Tag Archives: finance

Traditional Insurance Is Dying

Finance. Taxis. Television. Medicine. What do these have in common?

They’re all on the long–and growing–list of industries being turned upside down by disruptive technology. 

The examples are legion. Once-sure-bet investments like taxicab medallions are at risk of going underwater. Bitcoin is giving consumers the power to bypass banks. Traditional television is at risk from online streaming.

Insurance Is No Different

In fact, innovative players have been disrupting the insurance market since before “disruption” was the buzzword it is today. 

Look at Esurance, which in 1999 rode the dot-com wave to success as the first insurance company to operate exclusively online. No forms, no policy mailers–it didn’t even mail paper bills.

By going paperless, Esurance told customers that it was the kind of company that cared about their preferences–and established itself as a unique player in an industry that places a premium on tradition. Insurance isn’t known for being innovative. 

Most insurance leaders operate under the assumption that if it ain’t broke, you shouldn’t fix it. And in a heavily regulated industry, that’s not totally unreasonable. 

But you only have to look at the scrappy start-ups that are taking down long-established players to understand what awaits the companies that aren’t willing to innovate.

Thinking Outside the Box

Take Time Warner–profit fell 7.2% last quarter as industry analysts foretold “the death of TV.” Meanwhile, Netflix’s profits are soaring beyond expectations–even as the risks it takes don’t always pan out. 

Remember the “Marco Polo” series that cost a reported $90 million? Neither does anyone else. But for every “Marco Polo” there’s an “Orange Is the New Black.” Highly successful programs on a subscription model show that Netflix’s willingness to take risks is carrying it past industry juggernauts.

The market is changing–and if you want to stay competitive, you need to use every weapon in your arsenal. Millennials aren’t buying insurance at the rate their parents did

To a consumer population weaned on technology like Uber and Venmo, the insurance industry seems positively antiquated. Facebook can advertise to you the brand of shoes you like–so your insurance company should be able to offer a product that you actually want.

The Information Importance

According to Accenture, “Regulated industries are especially vulnerable” to incumbents. When there are barriers to entry based on licensing requirements or fees, competition is lower. Decreased competition, in turn, leads to less incentive to innovate. This can leave regulated industries, such as insurance, healthcare and finance, in a highly vulnerable position when another company figures out a way to improve their offerings.

Other attributes that can make an industry vulnerable, per Accenture’s findings, can include:

  • Narrow focus: If a brand focuses entirely on cost savings, convenience or innovation, it isn’t effectively covering its bases. A disruptor that manages to offer two or three of these factors instead of just one has a near-immediate advantage.
  • Small scope or targets: Failing to expand offerings to all demographics can mean that industries or service providers aren’t able to replicate the broad reach of disruptors.
  • Failing to innovate: Disruptors don’t always get their product right on the very first try. Companies must innovate continuously and figure out ways to build continuous improvement into their business model.

Tech start-ups use information as an asset. How can you tell if information is a valuable weapon in the battle you’re fighting? 

“Big data” isn’t just a buzzword; industry analysts are calling it the wave of the future. At Citi, they’re talking about “the feed”: a real-time data stream that leverages the Internet of Things to reshape risk management. 

Auto insurers are turning to connected cars to let them reward safe drivers. Some life insurers are even offering discounts to customers who wear activity trackers.

It Can Happen to You

For most insurance companies, incorporating an unknown element into the way they operate is daunting. 

But talk to any cab driver, grocery store clerk or travel agent, and they’ll tell you that the only way to survive in a technology-driven world is to innovate.

Look at the insurance technology market to see what improvements you can incorporate into your organization, and think expansively about how you can use information: for agency management, to attract new customers and retain old ones, to expand your profit margins or to streamline operating costs. 

Your survival depends on it.

7 Reasons to Major in Insurance

1. 100% Employment: One of the big reasons to go to college is to make sure you’re employed in a good career after you graduate. The insurance industry is predicted to continue growing for decades, and the existing risk management and insurance (RMI) programs only feed 15% of its needs each year, which means if you graduate with an RMI degree you’ll be a hot commodity! RMI programs had 100% employment, even through the 2008-2012 recession.

2. An RMI degree is basically a focused business degree: Majoring in business is a very popular choice already, but it’s a very general degree that usually takes a few years to really get you a solid career. RMI degrees are usually housed by a university’s school of business and have all the usual classes you’d get in a business degree (accounting, finance, marketing, statistics, management, etc) with the addition of a few RMI specific classes. What this means is that even if you change your mind and decide you don’t want to work in insurance (which you won’t), you can still easily get the same jobs that you would have been getting with a general business degree.

3. It is preparation for a career making a difference: If you love making a difference in the world, you’ll absolutely love the insurance industry! Even though we get a bad name in the press sometimes, the reality is that we are here to help people and businesses get back on their feet when unexpected things happen, and being a part of that is very rewarding. Also, many carriers offer time off to volunteer and to study for insurance designations.

4. Insurance is an incredibly stable career: The economy will continue in its ebbs and flows, and that means every few years people will lose their jobs when the economy contracts. Some very popular careers like banking, consulting and real estate are usually among the worst-hit when the economy slows. Insurance is incredibly stable because pretty much regardless of what happens in the overall economy, people and businesses continue to need insurance. This means career stability for you!

5. You’ll have more vacation than most of your friends: Most insurance carriers start you up with around 18 days of vacation a year. That means much more time off than most employees just starting careers in other industries.

6. Your senior year will be a LOT less stressful: RMI majors are expected to continue to be in high demand and feed only a portion of the insurance industry’s need for new talent, which means that a lot of RMI majors have accepted great job offers by December of their senior year, a good five months before graduation, and senior year is a lot more fun when you don’t have to worry about finding a job afterward.

7. You’re pretty much mathematically guaranteed to be in demand: The current makeup of the insurance industry workforce is very mature, meaning that 1 million insurance professionals, 43% of the workforce, are expected to retire in the next 10 years. In addition, the industry is growing and is expected to create 400,000 jobs. RMI majors are already pretty much immune to unemployment; they will be in increasingly high demand right around the time you graduate!

You pretty much can’t go wrong by majoring in RMI! There are not a lot of RMI schools out there, so click on the map below to open an interactive map of RMI schools. Schools marked in red have a full RMI major while schools marked in green have an RMI minor or concentration.

7 Stakeholders for Cyber Risk

Imagine you’re the CFO at a firm involved in sensitive M&A discussions with your bankers, and you receive an email asking for a small bit of non-public information on your company, the kind you’ve passed on before. You send the information – and later find you were the victim of a sophisticated cyber-attack.

Now imagine you’re in charge of operations at a manufacturing facility. Out of the blue, your employees report that they have lost control of key systems. It’s impossible to shut down a blast furnace correctly, endangering the safety of employees and others and threatening massive damage. You, too, have been the subject of a cyber-attack.

These events underscore the new reality in cyber risk management: It is no longer just an IT issue. Everyone – from individual employees to risk managers to your board of directors – now has a stake in managing cyber risk comprehensively, across the enterprise.

Following are seven key stakeholders to consider as you look at your cyber risk management strategy:

  1. Risk manager: Risk managers can ensure various stakeholders are connected in terms of assessing, managing and responding to cyber risk. Understanding the evolving cyber insurance market and overall risk finance options is also important.
  2. CFO: Concerns range from the potential costs of a cyber event and what the impact could be on the bottom line to the security of the office’s sensitive information.
  3. CEO/board of directors: Accountable for overall business and company performance, they have a fiduciary duty to assess and manage cyber risk. Regulators, including the Securities and Exchange Commission and Federal Trade Commission, have made clear they expect companies’ top leadership to be engaged on the issue.
  4. Legal/compliance: As regulations around cyber develop, legal and compliance roles become increasingly important in keeping other stakeholders informed and engaged. And, if a cyber incident occurs, lawsuits often follow within hours.
  5. Operations: Maintaining daily operations, business processes and workplace stability is critical during a cyber event.
  6. Human resources/employees: Simple errors – or deliberate actions – by employees can lead to costly cyber incidents. Training on best practices is critical, especially with the rise in sophisticated “spear phishing” attacks targeting specific employees.
  7. Customers/suppliers: Interactions with customers and vendors can open you up to an attack. You need to understand the protections they have in place so they don’t become the weak point in your cyber defenses.

Protecting your organization’s data and individuals’ privacy is becoming more difficult by the day. Successful cyber-defense strategies are comprehensive and multi-pronged. A critical component is understanding and defining the roles and responsibilities of all key stakeholders.

To participate in a webcast on how to assess cyber risk, click here.

Getting to 2020: the Finance Function

Even as economies recover, the insurance sector continues to face many competitive pressures and regulatory challenges. Yet a new drive for growth is emerging. The 2014 EY Global Insurance CFO Survey captures the priorities and challenges for finance and actuarial teams as they seek to support business growth strategies while addressing regulatory and cost pressures.

Delivering more value to the business through performance measurement and improved decision support is the top priority for the finance function through 2020. Among senior finance professionals participating in the survey, 71% indicated that “being a better business partner” ranked among their top three priorities, with 35% placing this as number one.

As insurance companies around the world continue to invest in data management and analytics capabilities, the role of finance and actuarial functions has become even more critical. The processes and systems supporting these functions are key to developing deep insights into business performance, as well as customer needs, preferences and behavior. In response, finance leaders have been increasing their efforts to improve the capabilities of their organizations to meet the new demands. In the survey, 89% of respondents stated that they have either begun a change program or are in the planning stage.

However, the drive to better insights is not without challenges. Among the issues is the impact of continuing regulatory compliance demands. According to 35% of those surveyed, implementing new regulatory and financial reporting requirements was the highest priority for finance and actuarial organizations; 56% ranked this among their top three. As a result, the ability for these organizations to strike a balance between delivering value to the business and meeting daily operational demands will continue to be a challenge.

Not surprisingly, the current data and technology footprint will require significant change to meet the challenges of the finance function of the future. Across the finance operating model, survey participants scored data as the least developed capability on average, while technology recorded the greatest gap between current and required future state.

Other Key Findings

  • Top three business drivers: #1 growth, #2 managing costs and #3 regulatory changes
  • Two-thirds of respondents rank data and technology issues among the top three challenges facing finance and actuarial functions; participants on average score data as their least developed capability
  • By 2020, the most significant shifts in maturity levels by operating model will be in data management and technology capabilities
  • Respondents expect onshore shared services to support transaction processing functions, with outsourcing selectively used for payroll and internal audits
  • Decision support and controls are expected to account for a larger share of finance and actuarial headcount by 2020

What insurers must do

We see three key areas where insurers can take action:

  • Modify current reporting processes by developing an efficient reporting solution architecture.
  • Deliver timely and relevant management information and link strategic objectives to performance indicators.
  • Improve finance and actuarial operational performance by using the right skills and processes to strike a balance between effectiveness and efficiency.

For the full survey from which this excerpt was taken, click here.

10 Building Blocks for Risk Leaders (Part 3)

Important things in life are not easily reduced to 10 easy steps. Nevertheless, this series provides a list of 10 building blocks to achieving long-term success in risk management from someone who has spent more than 25 years striving to carve out the most satisfying career possible, while never losing sight of the attributes attached to the bigger picture. Part 1 is here, and Part 2 is here. This is Part 3 in the series:

5. Racking Up Points with Senior Managers

The points that risk managers offer up are not always creditable “points” in the eyes of senior managers. To be so, they should be tied to the things that matter most to the organization and that can be traced, at least indirectly, to mission accomplishment. In other words, what matters most is contributing to the success of the enterprise—not just reducing the cost of risk, which is the longstanding focus of many traditional risk managers. That is not to say that reducing the cost of risk is not important or that it doesn’t contribute to organizational success. It does, especially where the total cost of risk (TCOR) is a material factor in total expense. Yet, to be recognized as making a significant contribution to the success of the enterprise, risk management practitioners must find a way to connect more directly to the successful delivery of strategic priorities, by supporting the objectives that underlie them. It’s about putting the right points on the board and, as a result, being seen as more relevant to strategic imperatives.

This is often easier said than done. Among the challenges are questions about whether the risk management employee has the qualifications and expertise to successfully contribute. The risk management employee often faces retorts like these: “Don’t we already account for risk (often called business challenges by planners) when we set the plans?” “This risk input is not translatable for purposes of plan development and is therefore not helpful.” “There is no time to conduct the assessments and measurements of relevant risks that would allow risk inputs to be properly considered.” “Our C-Suite sees no substantive reason to open the process up to more contributors when time is often of the essence and the dialogue is reserved for only the true strategists in the enterprise.”

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The chart above, from The Global CFO Study 2008: Balancing Risk and Performance Within an Integrated Finance Organization, reflects that risk managers, even chief risk officers, are perceived by chief financial officers as more tactical in mindset than strategic.

Never fear: Perceptions can be changed .

This article is not intended to provide all the answers to barriers to entry and success in collaborating with planning. However, it is intended to emphasize the importance of this collaboration and the critical need for all risk leaders who aspire to true relevance and influence to spend the political capital necessary to knock these barriers down or at least minimize them. The bottom line is that the only reason corporate goals and objectives are not met is that one or more risks have not been properly identified and managed. That makes risk management a critical component of organizational success.

6. Establishing Yourself as Essential to Others’ Success

Risk management stakeholders can’t succeed without the right risk strategy and, most particularly, the right risk leader who understands their priorities and knows how to build relationships of mutual benefit. And, risk leaders can’t succeed without successful stakeholders. Unfortunately, relationship-building has not generally been a strong suit of many risk managers, myself included (early in my career). Risk employees who move out of their comfort zone will discover this is the key tactic to use in building these relationships. Staying in traditional roles is ultimately a strategy doomed to keep you in a rut.

Even when dealing with hazard or traditional risks, it is no longer possible to do the job with excellence while staying in that comfort zone. All the many forces of culture and the challenges of the business will eventually shine a bright light on risk management personnel and their contributions, or lack thereof, to the organiza- tion’s success.

While reducing the cost of risk and bringing home expense reductions is important to most competitive enterprises, it is less important for those that are flush with profits and cash. So, it is important not to get myopic about the cost of risk as a key measure of success. Consider what others things define and drive organizational success, and figure out how to connect to them.

It is only through collaborating with risk stakeholders and showing them the value that risk leaders bring to the table that long-term success will be achieved. Spend the time to reach out to stakeholders, learn their exposures and gain sufficient knowledge about how they manage these exposures and their priorities. That way, risk leaders learn when to challenge an assessment that doesn’t look quite right and can do so with the risk intelligence and personal gravitas necessary to earn confidence. By helping owners effectively manage the risks that directly affect their own success, risk personnel will be welcomed to the team as their “street cred” is established and acknowledged.