It has been three short months since I accepted the challenge of putting together carrier-focused content for the new website we are launching at Wells Media—CarrierManagment.com.
Executive SummaryAs CarrierManagement.com launches to deliver the big picture of leadership and management to C-suite executives and directors of property/casualty, we invite members of our target audience to weigh in on a big-picture question about strategy.
For those of you who don’t know me already, my professional background includes a 17-year career as a journalist covering the property/casualty insurance industry, and a 14-year career before that as a casualty actuary. Seemingly separate worlds, many people think.
In fact, however, they intersect quite often—as they did late last year at a small conference on the campus of St. Joseph’s University in Philadelphia, where experts knew from both areas of my former life came together on a common stage. Among the speakers were two former auditors from PwC—a place where I had worked alongside them as an actuary. Also presenting her views was a former actuary who I knew from my days at National Underwriter magazine when I interviewed her to report on developments at an insurance company where she held a senior management position.
It wasn’t my familiarity with the speakers that prompted me to sign up for the event, however. Rather it was promise of hearing a free exchange of ideas between senior level executives and members of the boards of directors of property/casualty insurers about topics we would be addressing on CarrierManagment.com.
The former actuary and executive, Mary Hennessy, has since served on several boards of directors, as has John Baily, a former PWC audit partner. The other former PwC alum, Phil Bancroft, now holds the position of CFO of ACE Group.
Joined by Sean Sweeney, the former CEO of Philadelphia Insurance, the foursome delivered on the promise of openly exchanging their views on topics including the changing role of boards, loss reserving issues and the emergence of predictive analytics in commercial lines underwriting.
While it has actually been quite some time since the event, their insights remain so relevant to our mission here at CarrierManagement.com that I chose to post three articles about their discussions on the day of our launch, setting the table for what is to come. (See related articles links below this article.)
Like the Symposium, our website is intended to be a place where directors and C-suite officers can share big-picture thinking about significant issues and developments impacting their strategies—sometimes through the interpretative words of journalists, and at other times by simply delivering their own thoughts in columns and forums that we plan to publish here in the years ahead.
Offering my first official invitation to our readers to share their own big-picture thinking, I decided to focus in here on one of the more interesting questions discussed at the Symposium:
Is strategic planning effective at insurance companies?
To help you decide, here’s is what the speakers said at the Symposium, giving boardroom and executive perspectives on the question.
John Baily, board member for Golub Capital BDC, Endurance Specialty Holdings and RLI Corp.; former audit partner PwC: If you look at some recent surveys from audit firms, most board members say the answer is no. This is not one of the strongest areas that boards have had oversight on.
I have been on a number of boards and it’s all over the lot. Some are very good, with a lot of thought put to them, and some are saying, “Let’s keep doing what we’re doing.”
I don’t think it has anything to do with company size or sophistication. I just think it has to do with an attention factor by management maybe. It’s easy to get your own insular “let’s do what we’re doing” kind of thinking.
John Baily, insurance company board member
There’s always great consternation on the board as to where do we step over the line into management as opposed to oversight. And I think all boards are struggling with that.
Strategy has become a big topic, 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, but it’s still management’s strategy that you’re trying to oversee. And the real tendency in strategic planning is to overload the board with stacks of material or so many that computer files that it chokes your iPad.
Mary Hennessy, a former senior executive for GMAC Insurance, Overseas Partners Ltd., and TIG Holdings has served on the boards of insurance carriers such as GeoVera Insurance and Global Indemnity, and is vice chair of EagleEye Analytics: I think there are two structural problems that face managements as they’re putting plans together for the board.
One is that these are often tied to compensation. [The charge to management from the board] isn’t just do the strategic plan. It’s we want to see the three-year plan and we’re going to tie your long-term and short-term compensation to it.
I think it’s hard for some management teams to think out of the box when that’s happening, and for some boards not to ask for more growth or to ask, ‘How are we going to increase our stock price?’
Second, the business is so increasingly complex. There is so much more for senior management to do that I think it’s very hard for them to get out of the weeds. And they’re dealing with some significant issues.…It is a very tough market to operate in out there. The competition is tough. And you have to keep your finger on the pulse of everything at all times. So the ability to jump up a level and say, “Now I am going think strategically, I’m going to think about what’s going on and what my competitors are doing and what the long-term trends are”—oftentimes you just run out of time or you just can’t give it the attention that you really want.
Mary Hennessy, insurance company board member
On some boards I am on, what we’ve done is said management: “What would you do if we gave you $5 million (if it’s a small company; if it’s a big company maybe $50 or $100 million). You don’t have to worry about what that’s going to next year or the following year in terms of return, but maybe three years from now. If you had a pool of money that you could use, what would you use it for? Would you use it to make acquisitions? Would you use it to go hire 50 talented underwriters?”
We want to get management to think outside the box, and not just come back to us with, “Last year we had 10 percent more revenue, 25 percent more in margin.
Sean Sweeney, former executive of Philadelphia Insurance: I think in America that boards and senior management are just handicapped by the rules of the game. Strategy by definition is a long-term plan of action. And in America, when you’re a publicly traded company, every 90 days you have to report to Wall Street and tell them what happened. And if you miss whatever they’re thinking, you’re going to get crucified.
No question about it, strategy gets shortened to “How am I going to make this next quarter” to the detriment of a long-term plan of running the entire organization.
We were public from 1993-2008, and you had a gun to your head and a knot in your stomach every 90 days just praying that your strategy was working. When we got bought by Tokio Marine in 2008, I felt like Nelson Mandela getting out of prison. The reason is in other parts of the world, they look at things in increments of five years [not] 90 days. Let’s build a fundamentally sound business that over the test of time you can make decisions that are ultimately going to add value to the organization.
If we in business didn’t have this constant worry—What are the analysts going to write about us? What’s the report going to look like?—and could just step back and say really what makes the most sense, and look at it in the longer timeframe, then I think you’d see much better results from a lot of companies from a strategic perspective.
Philip Bancroft, chief financial officer of ACE Group: I look at it dramatically differently. At ACE, we have separated the budget process—next year’s budget, what are we going to do and where are we going to guide to for our analyst community—as one part of the puzzle. We completely separate the concept of strategy.
There are many different strategies you can take. Many of our peers are buying back shares because they believe that’s the best option for them. That’s not our view. We see an awful lot of opportunity around the world. There’s been financial stress [that’s] created an opportunity to acquire. We’ve acquired about $6 billion worth of assets over the last four years.
Our broad strategic goal—not what we’re going to do next quarter, but our broad strategy—is that we’re going to grow organically and we’re going to grow through acquisitions where they have industrial logic in the sense that they fit with our business. We’re not going to buy a company so we can take it apart and make a financial gain. We’ll buy a company that [might be] a bolt-on acquisition in New Zealand or it brings us capability or management expertise—for example, in a small, middle market space where we don’t have an expertise.
Philip Bancroft, CFO, ACE Group
My point is we think about those things once a year and we develop a five-year plan about where we want to head. We bring the board into that conversation, and they either agree or disagree. But generally, we’re bringing this to them. They’re not asking, “If I gave you another $50 million what would you do with it?” We’re saying here is our vision.
So I don’t feel the issue at all of any regulatory, rating agency restriction that’s hurting us or limiting us from a strategic standpoint, and I don’t feel the quarter-to-quarter pressure because we’re not telling them what we’re going to earn in five years when we implement all these plans.
Now I’ll turn the question back over to you. Do any of these opinions strike a chord? Is strategic planning effective at the management and board levels of insurance companies? How do you execute on your vision?
Welcome to CarrierManagement.com. Feel free to share your thoughts in our comment section, or write to me directly as email@example.com.
One final note. My invitation to St. Joseph’s University Insurance Financial Symposium came from Michael Angelina, executive director of the Academy of Risk Management & Insurance at the University, and formerly the Chief Risk Officer and Chief Actuary of Endurance Specialty Holdings. According to Angelina, the Insurance Financial Symposium was the first in a series bringing together industry experts and exposing students to senior executives operating in the business. The second Symposium, “Ethics in the Insurance Industry” took place in February, and the third Symposium—on insurance regulation—is scheduled for Spring 2013.
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