Tag Archives: Fidelity

Does Your Structure Fit Your Strategy?

Balancing growth and profitability is no easy trick as major changes unsettle an industry that has been used to gradual change. “Business as usual” approaches are faltering in the face of generational shifts in customer needs, rising capital requirements, new regulatory burdens, low interest rates, disruptive technology and new competitors. Many companies aren’t getting the results they need from textbook moves, such as fine-tuning marketing programs, updating products, enhancing customer service systems and beefing up information technology systems.

Strategic success now requires a structural response, and companies can’t adapt to current conditions without modernizing often antiquated structures. Before attempting to implement new strategies, companies need to re-evaluate operating model dimensions such as capital deployment, organizational design, tax positioning and governance.

In a changing insurance industry, strategic execution often requires a new structure. We recognize this is easier said than done. Structural impediments take many forms. Some companies lack scale to generate profitable growth under new capital requirements. Others with siloed, hierarchical organizations lack the flexibility to respond quickly to market shifts. Poor technological capabilities often hamstring old-line insurers facing newer, more digitally oriented rivals. And tax reform looms as a potential threat to profitability in certain business lines.

We’ve seen three common industry responses to these pressures:

  • Anticipation of the effects of marketplace trends and make appropriate structural adjustments, clearing the way to profitable growth. For example, life insurer Metlife avoided costly regulatory mandates by selling registered broker distribution to MassMutual and spinning off its Brighthouse retail operations.
    Other companies, including Manulife and SunLife, have made substantive acquisitions to consolidate scale positions.
  • Recognition of the need for structural change, but have yet to carry it out. Some companies have plans in the works, or are debating their merits, opportunistically waiting for the right deal to come along.
  • Hunkering down behind existing structures, making only minor tweaks, and hoping to emerge from the storm without too much damage. For some this is rational because they are constrained. For other companies with more viable options, company culture may be removing certain options from consideration too quickly.

Companies in the first two groups are giving themselves a chance to compete and ideally prosper. But the third group is not making strategy equal structure.

A time for structural change

Most insurers work diligently to improve their businesses across several dimensions. They seek more insight into consumer needs and behaviors, nurture unique capabilities to differentiate
themselves from competitors, modernize products and distribution strategies, and embrace digitization. These are all sound approaches, but are inadequate to address the uncertainties facing insurers today. The familiar “good to great” rallying cry assumes a certain stability in underlying economic and market conditions that hasn’t been the case since the financial collapse of nearly a decade

The crash and its aftermath undermined pillars of many insurance business models. We’ve seen years’ worth of modest industry growth – just over 3% for P&C companies, and barely more than 1% for life insurance companies.

This long stretch of sluggish global growth has pressured revenues and forced insurers to compete harder on price. Persistent near-zero interest rates are squeezing profit margins, especially in life insurance. Moreover, tougher accounting rules are driving up costs while heavier capital requirements weigh down balance sheets
and dilute returns. Compounding these challenges are potentially destabilizing effects of recent U.S. tax legislation on earnings and growth. Taxes may rise for some insurers, an unexpected outcome that could force them to raise prices or find other ways to protect shareholder returns. Substantive impacts may result from falling corporate tax rates, offset by the limiting of deductions for affiliate premiums, limits to the deductibility of life reserves, accelerated earnings recognition and a slowing down of deferred acquisition cost deductions.

Competitive dynamics also are shifting as expanding “pure play” asset managers such as Vanguard and Fidelity block growth
avenues for insurers. Other companies and some new entrants are innovating and experimenting with strategies to disrupt distribution. Still others, including private equity firms, are looking at ways to
change the cost curve through aggressive acquisition and sourcing strategies

See also: Next for Insurtech: Product Diversity  

To be sure, some long-term trends could benefit selected insurers or at very least shift the risks. Longer life spans and the shift of responsibility for retirement funding to individuals may drive demand for annuities and other retirement products.

Many companies are as unprepared to capitalize on new opportunities as they are to meet long-term challenges.

However, many companies are as unprepared to capitalize on these opportunities as they are to meet long- term challenges. Often the problem comes down to scale. Some insurers lack the resources to build new distribution platforms and customer service capabilities in growing markets like group insurance, ancillary benefits and retirement plans. While markets for individual products may be easier for new entrants, establishing expensive platforms for asset management, retirement, and group are more difficult – driving a desire for scale and putting more pressure on sub-scale competitors.

Sometimes the issue isn’t scale but a failure to respond quickly enough as conditions change. Buying habits are changing, notably through online channels (though our research indicates that for bigger and more complex transactions, most people still want help of some sort of “human” interaction before actually buying). It takes investment and experimentation for companies to try and then refine new models. Some companies haven’t built needed assets and capabilities or adjusted to evolving distribution patterns and consumer buying habits.

The ideal response to each challenge and opportunity will vary for each company, depending on its unique characteristics and circumstances. Few companies have the scale to fix all of their problems on their own. In virtually every case, the right solution will involve structural change.

Structural change drives strategic execution

The link between strategy and structure has become apparent to many management teams, particularly in life insurance. Major life insurers are taking dramatic steps to add scale, open new distribution channels, augment capabilities, drive down costs and rev up growth and, where regulation is burdensome or profit-prospects dim, exit geographies and business-lines. Recent
transactions in the sector show the range of structural options to advance strategic goals in a changing marketplace.

As companies recognize that traditional approaches to annual planning, project funding approvals, and technology architecture may be getting in the way of innovation and their ability to respond to changing market conditions in real time, they are rethinking and redesigning core processes to help the company change.

Traditional approaches may be getting in the way of innovation and the ability to respond to changing market conditions in real time.

Sometimes, the best choice is to move out of harm’s way. Companies can preserve margins by exiting businesses targeted for higher capital requirements or costly new accounting standards. For example, Metlife’s 2017 Brighthouse spinoff bolstered its case for relief from designation as a SIFI (systematically important financial
institution) and associated capital requirements. Exiting U.S. retail life insurance markets also enabled Metlife to focus on faster-growing businesses that are less vulnerable to rock-bottom interest rates. As another example, The Hartford recently announced the sale of Talcott Resolution to a group of investors, completing its exit from the life and annuity business.

When scale is an issue, the solution may lie outside the company or in new structural approaches:

  • Some insurers form partnerships to expand distribution, diversify product portfolios or bolster capabilities. Companies also adjust their scale and capital structures through mergers, acquisitions and divestitures. Sun Life paid nearly $1 billion in 2016 for Assurant’s employee benefits business, filling gaps in its product portfolio and gaining scale to compete with larger rivals. MassMutual’s purchase of MetLife’s broker/dealer network in 2016 enlarged the MassMutual brokerage force by 70%, and freed Metlife to pursue new distribution channels.
  • New product lines offer another path to faster growth or fatter profit margins. Several insurers have moved into expanding markets with lower capital requirements, such as asset management. Voya, Sun Life, and Mass Mutual have acquired or established third-party asset management units to capitalize on investment expertise they developed managing internal portfolios.
  • The Hartford recently announced an agreement to acquire Aetna’s U.S. group life and disability business, deepening and enhancing its group benefits distribution capabilities and accelerating the company’s digital technology plans.
  • We also see companies establishing technology-focused subsidiaries, like Reinsurance Group of America’s (RGA) RGAx and AIG’s Blackboard.

Still other companies have moved aggressively to improve their cost structures:

  • Insurers seeking greater financial flexibility have divested assets that require significant capital reserves.
  • An insurer that offloads its own defined-benefit plan to another via pension risk transfer (PRT) frees up capital and eliminates ongoing pension funding requirements. Other cost-saving moves focus on workforce expenses. In addition to reducing staff, such measures include relocating workers to low-cost areas or jurisdictions offering significant tax incentives.

Structural change requires cultural change (or vice versa)

Companies that launch ambitious structural initiatives may under-
appreciate the role of culture in making new structures work. Culture is a set of norms, mindsets and behaviors that have
developed around existing organizational structures. The two are tightly linked, and one can’t change without the other changing, too. Structural change will force changes to operating models and
cultural change may be necessary to drive it.

A new structure without corresponding changes in culture amounts to little more than a redesigned table of organization. Culture makes or breaks the new structure, influencing everything from resource
allocation to governance and even profit formulas. It’s not uncommon for a company to expend tremendous effort and resources on a complete structural overhaul, only to see incompatible cultural norms thwart strategic execution. For example, a new, streamlined operating model intended to accelerate decision-making and foster cross-functional collaboration won’t take root in a culture that exalts hierarchy and encourages
employees to focus on narrow functional priorities.

A new structure without corresponding changes in culture
amounts to little more than a redesigned table of organization.

Culture also influences a company’s willingness to make the deep structural changes in time to avert a crisis. Those who wait until changing market conditions have undermined their operating models put themselves at a disadvantage. Nevertheless, few companies attempt structural change in “peacetime.”

See also: Creating a Customer-Insight Strategy  

Absent a crisis, directors usually provide guidance and perspective and monitor indicators such as growth and profitability, while management takes responsibility for achieving specific strategic objectives. Successful companies, by contrast, continually reassess their structures in light of evolving market conditions. They understand that organizational structures aren’t permanent fixtures, but strategic choices they need to reconsider as circumstances and objectives change.

Implications: Is your culture ready for structural change?

Amid the constant drumbeat of change in today’s insurance industry, successful companies are meeting structural challenges with structural solutions. Approaches vary from company to company. Some add scale or enhance capabilities, while others streamline cost structures or exit lagging business lines. With the right cultural support, these structural responses position a company to capitalize on industry changes that confound competitors.

Based on our experience, companies that adjust their structures ahead of a crisis exhibit three distinctive cultural traits:

  • Directors track management’s allocation of resources against key strategic priorities.
  • Directors and managers make clear to everyone throughout the company that “the truth” is not only welcome, but expected.
  • Directors make sure the company’s talent, capabilities and know-how align with its goals.

Complacent organizations that don’t make structural changes until a crisis hits also have three distinguishing characteristics:

  • They over-emphasize “cascaded objectives” that often conflict.
  • They rely excessively on “can-do spirit” as a plan of action.
  • They exhibit unwarranted confidence in their own prescience and planning capabilities.

Which scenario typifies your organization? Are you confident your structure and culture are fit for purpose?

4 Tips to Build a Talented Bench

Winning teams — in sports, business and all areas of life — have deep benches.

Even if your company is fully staffed, taking your eye off the ball when it comes to recruiting is a sign of complacency, the kryptonite of success.

What if one of your stars decides to take another job? What if one of your top executives experiences an unexpected health crisis or family tragedy and decides to leave the company? Did you know that two-thirds of those reported to be misusing painkillers in the U.S. are currently employed and are thus susceptible to declining performance or medical leave?

More than ever before, companies must be ready to replace employees at a moment’s notice. The time it takes for you to fill a vacant position has increased. Glassdoor reports that, since 2009, interview processes have grown from 3.3 to 3.7 days, and data from DHI Hiring Indicators shows that the average job opening remained unfilled for 28.1 days on average in 2016, an increase from 19.3 days in 2001-03.

That is why it is critical for companies to build what is called a deep virtual bench. The world’s most innovative human resource leaders are vigilantly focused on recruiting 365 days a year.

See also: Is Talent the Best Defense?  

Having helped world-class companies recruit B2B sales executives for decades, I can offer four ways to build a strong virtual bench:

  1. Aggressively Target Passive Job Seekers: LinkedIn reports that 70% of the worldwide workforce is composed of passive candidates who aren’t pursuing new employment opportunities but may be open to listening. Passive recruiting is important because most high-performers are already gainfully employed. To effectively recruit passive B2B sales job seekers, you must have a great reputation within the industry; have a seamless and optimized application process (companies such as Netflix and Facebook allow you to apply with one click of the mouse); and consider using an outside recruiting company to maintain a safe distance and avoid being accused of poaching.
  2. Leverage Cutting-Edge Technology: Since implementing artificial intelligence into their recruiting process, Unilever saw the average time to hire an entry-level candidate reduced from four months to four weeks. Instead of visiting colleges, collecting resumes and arranging interviews, the company made the jobs known via social media and then partnered with an A.I. company to screen the applicants. This took place in 68 counties in 15 languages with 250,000 applicants from July 2016 to June 2017. Recruiters’ time spent reviewing applications decreased by 75%. LinkedIn also just recently announced TalentInsights, a new big data analytics product that enables HR leaders to delve more deeply into data for hiring. This helps employers identify which schools are graduating the most data scientists, engineers or history majors; helps analyze your recruitment patterns versus those of your competition; and provides information about growth of skills in certain areas of the country.
  3. Become an Employer of Choice: Glassdoor reported that 84% of employees would consider leaving their current jobs if offered another role with a company that had an excellent corporate reputation. Great candidates, millennials especially, value a commitment to employee wellness, sustainability and initiatives that cater to gender and diversity equality. Having a strong culture, values and clear company mission are critical to building a strong talent pipeline. Top companies such as Bain & Co., Google and Facebook offers perks such as free meals, onsite gyms, massages, free laundry services and generous parental leave. Given that Americans currently carry a record $1.4 trillion in student loan debt, student loan repayment assistance has become one of the hottest new benefits being offered by companies such as Fidelity and Aetna. The size of your company will dictate how many perks you can offer, but adoption of policies that are thoughtful toward employees will turn them into your biggest brand ambassadors. In addition to generating that organic positive publicity, submit applications for the “Best Places to Work” lists offered by most publications. These are now offered by most national publications as well as local business journals.
  4. Appeal to Diverse Candidates: To build a strong virtual bench, you must widen your search and appeal to candidates from different backgrounds. A PwC study found that 71% of survey respondents who implemented diversity practices reported that the programs were having a positive impact on the companies’ recruiting efforts. The previously mentioned Unilever case study resulted in their most diverse entry level class to date, including more nonwhite applicants and universities represented increasing to 2,600 from 840. To build your virtual bench, consider implementing diversity-friendly policies such as floating holidays. These allow people to take off for Good Friday, Yom Kippur or Ramadan or for a yoga retreat, if that is their preference.

See also: Secret to Finding Top Technology Talent  

Building your virtual bench 24 hours a day, seven days a week and 365 days a year will help position your company for success, including increased profitability and improved company reputation.

Zenefits: Disrupting Lives, Not Just the Insurance Industry

I’m sure you are as tired of reading about Zenefits as I am of writing about it, but, as much as I may want to, it’s hard to turn away from a train wreck in progress.

Wendy Keneipp and I have spent more time reading, writing and talking about Zenefits than we care to admit. We have spent time analyzing its model, discussing how to compete against the company and breaking down its impact on the industry. But this past week has had us shaking our heads at its arrogance and recklessness. I would like to promise this will be my last article about Zenefits, but, well….

No doubt you have recently read about Zenefits’ allegedly selling insurance without proper licenses, and we have now learned the company “may have” (according to new CEO David Sacks) taken shortcuts on at least some of the licenses it did have. May have?! At least take real ownership of the failures, Mr. Sacks!

According to several online articles, the shortcut Zenefits “may have” taken involved writing a program called Macro, which made it appear as if individuals were completing the 52 hours of online training required by the state of California to obtain a license when, in fact, they weren’t. According to a BuzzFeed.com article, those wannabe brokers were then required to sign their name, under risk of perjury, certifying they had completed the required training when, in fact, they hadn’t.

The lack of conscience, level of arrogance and number of culpable “leaders” required to execute on something like this is absolutely mind-blowing. It was bad enough when we thought this was simply a misguided company, confused as to whether it was a tech company or an insurance broker, but that possibility pales in comparison with the malicious company it is proving to be.

Zenefits garnered untold positive press for disrupting an industry and for becoming the fastest-growing SaaS (software as a service) company in Silicon Valley history, but now we are learning just how ugly the reality was behind that thin veil of success.

More than disrupting an industry, Zenefits has built an organization that is disrupting people’s lives—and not in a positive way.

Here are the victims:


I don’t have a lot of sympathy for this group because they provided the currency that fueled Zenefits’ reckless behavior; they are clearly part of the problem. It was investors who perpetuated a RIDICULOUS valuation and, in doing so, put untold pressure on the company to grow at a rate that would somehow validate the investors’ irrational exuberance over the Zenefits machine.

But, in addition to fueling the behavior, the investors are also victims; they invested in an illusion. They had every reason to believe their investment would be protected by legitimate (albeit misguided) business practices. It should have been reasonable for investors to assume the growth they were witnessing—and using to substantiate their investment—was being driven in a legal manner. It wasn’t.

We have already seen Fidelity cut the valuation of its investment in half. What will be the final financial toll on other investors once the dust settles? How much of investors’ collective $500,000,000 will be lost?


Zenefits’ clients are potentially victimized in two ways. The first potential problem they could run into is having policies canceled as a result of having been written by non-licensed brokers. While I’m certain this is a possibility, I think it is unlikely the carriers would want to take that black eye. What is a more certain, yet difficult to measure, victimization is the fact that Zenefits’ clients did not have access to adequate advice and guidance in making policy decisions in the first place.

It would be one thing if Zenefits was simply in the online gaming business (as an example). If it was, the model would be to allow customers to download a free game and then make money by selling additional services/features. Essentially, if the game sucks, oh well. Unfortunately, Zenefits chose to play a much more serious game in a highly regulated industry.

Zenefits’ model infringes on two of the most critical aspects of client’s lives: their financial and medical well-being.

When Zenefits takes this responsibility as carelessly and recklessly as it has, it puts people’s financial lives at risk. Even worse, Zenefits could put people’s (literal) lives at risk. That may sound overly dramatic, but protecting the financial lives of its clients (employers and employees alike) and ensuring clients have coverage in place that provides for the right medical attention at time of need, is at the core of what this industry does, has always done and must continue to do for its clients.

For Zenefits, insurance is merely an afterthought, a means to an end, a way to finance the technology it touts as “free.” The company really should be ashamed for hijacking something so critical to people’s well-being and using it so carelessly.


This may surprise you, but I also see the young advisers of Zenefits as victims. While I have been more than willing to share my criticism of their inexperience in the past, I believe these are mostly well-intentioned young professionals.

The Zenefits leadership team sold these young men and women on a vision that is simply proving to be an illusion. They were sold on the idea of disrupting an industry, being a part of a “unicorn” organization doing something that hasn’t been done before. Who wouldn’t buy into something like that?

Now, don’t get me wrong; while inexperienced in the business world, these young folks still had a personal responsibility to know right from wrong. They had to know they were cheating when they skirted the 52-hour requirement. And, they had to know the personal risk they were taking when they signed their name claiming to have completed training they hadn’t.

Bad on them for not taking a stand. But, even worse on the leadership team for putting them in that position.

I can hear the arguments against me on this point, and I don’t necessarily disagree. However, anytime someone in a position of authority uses their power to coerce and take advantage of a subordinate, there is a level of victimization.


Of course, I don’t know how the rest of this story is going to play out, but I have my suspicions.

I don’t see how David Sacks can be allowed to remain as CEO. He has received great praise for the email he sent to the Zenefits employees, and he is being hailed as the leader who will correct all of what ails Zenefits. Maybe he will be, but I have serious doubts.

The positive media response to his succession scares me. Not that I think Parker Conrad should have remained CEO, but because the change seems to be providing Zenefits a free pass—if not in the eyes of regulators, at least in the public eye.

Outside our industry and Silicon Valley, most people have no idea about how this company has been operating. I guarantee you that Zenefits is about to take its marketing and sales machine to a much higher gear. And there are countless business owners oblivious to the potential danger of a purchase through Zenefits who are awaiting promises of easier HR, shiny user interface and no cost. These business owners need, and deserve, to be protected by the regulators put in place to provide such protection.

In my opinion, Sacks, as the chief operating officer, was as culpable for Zenefits’ failures as anyone. As the executive in charge of all things operational, how could he not have known about the lack of licenses or the fraudulent acts taking place under his nose? And, if he somehow didn’t know, that is simply another kind of failure on his part. How can he be allowed to remain?

I also don’t see how state insurance departments can allow Zenefits to earn another dollar off another insurance policy. The company has left too many victims in its wake, and I believe it is about to go on an even more aggressive hunt for even more “victims.” How can Zenefits be allowed to remain in the insurance business?

It’s time for Zenefits to transform its business model, get out of the insurance business and operate as the technology company it has always been; it’s time for the company to start putting people ahead of growth. After all, done properly, taking care of people first ensures growth will take care of itself. And, if you can’t take care of people and turn a profit, you don’t deserve to be in business.

I’m not holding my breath, however. As a self-described “hyper-growth addict,” Sacks has to manage his addiction with the demands and responsibilities of his new role—a role in which he will have to balance the demands of leading a company in a highly regulated industry (requiring attention to detail and ethical behavior above all else) against the demands of delivering an acceptable return for investors who have entrusted him with $500 million of their money. Early results are not very promising.

Stay tuned. I’m certain there’s more to come.

A version of this article was originally published on Crushing Mediocrity. The article appeared here at Q4intel.com.