Talent Shortage

Global Talent Troubles

Insurers must focus on talent recruitment and development to grow their business.
By: and | April 7, 2014 • 7 min read

There’s a real irony at work in today’s global insurance industry — so much opportunity for growth, and yet that growth is threatened by a shortage of talent where it’s needed most. Historically, insurers rarely endured the war for talent that other industries fought, but those days are over. Today, insurers are banking on growth in markets where the talent to deliver it is thin.

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Insurance-industry growth is forecast to come primarily in emerging markets — mainly China, India and Brazil — as populations on those countries age, the middle classes swell and urban development soars. But finding the talent to serve those markets is a daunting task.

According to Mercer’s 2013 Insurance Industry External Labor Market Analysis, China’s current talent pool of some 16,800 insurance sales agents will require an additional 10,000 to match demand by 2018, while Brazil’s current pool of 40,000 agents will require 18,000 more.

But a 2013 State Street Insurance Survey (conducted by the Economist Intelligence Unit) finds that addressing talent shortages is not among the top strategic priorities of today’s insurers, focused as they are on enhancing product offerings, strengthening distribution models and proactively managing capital to improve their ROI. The issue of talent remains largely under the radar.

A look at some hard numbers helps paint the picture. Premium growth in the mature markets is unexceptional. According to market statistics from Axco, the United States has maintained 2 percent annual premium growth, to slightly above or below $1.6 trillion, since 2007, while the EU-15 countries and the UK have steadily declined since then.

Meanwhile, China saw 20 percent annual premium growth since 2007, to more than $200 billion; Brazil saw 26 percent annual growth since 2007, to nearly $75 billion in 2011; and India notched 14 percent annual growth since 2007, also to about $75 billion. Mexico held to 3 percent annual premium growth since 2006.

These numbers reflect the broad, macroeconomic reality, but the competitive landscape is a little more complex. Emerging market growth may lead that of the mature markets, but the opportunity for profit in those markets is even larger, because insurance has only begun to penetrate in the emerging world. Axco’s statistics reveal that, as of 2011, market premiums were a low percentage of GDP in the emerging nations: 1.9 percent in Mexico and 3.7 percent in China, India and Brazil, compared to 10.7 percent in the United States and 11.6 percent in the UK. As those percentages inevitably increase in the emerging regions, the competitive advantage will go to those firms that can recruit, develop, reward and retain the talent required for growth.

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 Supply and Demand

But realizing that advantage isn’t so easy. For example, the growth in demand for insurance talent in emerging markets such as China and Brazil is outpacing the talent pool. And the need for insurance sales agents, claims adjusters and underwriters is substantial in both countries. Local market knowledge is critical in the industry, thus adequate in-country workforces are essential to sustain business growth.

At the same time, insurers in mature markets have a relatively adequate supply of key talent, but competition for talent is quickly increasing. Insurers compete with sectors such as banking for key talent, yet tend to compensate talent less. The result is an insurance industry poorly positioned to win the talent war. The numbers can seem daunting: In the United States alone, the predicted number of skilled workers in the job market points to an insurance industry talent shortage of 21 percent for financial managers, 14 percent for sales agents, and 7 percent for actuaries, according to the U.S. Bureau of Labor Statistics’ most recent Occupational Outlook Handbook.

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Regardless of geography, winning the talent war on the ground requires the right strategy, and there’s no overstating the need for putting the right people in the right places. Competing successfully in emerging markets calls for local knowledge of regulations, financial instruments, customer needs, cultural issues and more. Counting on expatriate talent from, say, Canada or Great Britain to serve markets such as India or Malaysia carries large costs and obvious risks. Insurers need to pay appropriate attention to the attraction and development of talent within the markets they want to serve.

Another looming talent challenge is linked to the increasing transformation of how insurance products are devised, sold and supported. As in many other industries, the focus is on big data and predictive analytics to garner customer insights for developing new products that are matched to ever more refined segments of the buying market — for example, property/casualty products that match the scale and risks of entrepreneurial business in the various emerging markets, or life products that reflect the needs of shifting demographics, such as older populations in mature nations and younger populations in the emerging markets.

These new skills and capabilities that go hand-in-hand with new products and distribution models do not need to be in the same countries as the insurance consumer. The increasingly hot competition for big-data talent is global, and coexists with the need for the right regional talent.

 The Long Game

The insurers that can get ahead of these challenges by developing good strategies for talent development will win in the global marketplace. To the extent that insurers tend to pay less than other financial industry sectors, they may not be well-positioned to recruit desirable talent, which raises the familiar talent issue of “build vs. buy.”

042014_13talent_graduatesInsurers may need to partner with educational institutions, trade associations and governments in individual countries to connect with and develop future talent for the industry.

 

Depending on the country — and especially in the mature economies — buying talent in the external marketplace can be difficult and expensive. Thus, insurers that can’t compete for talent simply by paying for it need to create strategies for attracting and developing, or “building” talent. They can do so by investing in partnerships with educational institutions, trade associations and governments in individual countries to connect with and develop future talent for the industry, and by changing how they manage their own workforces to create needed talent from within.

Playing that long game of talent development makes strategic sense, since it takes into consideration big-data trends that can point insurers toward talent markets that can help them thrive. For example, in a recent study from the World Economic Forum (The Human Capital Report, in collaboration with Mercer), 122 countries were ranked according to four pillars that contribute to (or inhibit) the development and deployment of a healthy and productive workforce. Those pillars — education, health and wellness, workforce and employment, and enabling environment — vary significantly across mature and emerging economies, but some significant trends stand out that can be helpful strategic markers.

Look, for example, at some of the growth markets for the insurance industry. The WEF report’s Human Capital Index ranks China at a lofty 14th among the 122 surveyed countries in terms of how much of its population (between the ages of 15 and 64) is in the labor force, while Mexico ranks far below, at 86th, in the same measure. And yet the rankings reverse somewhat in tertiary education (post-high school), with Mexico at 45 and China at 77. The strategic inference to draw from that data is worth emphasizing: Most of China’s college-educated or highly skilled workers are already occupied in its labor force, which makes it more difficult to recruit the skills required by the insurance industry in China, while Mexico’s college-educated/highly skilled population is, overall, less employed despite a higher tertiary education ranking than China.

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This suggests that insurers with an eye on the expanding middle classes of the emerging markets would have a greater opportunity to immediately recruit experienced, skilled employees into the insurance workforce in Mexico rather than in China, where it may have to rely more heavily on building talent.

Strategic business decisions — where to expand operations, where to pursue M&A opportunities, sustainable growth targets — can only be nourished by data that shows where the right talent is most available for recruitment and development.

In the long run, the insurance organizations that bring a laser-like focus to their future talent needs will be the big winners, as the global talent wars of the 21st century continue to take their toll.

Rick Guzzo is a Mercer human capital strategy consultant based in Washington, D.C. Duane Bollert is Mercer’s global leader for its Insurance Vertical business, based in New York. Mercer consultants Colin Nagle and Han Hu contributed to this article. They can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]