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An Interview With Nick Gerhart (Part 1)

I recently sat with Nick Gerhart to discuss the regulatory environment for U.S. insurance carriers. Nick offers a broad perspective on regulation based on his experience: After roles at two different carriers, Nick served as Iowa insurance commissioner, and he currently is chief administrative officer at Farm Bureau Financial Services.

Nick is recognized as a thought leader for innovation and is regularly called on to speak and moderate at insurtech conferences and events. During our discussion, Nick described the foundation for the state-based regulatory environment, the advantages and challenges of decentralized oversight and how the system is adapting in light of innovation.

This is the first of a three-part series and focuses on the regulatory framework insurers face. In the second part, Nick will provide the regulator’s perspective, with a focus on the goals and tactics of the commissioner’s office. Finally, in the third installment, we will cover the best practices of the insurers in compliance reporting.

Part I: The Regulatory Framework

You served as the chief regulator in Iowa: How do regulatory practices in Iowa compare with other states?

Every state essentially has the same mission. Iowa has one of the largest domestic industries, so we have to focus a lot on the issues that go along with having a lot of domiciled companies. We have over 220 companies domiciled in Iowa. I believe that is the eighth most in the country; therefore, we are a top-10 state in the number of domiciled carriers. So, how we focus may be a bit different than if we only had a handful of domestic carriers. Due to the number of companies domiciled in Iowa, we must have a technical skill set and ability to completely understand the all facets of the industry.

Level-setting: What are the goals of the office of the insurance commissioner?

First and foremost, the goal is to protect the consumer. You do that through monitoring a company’s solvency and financial status. You also make sure that companies are following rules and regulations and all the laws on the books.

A lot of folks don’t recognize how complex that regulatory framework is, so you really spend your time not only on financial solvency but also on the market side, making sure that rules are followed.

See also: Time to Revisit State-Based Regulation?  

Even if a state has fewer companies domiciled, is it still interested in solvency? Or is this outsourced to the state of domicile?

That’s a good question. There are two sides – the financial side and the market side. On the financial side, there’s great deference to the lead state. For instance, if you are the lead state regulator of a group that is doing business in multiple states, there will be great deference to that regulator and his or her team that is reviewing those financials and that file. Any regulator can check and have their own views, obviously. But, there’s going to be great deference to that lead state.

Is this the same for market conduct?

On the market side, there’s not nearly as much deference. In fact, while I was commissioner, the NAIC was undertaking an accreditation standard for the market side. On the financial side, every state is accredited by the NAIC. And through this process, there’s much more cohesiveness and deference to that lead state. That doesn’t exist as much on the market side.

So, backing up a second, I’d like to touch on the topic of state-based regulation vs. federal regulation. Is this the right way to regulate this market?

I think it’s a good thing, because it’s local. A lot of insurance is local.

The feds have done a lot of work – whether it’s CMS, the Department of Labor or Treasury – that encroaches on state insurance regulators. I submit that this encroachment creates confusion and is counterproductive. I personally do not believe a federal regulator is going to do a better job and, in fact, believe it would lead to poorer results and hurt consumers. In my opinion, the federal government did not do exemplary work during the financial crisis, and I believe insurance regulators actually performed and executed quite well during that financially stressful time. In looking at that crisis, I have concluded that I do not want federal regulators or prescriptive banking standards forced upon the insurance industry.

State insurance commissioners are either elected by the people they serve or are appointed by a governor or other official or agency head. Those are held accountable at that local level and are part of the communities they serve. On countless occasions, I was stopped by people and asked about insurance issues. It would be very difficult to get that accountability or access if insurance were regulated at a federal level.

Are there areas where the states could improve?

There are some areas: They can do a better job of working together on the market side. But that’s why the National Association of Insurance Commisioners, the NAIC, exists – to create model laws that will create more uniformity across all states. And again, the states have done a tremendous job on the financial side.

The market side has more room to improve –  at least as far as coordination. Regulators have made tremendous progress in recent years, though. In the last six years, by collaborating and coordinating through the NAIC, monumental modernization has occurred. As an example, annuity suitability, ORSA, principal-based reserving, corporate governance, credit for reinsurance and now cyber model laws have all been created and passed in numerous states. Passing a model law out of the NAIC is important because it provides a state a solid model to guide through the legislative process.

What is the downside of state regulation?

There are certainly challenges with the state-based system. One is, at the state level, having resources to do the job. The state of Iowa is really an international regulator as we’re the lead state for Transamerica/Aegon and group-wide supervisor for Principal Financial. We have firms in Iowa with significant international footprints, so Iowa regulates alongside international peers from all over the world. I believe it is critical that Iowa resource the insurance division appropriately, as limiting resources too much ultimately hurts the ability to regulate effectively.

After resources, I think the biggest challenge for states is uniformity issues. An emerging challenge is keeping up with all the technological advances and innovation emerging from the insurtech and fintech area.

Is regulation keeping up with innovation?

Whether or not the old regulatory framework is still relevant today – I believe we will soon have a debate around that and how to modernize. The use of data is going to be a challenge for regulators, whether it’s genetic testing in life insurance or some other topic. There are a lot of issues in the innovation space that regulators are going to have to step up and meet because, if consumers demand change, the answer shouldn’t necessarily be, “We can’t do that.” Maybe we need to look at the rules and the laws and make a concerted effort to modernize.

Over the years, a number of people have come into my office frustrated at the limitations of the current rules and said, “That law’s stupid.” I have to inform them that just because it is illogical doesn’t mean that you can get rid of it. That’s not the commissioner’s job. The legislature passes the laws. The commissioner interprets and enforces the laws. Commissioners do not pass the law, so, when individuals are frustrated, often that frustration is misplaced.

See also: The Coming Changes in Regulation  

All in all, you would say that state-based regulation is the better answer?

I would put the state system up against a federally based system any day.

At the same time, we are the only country, to my knowledge, that has 56 different jurisdictions regulating insurers. Every other nation has a federal one. This poses challenges for international groups; certainly, some reinsurers are facing these issues. It is for that reason that we must coordinate better and speak with a unified voice.

As I have said, I do think the state system is remarkably better for consumers. When I was commissioner, the phone number on my business card went right to my office. I talked to consumers every day who called me directly. I would answer my phone, and they would be shocked that I would answer. There is genuine appeal in that.

When something goes wrong, insurance quickly becomes very personal. Sometimes, it’s bad things happening intentionally or willfully, while other times it’s just misunderstandings. Insurance is incredibly complex. I’d much rather have a system where there is accountability at the state level. You have people working for their citizens whom they go to church with and see around the state.

That’s a much better system than a federal bureaucracy that might have 10 regional offices where it’s impersonal and you have no idea who in the heck you’re talking to.

Continued….

We Need to Talk About Our Call Centers

I started my career in insurance at the same place where most of our millennials are starting theirs, in the call center. In my case, it was a Farm Bureau claims call center in the beautiful suburban campus in West Des Moines, Iowa. I didn’t know it at the time, but I got really lucky. That call center was very well run by enlightened leaders who realized they were training the future leaders of the company.

As early as the interview, managers told me that this call center was different. They understood that most of the new talent coming into the company would start in this department, and they had been instructed to engage and train those young professionals, so they would grow into productive employees not only during but after their time in the call center.

They said they wanted me to spend two to three years in the call center, while learning as much as possible about the company and the insurance industry in general. After that, I’d be expected to start applying for positions beyond the phones. The department also required each individual to obtain the Associate in General Insurance (AINS) and the Associate in Claims (AIC) within the first two years. Failure to comply with the educational requirement could lead to termination.

The way the call center functioned on a day-by-day basis was also quite engaging. Reps were trained well and supported in their efforts to grow their career (even when it meant time away from the phones for a class). The call center answered all first notice of loss calls for both personal and commercial lines claims, so it was not overly specialized; there was lots of variety on the day-to-day work. You’d get to keep the simple claims and work them to completion, acting as real claims adjusters. This resulted in great customer service, as roughly 40% of all calls would be answered by the person ultimately handling the claim. The approach also resulted in lots of employee growth.

Even the way that managers measured performance was not bad at all for a call center. While they did measure the amount of time you spent on “After Call Work” and “Unavailable,” it wasn’t the main thing they cared about. To the best of my knowledge, they didn’t measure the dreaded “Time on Call” that most call centers use as their main measure of productivity. The main thing that counted in this particular call center was the number of new claims you took and the percentage of those that you kept.

At the end of every week, management would send out a list of the top 10 reps who answered the most calls and kept the highest of those calls. I was almost always in the top two for both categories, and enjoyed the friendly competition. Because the list only included the top 10, not the bottom ones, people weren’t offended by it; it was a very positive thing. Management also included in the weekly newsletter a congratulatory mention of everyone who had passed an insurance designation test.

While at times the call center could get hectic, the overall environment was very supportive of employee growth, and nobody seemed to hate the job. Eight years later, most of the people I worked with in that call center are still in insurance, and none of them are still call center workers. Many stayed in claims. Many are still in the same company. That’s a successful insurance call center in our book! It was such a great place that I was sad to leave when I got an offer for a better claims position at Nationwide, which ended my call center days.

Sadly, I would find out as I met many other young insurance professionals that great insurance call centers that focus on developing their people are rare. Most are simply awful places to work, and, while nobody seems to be keeping statistics publicly, we have found 20 horror stories for every positive one.

There are many conferences about insurance, and none seem to be talking about our call centers. The CPCU Society Annual Meeting and Leadership Summit has not had a single session about call centers in at least the six years I have been involved. It’s almost as if those call centers didn’t exist! Or, more likely, the leadership just doesn’t view them as really being insurance.

It’s like the call centers are the black sheep of the insurance family that nobody wants to talk about!

A huge portion of young insurance professionals in the 2010s started their insurance careers in a call center type environment. Most of them already had college degrees (and the associated student loans). Like previous generations, they fell into insurance by accident, but, unlike previous generations, they won’t stay out of loyalty or out of having found great careers. If we do our job right and engage them in the industry, they’ll grow. If we don’t, they’ll leave the industry, and we’ll continue having a huge talent gap.

We’re not saying that we should close all the call centers and go back to doing business exclusively in the old-fashioned way. We understand that our expense ratio will not allow us to do that in the age of price transparency and incredible competition for every insurance customer. What we are saying is that we need to realize that, in many cases, the call center is our only touch-point with the customer, and we should be making them love their time with us. Maybe even more importantly, the call centers are our new entry level point for new talent, and given the talent crisis, our bad reputation with younger generations, and the high expense of replacing any employee, we need that talent to grow with us.

See also: How to Reinvent Call Centers  

Based on the horror stories we’ve collected from conversations with fellow young insurance pros who survived some time in the call center and lived to tell the tale, here’s what many (but  not all) of the insurance call centers are like to work in:

You have to be logged in to the phones every minute you are in the office and are not allowed to even be in the office outside of your work hours. There are rows after rows of grey cubicles, packed with unhappy 25-year-olds with their college degrees hanging precariously from the cubicle wall and the headset making a semi-permanent mark in their ear.

Engagement is so low that it could better be measured in level of desperation. Turnover is high, with the great majority leaving not only the company but the industry and swearing they’ll never work in insurance again. The reps who haven’t quite given up on the industry yet are applying desperately to any open entry-level position that’s not a call center. It doesn’t matter if it’s claims, underwriting, processing or subrogation. Anything will do just to get off the phones! There’s so many applying for the same jobs with essentially the same resume, college degree and one to two years of insurance call center experience, that’s it’s very hard to differentiate among them, so hiring managers mostly just reject them without an interview. Some have been told directly that “we don’t hire from the call center.”

They are measured on 50-plus different characteristics, so many that it’s impossible to actually focus on improving. Who can control that many different minor factors during each phone call? The most important measures tend to be Time-on-Call and Availability. The first one measures the length of the average call, with the goal of keeping it as low as possible, and the second one measures the percentage of the time they’re available to take calls. In some extreme cases, even mandatory team meetings count against you the same as time spent in the restroom counts against you.

Performance evaluations are focused 100% on metrics and very little on your own growth or what you need to do to get out of the call center. Most of the supervisors are former call center reps themselves who only know the call center life. They often don’t know anything else about the company or the industry and can’t serve as good mentors even if they wanted to.

Professional development is encouraged by the company, but development time allowed by the department is very limited or completely non-existent, leaving it to  the employee to do all growth activities outside work hours. A case could be made that a motivated employee can grow by investing his own free time into activities like insurance designations, Toastmasters and networking, but most have no previous insurance experience and no advice on what they should be spending their time doing to grow with the company. The only thing they know is that they don’t want to be on the phones, and they don’t want to become call center supervisors either.

We have even heard stories of call center employees being denied support in getting their basic insurance designations because they’re not required for the call center job the employees are doing. Some are denied even the ability to participate in activities such as Toastmasters or a young professional group because those meetings are in the office, and Human Resources doesn’t want employees to be in the office outside of work hours.

There are better ways to run a call center. Not only should others learn from the example of the Farm Bureau Financial Service center where I worked, but there’s even more that we can learn from the best-run call centers outside the industry.

Look at Zappos, which was founded on the crazy idea of selling shoes online. Think about that one: Shoes are the kind of thing that absolutely has to be tried in person, and, when you go shoe shopping, chances are you try multiple shoes before you find a pair that fits just right. Zappos succeeded selling shoes online by doing two things differently: The company will ship you as many shoes as you want, and then you can try them and keep the ones you want, returning the rest. Zappos will cover the shipping both ways.

The second thing Zappos does is provide amazing customer service. To provide that service, Zappos runs large call centers staffed by very happy employees. How does it keep call center employees happy? By doing things diametrically differently from most other call centers (including insurance call centers).

The hiring process consists of several interviews, mostly looking for personality fit. The HR rep conducting the first interview tries to simply figure out if this is a person he would want to work next to for 40 hours a week. Skills are much less important — skills can be taught. During the hiring process, Zappos makes it very clear that the great majority of positions are at the call center, and, if you take the job, you’ll be answering the phones for a long time.

Every new employee, regardless of position, must go through the call center training. You can be hired for a vice president role and on day one you get to go to your new office to set your stuff down, and then you come back down to train for the call center with everybody else. After finishing training, everyone gets to work the call center for a couple of weeks before going on to the job they were hired for. This guarantees that all the leadership knows what the call center is like. Currently, in insurance, there are very few, if any, senior executives who came from the call center, partially because those call centers didn’t exist or were much smaller when those executives were starting their careers.

After their first couple of weeks on the phone full time, all new Zappos employees get called into a huddle room with their manager. The conversation includes giving the employee real feedback about her performance in the call center. Then the manager reminds the employee that most jobs at Zappos are at the call center level and that it’s hard to move to a different area. Finally, the manager says something like “Charlie, I’ve got  a check in your name for $2,000. I want to pay you to quit. If you don’t love the job, take the money, and we can part ways, no hard feelings.” Zappos does such a good job in hiring, orientation and training that only 2% of people take the offer.

The way Zappos measures performance is very different from others, too. It doesn’t measure Time-on-Call at all. All Zappos cares about is making the customer happy. That may mean ordering a pizza for a customer who is traveling and doesn’t know where to get a pizza or chatting for seven hours with a customer about which shoes to buy for her prom.

Zappos understands that happy employees lead to happy customers, and that, in a world where your only interaction with the customer is when she visits your website or calls your call center, a call is a huge opportunity to connect with the customer. Zappos understands that a call center is NOT a cost center; it’s a key touch-point with our customer. What could be more important than that?

The insurance industry has a lot to learn from Zappos. As millennials become a bigger and bigger part of our customer base, and they are not fans of visiting an agent’s office, the call center becomes our touch-point with the 95% of our customers who didn’t have a claim in any given year. Also, if the majority of your new employees are starting at the call center level, it’s our only chance to get them to fall in love with the industry and to convince them to make a career here.

See also: Insurers’ Call Centers: a Cyber Weakness?  

For more about the Zappos way, I highly recommend the book Delivering Happiness by Tony Hsieh, the CEO of Zappos. This amazing book will give you a great intro to how Zappos runs its business, especially its call centers. The company also provides guided tours of its offices in Las Vegas. The company provides training and consulting for other companies through its consulting arm Zappos Insights. You can learn more here.

We are strong believers that the first large carrier to figure out how to turn its call centers into talent mines will have a major competitive advantage in the talent wars. Combine that with student loan aid and maybe with opportunities to take sabbaticals every few years, and you’ll create an unmatched employee experience that millennials will not want to leave.

This article originally published at InsNerds.com.