Tag Archives: fireman’s fund

A Contrarian Looks ‘Back to the Future’

A recent week started with reading a page by Paul Carroll from his Innovator’s Edge platform. The title question was: “Will Apple enter insurance? Google? Microsoft? Amazon?” His opening statement was, “Apple’s market value crested $1 trillion last week, and its big tech brethren Google, Microsoft and Amazon aren’t far behind, all are valued north of $800 billion…”

I wasn’t shocked until he said, “All have extensive data about customers. And all have the size to tackle mind-bending problems that insurance faces – by contrast you’d have to combine AIG, Prudential and Allstate just to surpass $100 billion in market value…”

A day later, someone sent me Reagan Consulting’s “The Golden Age of Insurance Brokerage.” As I read through this short update, I could almost hear, “Happy days are here again” playing in the background for the brokers. The following captures the essence of this document: “We are living in the Golden Age of insurance brokerage. There are so many good things happening, it is hard to keep track of them all.” This was followed by six bullet points providing evidence of why the brokers are so happy. (No mention was made of insurance buyers, who may not be as HAPPY!)

A friend then sent me a link to “The Death of the Old School Agency,” by Michael Jans. This is a more in-depth view (30-plus pages) of the world as it may or will be.

From the executive summary, we learn that today’s agent faces a new world of:

  • Rapid changes in consumer behavior and expectations
  • Emerging, existing and well-funded competitive channels
  • A rising millennial generation with different expectations, both as consumers and workers
  • A pace of change unlike anything they’ve ever seen before.

Depending upon who, what and where you are, this report will bring good news or bad news, but nonetheless – it is news that (I believe) every agent needs to hear, consider, ponder and then decide on.

Agencies tomorrow are not “your daddy’s Oldsmobile.” Ask someone older than 40 to explain the phrase. This was the beginning of the end of a legendary line of General Motors automobiles and probably a foreshadowing of the collapse of General Motors.

I encourage you to study all three of these documents – they are well-written by very successful folks. Their ideas should be carefully considered, and, if properly adapted to your circumstances, all can improve your results. That is – as long as the world goes as “we the people” in this industry think it should. What follows is my contrarian view – less “raining on your parade” and more clearing the air as you look to the horizon in tomorrow’s consumer-driven economy. We are not in charge. We today are wagering on our individual and industry’s future. Place your bets. The market will pick the winners.

See also: 3 Myths That Inhibit Innovation (Part 3)  

This contrarian will offer his ideas by looking “back to the future.”

There will remain great opportunities in our future, but these will require transformational change. From today’s selling in an industry that is product-defined and product-driven, to a new client-defined and client-driven marketplace where we will facilitate our client’s buying – solving their problems and meeting their needs. In the competitive nature of tomorrow’s world – we’ll have to use artificial intelligence (AI) to anticipate these needs and deliver solutions before our clients “go shopping.”

Some of the people, gifts, expertise, disciplines, skills, etc. we’ll need will be much different than the mechanical process we use today. We will need communicators (verbal and nonverbal), empathizers, artists, inventors, designers, storytellers, caregivers, consolers, big picture thinkers, storytellers, caregivers and “techies.” This is not an all-inclusive list. (Consider reading “A Whole New Mind,” by Daniel Pink.)

Warren Bennis offered the following wisdom decades ago: “The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

Consider the following – brief observations from one man’s experience:

  • In 1978, Fireman’s Fund/Famex Agents offered a GM-endorsed insurance program for dealers. I was the SW Louisiana agent. In those days, the No. 1 concern of GM and its dealers was that GM would reach 65% market share and the federal government would break GM up into separate companies, Chevrolet, Pontiac, Buick, etc. GM’s arrogance, the dealers’ complacency, foreign competition, a poor product and a marketplace wanting change reshaped their world. GM never made it to 65% market share. I believe the insurance industry is ripe for a similar transformational experience.
  • In 1994, I was speaking to a bank in St. James Parish (Louisiana) about change. I said, “Today, GM, Sears and IBM are the kings of their respective jungles. I believe, in my lifetime, one of these companies will fail.” I was laughed off the stage. Fourteen years later, I was vindicated with the bankruptcy filing by GM. I personally believe that I’ll also prove right on Sears.
  • In June 2008, I was an instructor for attendees in a risk and insurance class at the KPMG Advisory University in Chicago. This was a continuing education week for KPMG consultants. A rookie consultant asked, “How does an insurance company fail?” I explained with the Champion Insurance story.

Then he asked for an example of a “rock solid” insurance company. I said, “AIG.” The KPMG senior partners in the room nodded in agreement. Less than 100 days later, AIG was functionally bankrupt, requiring a $182 billion bailout by the government. None of us saw that coming. (I’ll bet you were surprised, as well.)

As I wrap up this article, hoping I’ve stimulated a much more important discussion about the future, consider the following:

  1. Companies valued at $100 billion are “big” until measured against trillion-dollar operations in a world in transformation – especially if the giants have better technology and data!
  2. Apple, Google, Microsoft and Amazon (AGMA) are kings of their respective jungles. Yet these companies are not even as old as the majority of readers of this column (with the possible exception of Microsoft and Apple, founded in the mid-1970s). Why would we think that our “old and stoic” industry is “safe” and “promising” for tomorrow? Are we celebrating our past when we should be planning our future?
  3. Do you think that any of your clients who have recently received a rate increase will be as enthusiastic about the profitability of our industry and the future of the world of brokers as stated in the article offered by Reagan? I’ve rarely (if ever) heard a client celebrate the profitability of our industry when it is an expense to theirs…
  4. Generational changes, social media and our societal rethinking of issues of race, gender, ethnicity, family, values, economic models (socialism / capitalism), etc. may result in our going in directions that we, 10 years ago, would have never considered possible.
  5. Has our industry let the government get its nose into our tent/economic system. NFIP has been in this industry as long as I have. The private sector didn’t want to address the flood risk. Now, these nearly 50 years later, the flood program is a government program and not sustainable. Unfortunately, the government may be ready to have the camel stand up in the tent? Medicare for everyone is no longer a crazy idea. It may not work, but….
  6. If the insurance industry was being designed today to do what it does, do you really believe it would be what we have? If you answered yes, please reread the question!

See also: What Is Really Disrupting Insurance?  

Bookstores, travel agencies, video stores, etc. were important in our communities of yesterday – UNTIL THEY WEREN’T. Should we begin redesigning our own operations and industry and future before a competitive innovator does it for us?

Thought Leader in Action: At U. of C.

An organization the size of the University of California system—10 campuses, five medical centers, a student body of 239,000 and nearly 200,000 faculty, staff and other employees—requires the close attention of individuals who help assess and manage risk and insurance. Kevin Confetti, the UC deputy chief risk officer in the Office of the President, is one of those people who keeps the University of California operating and its employees satisfied.

Born and raised in Pittsburg, CA, Confetti grew up in a hardworking blue-collar family with parents who worked at DuPont and at U.S. Steel. While in high school, he aspired to be a teacher and football coach, and he attended UC Davis, where he played on the varsity football team and graduated with a B.A. in rhetoric and communication. After graduation, he hung up his cleats and got his first real job working in claims adjusting for Cal Comp, where he found he really liked the variety of work. That experience led him to promotional opportunities at Fireman’s Fund, Ernst & Young and Octagon Risk Services. Serving for five years as a claim unit manager at Octagon—the UC system’s third-party administrator (TPA) at the time—Confetti was hired by the UC system in 2006. Now, he’s in the process of achieving his ARM (Associate Risk Management) designation.

kev
Kevin Confetti

Within the UC system, Confetti reports to the chief risk officer, Cheryl Lloyd, and he provides overall management of self-insured workers’ comp (aka “human capital risk”), employment practices, general and auto liability, medical malpractice, construction risks and $50 billion of property risks. Confetti said the UC system’s various campuses and medical and research facilities are actually quite autonomous, while the Office of the President strives to manage the overall risks without using too many mandates. It’s a program that responds to needs as it sees fit, and it helps set up system-wide policies.

To do his job well, he said he needs to be a good communicator, a good listener and someone who facilitates collaboration and cooperation among his various facility risk management teams. He described the job as, essentially, convincing his campus teams that something is the right thing to do.  He loves the variety of what he manages, and his passion is to save the UC system money, whether it’s $1 or $1 million, so those savings can go to the UC system’s mission. Confetti said, “Leadership requires the ability to convince others in the UC system of the value of our propositions and decisions.”

With an in-house risk management staff of 10 to 12, Confetti serves each campus risk management department (ranging from about two to three at UC Merced to 12 at UCLA) as clients. The UC system uses Sedgwick as its TPA for its self-insured programs, which provides in-depth metrics, data mining and monthly and ad hoc reports. Sedgwick also provides assigned analysts in virtually every UC risk area.

Confetti also manages the UC Risk Management Leadership Council, which meets monthly on various campuses. In addition, his office hosts a Risk Summit conference once each year for every campus and facility risk management team. These teams come together to discuss trend statistics and emerging issues that are key risk factors for each unit as well as the overall UC system. While each campus team does things a little differently, they all operate with a similar mindset that fits within the UC system’s overall objectives.

At the moment, Confetti’s biggest area of concern is cyber security; cyber issues can be difficult to identify and prevent and can be one of the most destructive risks, threatening things such as power grids and other infrastructure. The UC system employs several different IT structures, and, because most insurance coverage excludes cyber risk, the risk is extremely dangerous from a risk manager’s perspective—especially given the size and nature of electronic data managed by the UC system.

A second issue Confetti is currently concerned with is the risk to students and faculty from active shooters or other terrorist-minded groups.

A third risk he’s focusing on is the use of drones; Confetti said the federal government, businesses and institutions haven’t been able to effectively manage the growing number of drones operating freely in the U.S.

Confetti said he would tell newcomers to risk management that technology continues to propagate new risks. He advised, “Be willing to take on risks, but learn from your mistakes and know that you don’t have all of the answers. You have to take risks to move forward, but negative experiences should provide the knowledge and skills to mitigate risk more effectively. … Be flexible and open to new ideas. … Avoid reliance on statistics. Data will give you a trail of facts like breadcrumbs to show you what trail you need to follow. But get out of the office and make the rounds to see and hear what’s going on.”

Change at the ‘Speed of Life!’

In my career, I’ve written hundreds of thousands of words on change. I was preparing another article for your consideration, when three articles, one invoice and one memory made my ramblings about speed unnecessary. Consider the following, then decide – is the market being transformed?

  1. The memory – In 1978, I represented the Famex Insurance Program through Fireman’s Fund. This was a property and casualty offering to GM’s dealers throughout the country. In those days, the No. 1 concern of GM and her dealers was that GM would reach 65% market share, and then Uncle Sam would break up “Mother GM” into Cadillac, GMC, Olds, Pontiac and Chevrolet. That fear was, of course, never realized. Back in the ’70s, the fantasy of GM was that she was invincible. Today, the bankruptcy of GM is reality…. Too big to fail is BS.
  2. The first article: Fast Company (November 2015) – “Hot Sauce U.S.A.,” by Elizabeth Segran. “Where once was Tabasco, there is now sriracha, gochujang and more. What the condiment aisle says about American consumers….While Tabasco accounts for 18% of the hot sauce market, there are now hundreds of varieties available in the U.S. – from Tapatio to Texas Pete – and more than a few of them with foreign roots.” Once, a “local” company controlled the hot sauce market worldwide — today, the global market is served by a much more diverse group of pepper pickers and processors. (In the name of full disclosure, I live within 10 miles of Avery Island, LA, the home of Tabasco. I love Tabasco and was able to enjoy this delicacy in every town I visited in Europe during my year [1972] of service with the Army in Germany.)
  3. The second article: The Week (Oct. 30, 2015) – “Issue of the Week: Walmart’s Wobbly Empire. “What would Sam Walton think if he were alive to see Walmart today?” Brian Sozzi asked. The founder of the behemoth would probably be shocked to see that his pioneering profit formula – low operating costs and extra-discounted prices – is now virtually impossible to maintain. “Walmart understands the challenges it faces, but its decline may be practically inevitable,” David Graham said in theAtlantic.com.
  4. The third article: The Week (Nov. 13, 2015) – Editor’s Letter. “I recently had one of those ‘welcome to the future’ moments that you think only happen in sci-fi movies and dystopian novels. I’d agree over email to get coffee with a friend of a friend, and he cc’ed his personal assistant, Amy, to set up a mutually convenient date. Amy and I emailed back and forth to find an available time slot. She was efficient and gracious, considerate of my schedule constraints and so polite in her responses that, with the meeting arranged, I began typing a brief thank you. Then I glanced at her e-mail signature. There, written in small type, it read ‘powered by artificial intelligence.’ That’s when it hit me: Amy wasn’t actually human. She was an algorithm. I’d been corresponding with a machine all along and hadn’t even realized it.”
  5. The invoice – Wired magazine. I received my 4th reminder to renew my subscription. The cover price for one year was $143.76. “Your special low renewal rate” was $20, plus a “second subscription to your friend for free.” I’m guessing the mailing costs alone for one year exceed the $20 price to me. Wired is a good magazine. I’ve enjoyed it. But in today’s easy access world I’m oversubscribed and under read.

Should we be Wired, too? Because competition and technology will allow innovators to deliver what we sell at a price below our costs? Is it now time to reinvent our organizations to compete in the world as it will be?

In closing, I acknowledge Bob Dylan, one of the first modern-day philosophers, who saw and spoke to the world of change. Our parents thought Dylan was a “flake” or a “fad.” In retrospect, he was right, and they were wrong. Ours is a world being transformed. Suggestions of incremental change are BS!

“The Times They Are A-Changin'” – Bob Dylan (1964)

Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’
For the loser now
Will be later to win
For the times they are a-changin’.

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin’.

Thought Leader in Action: At Google

Loren Nickel, who has a major role in our profession as the director of business risk and insurance at Google, got his start without even doing a job interview.

That story begins when his mother researched careers and suggested that in college he study to become an actuary. Nickel pursued statistics and actuarial science at the University of California, Santa Barbara (UCSB), and became president of the Actuary Club – with its maybe 10 members, he says.

He wanted to build interest, partly to get more prospective employers to come to UCSB, so he decided to set up a website – this was in 1994 and 1995, before Netscape exploded on the scene through its initial public offering and introduced the Internet to the public consciousness. Nickel wrote the software for the website himself and paid $35 of his own money to get the UC system to host the site. He then used his e-mail address to answer questions from students and others about the actuary program at UCSB.

The word got out, at least to one UCSB alumnus who played an important role in Nickel’s career. John Alltop, who was in charge of the actuarial services division of Fireman’s Fund, asked Nickel if he knew of anyone who would be interested in an internship. Nickel raised his hand. Alltop, who is now president of Actuarial & Risk Management at Bickmore Risk Services, asked him to visit. At his own expense, Nickel drove 365 miles up the coast to Novato, north of San Francisco, and paid for a night in a hotel. He says that the second he walked in the door he was given the internship even though “I told them I hadn’t even done anything for them yet.” Shortly thereafter, Fireman’s Fund hired Nickel full-time.

He worked on various national accounts, and Fireman’s Fund rotated Nickel every 18 to 24 months to different operating divisions, ranging from workers’ comp and property risks to general liability, enabling him to learn different facets of the insurance business. Nickel learned the “big picture” by seeing how Fireman’s Fund used the actuarial component in its underwriting of client risks. Then he became the underwriting manager.

In that capacity, Nickel was able to work with brokers and sales teams to see how actuarial projections fit in. He developed his communication, sales and people skills. That experience launched Nickel into his next career move, working for AON, a leading brokerage firm. This included an assignment in London to work with the operational risk team, designated as a center of expertise. Returning to the U.S., Nickel led AON’s actuarial division in the Western region, which included providing actuarial consulting services for Google for nearly three years.

He joined Google in the spring of 2015. Nickel, who is 41 years old, lives in Marin County, north of San Francisco, so he commutes perhaps an hour and a half each way on one of the famous Google buses, to his office a few minutes from headquarters well down the peninsula in Mountain View. The bus is comfortable enough and the Wi-Fi so good that the ride is basically an extension of his office.

Nickel says his consulting experience at AON is a good fit at Google, where his risk management responsibilities could be best described as “advisory work.” He works in consultation with various Google teams to help keep them more informed and able to make better decisions from a risk viewpoint. Perhaps the biggest change is that he’s now on the buyer’s side of transactions. This, of course, includes multiple brokers and insurers.

Google’s stated mission is to organize the world’s data and make it usable by everyone on the globe, and all new products or services relate to that vision, but Google’s renowned “moonshot program” searches for disruptive innovations – which, by changing how people do things, can change the nature of risk. Google has fewer boundaries than most business ventures, to stimulate innovative thinking, so a traditional risk management program, with all of its financial constraints, doesn’t fit the Google model of business development. (Nickel is quick to point out that Google does employ a vast number of risk management best practices to protect its employees, property, users and the general public.)

Nickel leads a risk management team of four direct reports, with an additional five Googlers who work within the risk management structure. He says Google is much less about the function where someone works (i.e., risk management) than about the right mix of individual skills. For instance, on his team, some have an insurance background while others have skills in legal, actuarial science, project management, accounting, etc. “It’s a very different mix of personnel than what you would find in a traditional corporate risk management department,” Nickel says.

Asked how he gets in tune with and integrates risk management concepts with Google’s diverse divisions around the world, he says that making strong relationships is No. 1 – knowing the right people. This ensures that Googlers are aware of the advisory and outreach team in risk management. Risk management does not serve as a policing authority but serves more as an information source. Other corporate teams, such as legal, partner with risk management as issues arise. Responsibilities are clearly assigned and managed exclusively by organizational silos, as in most organizations. Nickel says everyone is very receptive about the information that the risk management team shares – in previous jobs, he often saw posturing.

Nickel says a guiding principle at Google is that “Googlers take care of other Googlers,” so risk management is in the culture, and safety is paramount. Even the food choices are healthy. Google provides its more than 60,000 Googlers with free, very nutritional and delicious food and snacks as well as a wide variety of campus features that promote health and well-being. Google even provides onsite medical providers at its larger locations. Without sharing statistics, Nickel makes it clear that Google has “phenomenal” workers’ comp claim experience that is far better than companies of its size. He added that Googlers feel respected and appreciate how well they are treated.

Asked if Google has any official opinion about the ownership or operation of driverless cars, where its pioneering work has sparked extraordinary interest, he said the risk department does not provide opinions on the products that Google creates. He did say the department is focused on making any new Google technology safer, getting it to market faster and winning support from regulators. “We do not determine how autonomous vehicles are used,” he says. “Instead, the goal is to facilitate the creation of great technology that could improve the world.”

When asked what advice he would give to newcomers in risk management, Nickel suggests that they try to experience different roles from different perspectives – from both the insurance and user sides — with respect to the implications of risk in organizations.

“These diverse experiences provide a deeper context to the bigger picture of risk,” Loren says. “Risk managers have to have more than one style, approach or understanding of risk to truly be impactful.”

From an educational standpoint, Loren adds that a “good grounding and understanding of mathematics and statistics is extremely helpful….For me, risk management success is much less a factor of knowledge than it is to gain perspective and practical experience. You need to learn to take nebulous concepts and to organize information that can be put into a plan that other people can understand and act upon.”

Six Key Insurance Business Impacts From Analytics

Recently, I had the privilege of serving as chairman of the inaugural Insurance for Analytics USA conference in Chicago, which was very well organized by Data Driven Business, part of FC Business Intelligence. I am convinced that analytics is not only one of the most valuable and promising technology disciplines to ever find its way into the insurance industry ecosystem, but that its very adoption clearly identifies those carriers – and their information technology partners – that will be the most innovative.

Analytics has exceptionally broad enterprise potential, with the ability to permanently change the way carriers think and conduct their business. The future of analytics is even more promising than most can imagine.

The conference — where the excitement was palpable — showed the sheer diversity of carrier types and sizes as well as the many different operational areas in which analytics is being used to drive insight, business outcomes and innovation and create real competitive differentiation. From large carriers such as Chubb, Sun Life, Nationwide, American Family, CNA and CSAA, to smaller insurers including Fireman's Fund, Pacific Specialty, Great American, Westfield, National General and Houston Casualty, presentations demonstrated how broadly analytics should be applied through every function and every level of the organization. Presentations from information technology provider types including Dun & Bradstreet, L&T InfoTech, Fractal Analytics, Megaputer, EagleEye Analytics, Clarity Solutions Group, Dataguise, Quadrant, Actionable Analytics, Earley & Associates and DataDNA laid out the future potential.

Recent research shows that one major application of analytics — predictive modeling — is getting attention in pricing and rating, where more than 80% of carriers use it regularly. However, only about 50% use it today in underwriting, and fewer than 30% do so in reserving, claims and marketing.

Based on information shared during the conference, there are six major thrusts to the analytics trend:

• Analytics liberates and democratizes data, which in turn ignites innovation and change within carriers.

• Analytics is uniting insurance organizations, breaking down information silos and creating collaboration between operating units, even as enterprise data governance policies and practices emerge.

• Investment and M&A activity in information technology companies in data and analytics is surging and will create even greater disruption and innovation as more entrepreneurial thinkers continue blending art with science.

• New “as-a-service” pay-per-use models for delivery and pricing are emerging for software (SaaS) and data (DaaS), which will be appealing and cost-effective, especially for mid-tier and smaller carriers.

• Analytics is driving innovation in products, business processes, markets, competition and business models.

• Carriers will have to innovate or surrender market share and should watch for competition from new players, such as Google and Amazon, which understand data, the cloud, innovation and consumer engagement.

This article first appeared on Insurance & Technology