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
www.albertrisk.com
Suggest a Risk
Tip. Send us a practical tip (less than 300 words) for
identifying and managing risks, buying insurance, managing claims,
or filling gaps in insurance coverages.
Submit your tips.
We'll acknowledge your contribution as we did for Don.
We have recently updated a number of the reference manuals in
the IRMI library and published new issues of
The Risk Report
and
Captive Insurance Company Reports. To make sure you don't
miss any of this new information take 30 seconds to scan the "What's
New" summary page.
For IRMI Online and Print
Subscribers
For
SilverPlume Sage subscribers
There are now over 700 risk management and insurance articles
on IRMI.com. Below you'll find summaries of some recent additions
with links to the articles.
The Gary
E. Bird Horizon Award is now accepting nominations for innovative
techniques or processes in construction risk management. See what's
new about the Horizon Award: teams are eligible, the submission
process is streamlined, and promotion of the winning idea is at
the winner's discretion. It's easy to qualify your nomination. Get
started today.
IRMI Update is sent to subscribers by plain text e-mail twice
each month. To initiate your free subscription, use the
e-mail registration form.