From Resource, November 2003 
Copyright by LOMA

CEO Panel: It's a Complex World

At the LOMA Annual Conference, a CEO panel explored industry restructuring, the impact of the Internet and other key issues.

By Ron Clark

CEOs in today’s fast-changing insurance and financial services industry face many complex issues, such as industry restructuring, outsourcing, the impact of multinationals, the Internet, customer relationship management and more. Attendees at the 2003 LOMA Annual Conference in San Antonio heard the CEO perspective on these and other issues during a panel discussion by four members of the LOMA board of directors.

The panelists included: LOMA Chairman David M. Holland, FSA, MAAA, President & CEO, Munich American Reassurance Co.; former LOMA Chairman John O. Gilbert, Chairman, Thrivent Financial for Lutherans; and board member Mary L. Holloway, CLU, ChFC, Vice President, Life & Health Operations, Nationwide Financial. LOMA’s President & CEO, Thomas P. Donaldson, FLMI, CLU, moderated the discussion.

The panel first discussed the outlook for employment in the industry. Despite current economic doldrums, the prospect for industry careers is still good, although overseas outsourcing of IT and call center jobs is getting attention in the news media. However, the panelists said the reality is that the financial services industry, and indeed society in general, is becoming global.

"That is not going to change and I think companies need to focus on what are the core job functions that we want to retain," said Holloway. "The reality is there are expense challenges that are becoming more and more intense, and there are probably jobs that make sense that we outsource to other countries." However, if a company finds itself in a situation where it needs to outsource, it should first ask, "Are we doing everything possible to make sure our processes are as efficient as possible and are we doing it at the lowest cost possible?"

Holland said world trade is always a big and curious issue. "There are some very definite cost advantages to international outsourcing, I can understand why companies will address this from a cost point of view. This isn’t different from moving an office from New York to Lancaster, SC or from Chicago to Nashville, or some other place where there is an opportunity to operate at a lower cost. On the other side of the equation, companies have to look at enterprise risk management—what will face them from the outsourcing decision if you have mission-critical applications?" Holland asked what happens if you entrust those applications to another part of the world, and there is a terrorist action or possibly a war, referring to tension last year between India and Pakistan.

Multinationals

Regarding the impact of multinational companies entering the U.S., Gilbert said the fact that these multinationals want to come to the U.S. shows that they do see opportunities that domestic U.S. companies may be overlooking. "This (the U.S.) is a great market, it’s one that others see as a great market. We have to look at the opportunities here, and clearly there are opportunities." But these won’t be developed in the same way they were done in the past, Gilbert added. Holloway said multinational competition is a reality, and the issue is, "how do we become more effective—there’s always going to be competition, from all over the place."

The panel touched on the U.S. health care issue. There is little one company can do to help contain health care costs, they agreed, adding that there needs to be a national public policy debate in the U.S. The need for health care reform is not going to go away, there are too many people without health insurance. "The industry needs to be at the table to find a final solution," Holloway said.

Gilbert said costs of health care will become a major moral and ethical dilemma in the future in terms of what treatment should be provided. "There can’t be just a bottomless pit of dollars going to health care costs." However, he added, "I’ve dealt with it personally, and it’s different to talk about it as problematic issue rather than to talk about it affecting someone in your family."

The panelists turned to the impact of the Internet and technology. Holloway said "life insurance is sold, it is not bought, and face-to-face is important." Insurers in general have not made their products simple enough to sell on the Internet, although there has been some success with term life.

Holland said consumers are becoming more sophisticated and the Internet makes it much easier for them to find information, "and that’s a good thing." Many companies now focus on high-net-worth individuals, Holland said, "but I’m concerned there is a large population that is underserved, and technology could be helpful." For example, the current application process can be lengthy, but Holland discussed technology developed by some organizations that look at credit reports, medical records, etc. that could allow almost instantaneous issue of policies for the underserved, smaller policy markets.

Gilbert said he does not think that a significant amount of insurance will be sold on the Internet, but the younger generation uses the Internet extensively, and it’s a preferred means of getting information. The web allows consumers to become much more knowledgeable and "ultimately that serves us all better if people are informed."

The panel turned to the question of financial supermarkets. Holloway referred to the merger proposal between Manulife and John Hancock, and predicted consolidation will continue.

Holland said different people like different things; some like the big malls, others like specialty stores, and the same is true for how they feel about financial services providers. "There will be consolidation, that raises possibilities for regional companies that will stress products in certain areas, and we will see a variety of companies to meet the needs of consumers."

Gilbert said, "One-stop shopping for financial services has been tried for many years, in many forms, but it isn’t a panacea…however it provides an option. Maybe it’s better in banks than in insurance companies." In the bank area, Gilbert added, some smaller boutique banks are filling a gap that the mega-banks have created.

Gilbert said his company is in a niche market, the nine million Lutherans in the U.S. His company also has a bank and mutual fund operation, but does not sell proprietary property & casualty insurance products. ‘We’re in many segments of the financial services industry, but we don’t cover the whole spectrum. We’ve made changes over the years to respond to the changing marketplace in a way that we think makes sense to us."

The panel discussed customer relationship management (CRM) initiatives. Holland said as an industry there are times when we need to focus on the bottom-line rather than market share. He said if a company tries to sell many product lines, (such as what might happen with a combined bank and insurer), there can be issues. "Can one company be best of brand in every type of product someone needs? You have to decide if you want to do it all yourself or put together a network of alliances to meet peoples’ needs in different ways. But certainly, the focus has to be on the customer."

Holloway said in looking at CRM and systems, there has to be a focus on the bottom line. Companies need to make sure they get the benefits that they intend. "How you price products, what systems you choose to build, really now has to be done much more diligently, with detailed cost-benefit analysis, not just intuition."

Gilbert said his company is in a unique position, "we virtually know the names of the nine million Lutherans that are our market, and we certainly know the names and addresses of the three million people in our organization. We try to find where the greatest opportunities are for us in both the short-term and long term." If we’re going to serve a niche market, "we’re going to know that market better than any other organization. So customer relationship management looms large in our organization."

The panel addressed what they saw as the greatest human resources issues facing the industry. Holloway said she thought the greatest issue facing the financial services industry, and indeed many other industries, in light of consolidations and downsizing, is lack of confidence by employees that they are working in the right organization. Downsizing she said, "changes the relationship between employee and company." Companies must get that confidence back, she said, and show that "in particular, the financial services industry is a great place to be, it is a great business."

Holland said consolidation has been going on and will continue, but there will be a variety of sizes of companies. "We have to have talented people to run the companies. From an HR point of view we really need to have the best and the brightest. We have to provide for them and see that there is a good future in the insurance industry. I certainly believe there is." But, he added, people will need to adapt and evolve as the industry changes. LOMA has been excellent in adding programs to help the industry deal with changes, he said.

Gilbert said the sense of urgency in the industry today "requires behavior fundamentally different than what I saw 38 years ago when I began my career, or even 10 years ago. We’re on a different path that requires more attention to efficiency and effectiveness, and one that gets into many of the questions we’re addressing here today, such as outsourcing."

He said one reason his company took its legacy system maintenance to India was to "use our internal, domestic resources for new applications and for what we think is the excitement of the future…we’re affording our IT people exciting opportunities."

The industry today "is requiring employees to change and do things in different ways. The bar is being raised. We’re in a long-term business. We’ll make promises tonight on a newborn baby that we may not pay for 100 years. That makes our business fundamentally different than those that can be driven by short-term decisions."

Gilbert emphasized that maintaining the strength of an organization means that things are going to have to be done differently than in the past. "Those of you who have kept up through the LOMA education programs have done a very important thing, because if you don’t stay current, you are losing ground, because the world is moving on."

The panel concluded with a discussion of the meaning of success. Holloway said this "is a great business to be in. There is a lot of potential." To be successful she said, you must adapt to change, position yourself for that next position. Make sure the skills you have are transferable.

Holland said "there is work and then there’s why we work." The most important thing for managers is to put someone in a job they enjoy, he said. "If you do that, the performance is going to be wonderful."

Gilbert said you can have ideas but if you can’t communicate them effectively, you might as well not have the ideas. Communication is very important. "What constitutes success? In my career, my philosophy has been that you can’t deal with the future, you can only deal with what you do today. I tried to do the best possible job I could do in each job I had, and not worry about what tomorrow might bring….what we have control of is this very moment." 

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