IRMI Update—Issue #138
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
June 7, 2006
In This Issue
Colleague,
What is the most important problem facing the U.S. insurance industry in
the next 3 to 7 years? I think it is "people." This country is going to experience
a major shortage of "knowledge workers" in the very near future. Look around
at the next industry meeting you attend. I'll bet you will find that the majority
of those present are "very experienced" (i.e., closing in on retirement). Meanwhile,
as we face soaring numbers of baby boomer retirements, there will be few young
people to replace them. The insurance industry must compete with all other industries
for this shrinking talent pool, and it is not well-positioned to win the best
and the brightest in a competitive environment.
And what do we do with inexperienced young people when we are successful
in recruiting them? While there is some evidence that insurers and brokers are
increasing their training and developmental programs, they are still not the
priority they need to be in most organizations. If you fail to stimulate and
challenge your young employees, they are going to look elsewhere for employment.
While this may be true for the industry as a whole, it doesn't have to be
true for your company. Here are a few ideas to consider:
- Develop a relationship with one or more of the universities with risk
management and insurance majors, and recruit their graduates. These young
people have already been sold on the industry—hire them, and keep them!
- Make certain you use the best possible hiring process to bring the right
people on board to begin with. Hasty, poor hiring decisions made by overworked
managers are among the costliest mistakes that companies make. Turnover
is expensive now; it will be even more costly in the future.
- Implement a training process that will challenge and motivate young
employees, exposing them to various facets of your company and the industry.
Companies that develop effective strategies for hiring and keeping the best
and the brightest today are going to be the success stories of the next decade.
What do you think? Is this really a potential minefield for the insurance
industry? What other solutions would you like to suggest for our readers? [See reader responses.]
Thank you for subscribing to IRMI Update. Have you recommended it to a friend
or colleague lately? I would certainly appreciate your doing so.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Don't Wait for a Hard Market To Investigate Alternative
Risk Financing—By some estimates, the so-called alternative markets account
for as much as 40 percent of all risk-related expenditures. Unfortunately, most
converts to the alternative markets do so under duress or of necessity. Why?
Invariably, a hard insurance market pulled the rug out from under their false
sense of security.
The expression "alternative markets" is a misnomer. The alternative markets
are actually a collection of risk financing techniques designed to facilitate
various forms of self-insurance. Pure self-insurance is also an alternative
markets technique insomuch as it differs from no insurance; the former connotes
the recognition and management of retained risk, and the latter simply means
the lack of same.
Active risk management comprises much more than just buying insurance. Companies
that rely heavily on risk transfer suffer the inevitable consequences of such
a strategy, to wit: unpredictable market cycles with risk premiums that often
bear only the slightest relationship to the client's actual risk profile. Why
do so many risk managers and company owners subject themselves to this treatment
year in and year out?
While I cannot answer this question, I can recommend another approach. First
of all, except for small companies, only purchase insurance for the extraordinary,
catastrophic loss events. All other losses can and should be managed on the
balance sheet. Second, the "making hay while the sun shines" mentality of buying
a lot of insurance in soft markets and retaining a lot of risk in hard markets
is a fool's game. Don't let the insurance industry dictate your risk management
strategy.
Third, define your tolerance for risk and design your risk management program
around it. Fourth, refuse to play the insurer's game, and use their self-inflicted
market cycle against them by buying only high excess risk transfer regardless
of what the cycle is doing. Let them slash their prices for primary risk transfer
to attract your business—you can ignore them; you've got a better plan, one
with far less volatility and long-term costs.
Finally, always negotiate alternative market deals such as captive fronting
and excess insurance when the market is soft. It doesn't take a genius to figure
out that it's better to negotiate from a position of strength than the other
way around.
By: Donald J. Riggin, CPCU, ARM
Albert Risk Management Consultants, Inc.
Needham, MA
driggin@albertrisk.com
www.albertrisk.com
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acknowledge your contribution as we did for Don.
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