaries, accountants and even underwriters, said several board members and executives at a recent insurance symposium.
This is especially true for middle-market and small carriers, said John Baily, who serves on the boards of property/casualty insurers, including Endurance Specialty Holdings and RLI Corp. “We didn’t see that 10 or 20 years ago,” he said, referring specifically to the appearance of “people that have actually written the business” among directors.
Baily, who was speaking to executives and students during a session of the St. Joseph’s University Insurance Financial Symposium last fall, said that board appointments still have a “trophy-esque” character at large companies, where recognized names are still in demand. At the middle-market level, however, “the tone in the boardroom has changed dramatically,” and skill sets in actuarial work, accounting and underwriting are becoming more apparent on director rosters, said Baily, who was himself formerly an audit partner at PwC.
Eric Simpson, a senior vice president at Towers Watson, who leads Americas Practice for Enterprise Risk Management, moderated the panel and set the stage for a session that would examine the dynamics of how company managers and directors “intersect in the board setting.” After observing that boards have become more engaged in vetting and challenging the strategies undertaken by carrier management teams, Simpson turned to Sean Sweeney, a former executive at Philadelphia Insurance Companies, asking the executive to share his view on how corporate governance has changed in the property/casualty insurance industry.
“It has stepped up significantly in response to the Wall Street fraud we’ve seen over the years—and appropriately so,” Sweeney said. “Boards, for many years, were just clubs of executives that came once every quarter and went and played golf,” he said. “They have now significantly changed and have responsibility to actually be involved in what the company is doing.”
(Editor’s Note: When Sweeney spoke at the Symposium late last year, he was president and chief operating officer of Philadelphia Insurance. He has since left the company for personal reasons.)
Speaking about Philadelphia Insurance specifically, Sweeney described the carrier’s board as very active and involved with strategic planning. “I think the board appreciates being part of helping to run the company,” he continued, stressing, however, that “it is still the senior management’s responsibility to run the company. “It’s a win-win for everybody when they’re actively involved—not only making sure that the organization is doing the right things today, but most importantly, what’s it going to look like five or 10 years from now. That’s really what boards can help companies with.”
While Baily highlighted the increasing amount of insurance industry experience and expertise in key operational areas showing up in the bios of carrier boards of directors today, he was quick to take issue with Sweeney’s view that boards are—or should be—getting more involved in strategy. “There is still great consternation on the board as to where do we step over the line into management as opposed to oversight. I think all boards are struggling with that,” he said.
“You’re absolutely correct. Strategy has become a big topic,” he said. But I’m not convinced how effective boards are on that really. It is awfully tough to come through few meetings, get a [big] packet of materials…You can have some input on strategy, but it’s still management’s strategy that you’re trying to oversee.”
Mary Hennessy, who has served on the boards of insurance carriers such as GeoVera Insurance and Global Indemnity, and also served as a senior executive for GMAC Insurance, Overseas Partners Ltd., and TIG Holdings, offered both director and executive perspectives.
“As somebody who has operated companies and who grew up in the business as an actuary by background, it is a struggle at all times” now as a board member “to keep hands off” business management decisions—“to stay at the right level, to basically ask the right questions, and let management succeed or fail,” Hennessy said.
Recalling her prior experience as a CEO for a number of companies—“most of the time, associated with turnarounds,” she offered a management perspective as well. “You don’t really appreciate a board until your business is in trouble—until something has gone on so that you really need the higher level perspective.”
“That’s when the board really earns its keep,” she said, noting that board members who have had prior p/c carrier management and operations experience in the business can offer a “macro perspective” to help current management teams navigate through tough times.
Hennessy stressed that it most important for board members to be asking the right questions. “That’s the purpose of the strategy discussion as well. We don’t know at the grassroots [level] as well as management does what is going on in 50 countries or 25 lines of business, or what the latest CLIPS survey shows about pricing,” she said, referring to Commercial Lines Insurance Pricing Survey published quarterly by consultant Towers Watson.
John Baily, insurance company board member
“But we do know enough to ask: How is it that you’re growing when nobody else is? Or how is that you’re writing this line of business and booking a 60 percent loss ratio and the everyone else in industry is booking an 80? Or why is it that when entire industry is pulling out of workers’ compensation in California, we’re suddenly starting to write it? What are we doing that’s different?”
“That’s what a board needs to do—not roll up their sleeves and say let me help you write business,” Hennessy said.
Philip Bancroft, chief financial officer of ACE Group, underscored management’s deeper day-to-day knowledge of the business when Simpson asked for his view of governance changes and about how he prepares for appearances before the ACE board of directors.
“The biggest change I see from the inside is what we do in terms of risk management. Our philosophy has changed over last 10 years,” he said, noting that ACE’s CEO has full responsibility for ERM, delegated through the executive committee.
“Our company is in 53 countries [and] we have all manner of p/c, accident-and-health and life products…That’s a complicated matrix to understand,” Bancroft said. To deal with the complexity, ACE has developed what he termed a “risk chamber,” going on to describe a rigorous chamber process that takes places every quarter—bringing together senior managers responsible from ACE’s various divisions and corporate executives to discuss issues emerging around the globe.
Mary Hennessy, insurance company board member
“We will work 10 hours a day for three days as we go through each business,” exchanging views about risks ranging from sovereign risk in emerging markets to concentrations of catastrophe exposure. “There are just a large number of risks taken into consideration, not to mention what’s the next asbestos,” Bancroft said. “It’s a very serious part of what we do as senior management.”
Baily said another governance change for the industry has been the formation of underwriting committees on some carrier boards, which he said are typically led by someone out of the industry who really understands underwriting. “Boards where I have seen this have been effective,” [but] the danger is you get too far out into the weeds,” he said, echoing Hennessy’s comments. “They are most effective when they ask questions, such as: ‘Why are we getting into this line in the state of Florida? Do we really want more exposure there?”
Such committees move too far, perhaps, when they begin to look at rates, he said.