Over the last few years, reinsurers have suffered from low premium rates and over-capacity in the market, leading to extraordinary consolidation of companies around the globe. This has produced tighter knit businesses with a real need to retain the best people and hire smaller numbers of high quality people.
Even with mergers of companies, such as ERC and General Re/Cologne Re, which should reduce staffing requirements, there seems to be a shortage of those quality professionals who can make a real difference to the success of the business. Rather worryingly, the reinsurance community seems less concerned about bringing in new blood than the direct market.
Critically, we have seen a change in tempo in the reinsurance markets around the globe. Examples are the collapse of the Australian reinsurance sector which looked so confident a few years ago, and big changes in the London market, particularly at Lloyd's which has seen a significant consolidation of syndicates. Consolidation has, of course, affected insurance brokers as well. Aon and Marsh have seized a great deal of the market, leaving Willis, Jardine Lloyd Thompson, Gallaghers and niche brokers such as Carvill and Millers, snapping at their heels
Very little has been said about the redundancy programmes which have been going ahead. In the case of London, it is easy to forget that thousands of brokers and underwriters have moved out of the London market (re)insurance sector - and there are many more to follow. ERC Frankona is an interesting case in point. Over the last few years ERC has merged with Frankona, Kemper Re and Eagle Star Re and is now going through a major transition to modernise the way it does business. But many people, particularly at a more senior level, have had to move on to other things.
Despite consolidation of the broker and carrier communities, there is still over-capacity and it looks as though consolidation will continue.
People are often reluctant to move from one company to another - but things are changing. Professionals are more alert to new job opportunities than they were. Issues, such as capital backing and rating and the general professionalism of reinsurers, are critical when it comes to retaining the best people.
Reinsurers often appear not to take their human resources departments very seriously. There is a worrying lack of expertise in compensation and benefits. Companies are still failing to use combined short and long term incentive schemes, equity is often not available and the excellent delayed compensation incentive schemes are rarely used to keep good quality people.
Brand, franchise, size and strength are all crucial factors in the success of reinsurers today, but the quality of the people is what really makes the difference. High quality management is everything and I believe the reinsurance community is falling behind the direct market in bringing in high quality people from other sectors.
Bringing in new blood
There are many examples of direct insurers bringing in outsiders to take up senior management roles, introducing new blood, new ideas and management techniques never seen before in the industry. One such example is Patrick O'Sullivan, chief executive of Zurich Financial Services, who was recruited from BZW where he was chief operations officer. Over the last 2-3 years, he has initiated a turnaround in what was the Eagle Star business and has merged this with Zurich General Insurance's business.
One of his management techniques has been the use of “workout”, where staff at all levels are asked to contribute to efficiency programmes (one day sessions where decisions are made and actioned). This old GE concept has worked very well, creating considerable savings and improving best practices. Apart from perhaps ERC (a GE company), where else have we seen such techniques in the reinsurance sector?
Aon recently brought in senior outsiders from the investment banking community and other areas, to beef up their management ranks and change the way that they do things. Axa in the UK has hired e-commerce professionals for the start up of e-Axa. However, there are very few examples of reinsurers innovating in this way.
Alternative risk transfer (ART) and e-commerce provide excellent opportunities to recruit new talent from investment banks and consultancies. However, companies must understand that, in order to attract this talent, they have to offer attractive prospects, both financially and from a career point of view.
Recipe for success
Reinsurers will always need specialist reinsurance underwriting skills, but many other functional positions could be carried out by outsiders - as they so often are now in the direct market. The reinsurance community should follow its direct cousins and think and hire out of the box. It will make a very big difference to the way they operate going forward.
In summary, reinsurers need to be more imaginative about attracting and keeping good people. Retention techniques include good management and professionalism, as well as the obvious strengths of capital backing and the rating of the business. But in addition, from a package point of view, the use of equity (when available) and short and long term incentive programmes, will make a big difference. The reinsurance community should perhaps take a lead from the direct market. In many cases, the high quality new blood brought in from outside the insurance sector is making substantial improvements. It has never been more crucial for the reinsurance community to focus on quality people, bringing in high-powered professionals and then retaining them.