A D&O Investment Plan: Hire Growth Now

The insurance industry is getting older and investing less.

I recently witnessed a spirited debate at an Advisen Casualty Conference.  One side took the position that the insurance industry is not promoting the hiring and development of the Millenial generation.  The opposition vigorously disagreed, arguing that insurance companies are attracting record numbers of resumes (as many as 20 for every available position) and that the caliber of recent graduates greatly exceeds anything the insurance industry has seen.  The comment was made that many, if not most, of the panelists and audience participants would not qualify for their current positions if they had to compete with the current generation of talent.

So this begs the question: Who’s right?

The answer is that both sides are.

The competition for entry-level positions has never been greater.  Law school and college graduates, along with freshly minted MBA’s, are finding the insurance industry an increasingly attractive career option, particularly after the financial crisis.  Traditional career paths, such as Wall Street and law firms, are tougher to break into for almost all but the top graduates from the top schools.  The ABA Journal recently reported that in 2013, there were on average 3.31 law school graduates admitted to the bar for every law job in the country, meaning that most of these graduates have to find other employment.   The investment in big data and a more scientific approach to insurance underwriting are attracting top-notch graduates from the STEM disciplines.  As insurance companies adapt marketing and branding strategies to the social media age, the more creative marketing graduates are drawn to the industry.  This is all very good for the business as it raises the bar in terms of talent levels and fresh ideas in an insurance industry desperately seeking to produce sustained, non-cyclical top-line growth.

But the other side in the debate has a valid point.  The truth is that we aren’t doing enough to hire the next great generation of talent.  The Federal Reserve Bank of New York has reported that as much as 46% of recent college graduates are currently working in jobs that don’t require a B.A. degree.  So while the overall unemployment number among college graduates since 2011 has dropped from a 2011 peak of about 7% to a current figure of 5%, these graduates of six figure college educations and four years of hard work are now more likely to be immediately connected to the debate over the adequacy of the minimum wage than they are to a professional position paying enough to exceed the poverty line.  Now this is not the insurance industry’s issue to solve alone, but we have a vested stake in it for a number of reasons.

The first reason concerns new product development.  Fresh minds bring fresh ideas.  They are less trapped in the “it’s never been done that way” because they haven’t been around long enough to know how it’s always been done.  They bring energy and passion to the conversation.  Moreover, they represent the next consumer generation.  Their views will increasingly reflect what businesses will want in terms of insurance products, services and solutions to meet their needs. They communicate differently and, as virtually any parent of a Millenial will tell you, they communicate all the time on all issues to all their “friends” on social media.  Baby-boomers are the consumption generation.  Millenials are the sharing generation.  They want products and services they are proud of, reflect their values and can share with others.  If the old adage is that your loyal customers are your best marketers, then it is exponentially more true today as companies can seemingly explode in growth or shrink dramatically almost overnight based upon on-line feedback and reviews of the Millenial customer experience.  It reminds me of the scene in the Tom Hanks movie, “Big” where all the toy product experts are sitting in a room congratulating each other over a new robot toy until Tom Hanks, the boy in a man’s body, raises his hand and says, “I don’t get it” before explaining how the toy could really appeal to the consumer.

A greater investment in youth will also motivate the more-established employees.  I don’t have extensive data on this one, but I have seen first-hand how smart, energetic young professionals actually motivate the baby-boomers.  They remind us of what it was like to be young and starting out, when the insurance business was new to us, and before we became trapped in a prolonged cycle of 3% raises and renewing the same account as broker or underwriter ten years in a row.  The best insurance companies and brokers strike a very healthy balance of providing overall team continuity to their clients but also rotating their best and brightest young professionals throughout different business units to diversify their experience, present them with new challenges and keep the environment as fresh for them for as long as possible.   I have personally seen long-term employees have a renewed vim and vigor in their step from taking on the role of mentor to younger professionals and wanting to pay forward the extensive underwriting and brokering expertise they have accumulated over long careers.  This will naturally increase sales productivity.  All other things being equal, a highly energized sales team will outsell a fatigued team all day long.  Energy and malaise are both contagious.  The youth movement will promote sales energy.

The bottom-line will also improve.  The elephant in the room is that Millenials cost a lot less than established, long-term brokers and underwriters.  As the mix changes with more baby-boomers retiring and more Millenials entering the insurance work force, the expense of delivering insurance products and services to clients will decline.  This is not happening fast enough, however, especially for the senior executives who have to answer to the short-term interests of Wall Street.  One response  is a hiring freeze, including not replacing those who leave.  Another alternative is to outsource work abroad or within the U.S. to lower cost states.  This has already begun.  Some firms are sending policy review, issuance, analysis and other work to India and other countries where there is a great, highly educated talent base to complete the work on a contract basis.  Law firms and other professional service providers are doing this too.  There are no health benefits to be paid and no pension obligations to worry about.  On a short-term basis where managing year-over-year and quarter-over-quarter operating margins is the measurement tool and validation behind a company’s share price; this makes sense.  Long-term, it is managing decline rather than investing in growth.

If you don’t believe that, then consider what will happen as the Millenial generation in the U.S. comes to drive more of the purchasing decisions.  Who will they buy auto, home, life and business insurance from?  I suggest that they will be more inclined to buy from insurance companies and brokers who supported their generation as they entered the business world.  They will remember those companies who invested in them, believed in them, made an effort to understand the challenges of their generation and gave them the first step on a pathway to a meaningful, diverse career.  The investment now will pay off for a generation.  It’s the same reason Henry Ford increased wages so dramatically despite how unpopular it was with investors and other business owners.  It does no good to produce a cheaper product if consumers can’t afford to buy the product or, even worse, resent the company that made it.  If we lose a generation as respects the quality of their early post-graduation experience, we risk our economic future.  That sounds dramatic and maybe a bit theatrical, but read some of what the United Nations reports and the U.S. federal government has to say about the connection between the failure to get a highly educated labor force meaningful work and social unrest, as well as economic stagnation.

It may not be the sole responsibility of the insurance industry to solve for the Millenial issue, but we can lead the way and do a lot more.  It’s time.