The first full day of the 2014 RIMS Annual Conference is in the books, and it was a fantastic start. The opening breakfast session featured the real “Wolf of Wall Street,” Jordan Belfort as the keynote speaker. Belfort seemed genuinely remorseful for his past misdeeds, but then again, his self-proclaimed greatest skill is the ability to sell and persuade. Consequently, it is difficult to discern how much of his sentiment is genuine remorse and how much is sales/persuasion. Given the popularity of the movie that chronicles his business life and crimes, his audience seemed genuinely curious and engaged by his talk. Belfort attributed some of the 2008 financial meltdown to an over-reliance on models and automated underwriting of mortgage loans at the expense of human underwriting and common sense. This observation was particularly relevant to the insurance underwriters in attendance who see an increasing amount of automated underwriting and wonder how the insurance industry can strike a balance between the efficiency and consistency of automation with the common sense, experience, and discretion of human underwriting professionals.
After attendees perused the exhibit hall for a few hours, the awards luncheon bestowed well earned recognition on several risk management professionals, and brought inspirational leadership speaker Bonnie St. John to the stage. Ms. St. John shared her inspirational story of overcoming adversity through determination, persistence, and always aiming higher. She praised the room full of risk professionals for the work that is done to prevent and mitigate all of the incidents that never become major news stories because they never happen or have minimal impact.
The afternoon offered many educational sessions across a number of topics. One area that continues to build noticeable momentum is the concept of enterprise risk management which significantly broadens the view of risk as compared to traditional risk management. The last RIMS conference that I attended was in 2006, and I do not recall seeing nearly as many sessions and references to enterprise risk management as I have seen this year. Enterprise risk management expands the risk perspective beyond the typically insurable risks related to property and personal injury, and takes into account business risks related to strategy and reputation. It’s a welcome and logical evolution of the risk management profession, and one that Ferris State University stresses to its students.
RIMS 2014 is off and running!
Denver is known as the mile-high city, and recent political and legal events in the state of Colorado with regards to a certain controlled substance have given that identity an entirely new meaning. However, for the week of April 27 the focus in Denver is on the 2014 annual conference of the Risk and Insurance Management Society (RIMS). I am pleased to be here in Denver to attend the conference, and even more happy to be accompanied by Ferris State student and graduating senior Ethan Henderson.
Ethan will soon be launching his commercial underwriting career shortly after graduation in May, and his attendance at the RIMS conference will provide him with many opportunities to expand his industry knowledge and connections. I will invite Ethan to share his impressions of the conference, as I will also share a few thoughts of my own from the conference. The larger point to make in this post is that Ferris State Risk Management and Insurance students will have opportunities for industry immersion in events such as RIMS over the months and years ahead. It’s one thing to learn about the industry in classrooms, textbooks and through research papers, but it is quite another matter to experience the industry firsthand. It is my hope that all Ferris students will avail themselves of industry events such as the RIMS conference in the future.
I have a soft spot in my heart for entrepreneurs. They tend to be incredibly optimistic, energetic, and fearless risk-takers. That last trait generally doesn’t go hand-in-hand with the insurance industry, and yet there are many independent insurance agents who are true entrepreneurs. The risk management and insurance industry offers several career paths for those who don’t wish to “sell insurance,” though I would argue that every job, no matter the industry, requires some degree of sales acumen – but that’s a topic for another blog. For those who fancy themselves entrepreneurs, cherish independence, seek success-driven rewards, and enjoy human interaction, being an insurance agent offers tremendous entrepreneurial opportunity.
There are many resources available to explore the insurance agent career path, including a brief personality test. Some additional information on being an insurance agent can be found here. For anyone considering the insurance agent career path, allow me to offer some more straight talk on being an insurance agent. The job is much more than “selling.” Personal and commercial consumers of insurance need more than just an insurance policy. They need problems solved. They need consultation and advice. They need advocacy and assistance during their darkest moments after disaster strikes. Some recent anecdotal evidence suggests that even with today’s easy internet commerce reaching into the insurance market, the majority of consumers begin their insurance research online but still decide to make their insurance purchase transaction with a local, face-to-face insurance agent. What an opportunity to be the problem-solver, advocate, and comforter, all while building a business fulfilling these roles.
What about earning potential? Generally speaking, a college graduate can land an entry-level position with an insurance carrier or large brokerage with a higher starting salary than they would earn in their first year as an insurance agent. But guess what. A few years later, the earning potential of those staff positions in the large companies will tend to plateau while the successful insurance agent/entrepreneur can be earning substantially more and building a business that they own and can someday sell. There is also the freedom and independence that distinguishes insurance agents from corporate staff positions in the industry. I’ve talked to several insurance agents who value the flexibility of the career which has allowed them to earn an excellent living and still make it to their kids’ ball games, or even be the coach.
I acknowledge that selling insurance is not everyone’s cup of tea, and “insurance sales” is a stigma that tends to drive young people away from the insurance industry as a career choice. There are plenty of wonderful career options in the industry (e.g., underwriting, claims, risk management) for those who have an aversion to sales, but I hope that every young person considering a career in insurance will look at the insurance agent opportunity with an open mind. Millennials are reportedly very entrepreneurial, and the insurance agent career option should be very appealing to this freedom-loving generation.
For many consumers and citizens, the mention of insurance and government elicits fear and loathing. Looking beyond the initial reactions and the stereotypes, we realize that both are necessary components of an orderly, prosperous economy and society. Insurance and government are necessarily intertwined, ranging from social insurance to regulation to market support. There are currently two prime examples of this relationship and the ongoing dance between the private insurance industry and government.
First, the National Flood Insurance Program (NFIP) is in bad shape, $24 billion in debt. In a rare demonstration of fiscal responsibility, the US Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012. The reform would have phased in premium rates that were more reflective of the flood risk and updating the flood maps on which premium rates are based. I say “would have” because the politics of Biggert-Waters has led to its unraveling through subsequent legislation that basically undoes much of the original reform. Politicians’ knees became weak when flood-prone property owners and the realtors who sell such properties were inflamed by the eventual rise in flood insurance premiums. So the government’s fiscal train-wreck that is the NFIP is off the track once again.
The second example is the imminent expiration of Terrorism Risk Insurance Act (TRIA) later this year. After the September 11 attacks, it was apparent that the private insurance industry could not insure the losses connected with a major act of terrorism. In order to stabilize the insurance market and the terrorism exposures of our post-9/11 world, the government stepped in with TRIA which provided a government “backstop” to cover up to 90% of terrorism losses above certain thresholds. The looming expiration of TRIA has rattled the insurance marketplace because of the uncertainty over the future of the government’s terrorism backstop and its structure if it is renewed. There are some credible arguments against renewing TRIA altogether. Insurers are already hedging by writing policies that expire at the same time as the current TRIA law so that they can write new policies with different terrorism coverage provisions in response to a possible world without TRIA, or a radically different TRIA. The point is, once again the government and the insurance industry are very much intertwined, for better or worse.
There are many, many finer points in both the NFIP reforms and the TRIA expiration/renewal that I do not have time to explore here. The larger point that led me to raise these two issues today is the ongoing and unavoidable interaction between the insurance industry and government. Although these examples both originate at the federal government level, there are countless issues at the state government level – Michigan no-fault auto insurance reforms being a prime example. The libertarian in me prefers government to get out of the way of private insurance and let the markets sort it out, but the pragmatic economist in me knows that there has to be a government role in insurance. I just wish the dance between these two giants wasn’t so darn ugly.
The insurance industry is getting old. My apologies to many of my generational colleagues in the industry, but it’s an undeniable truth – many of us working in the insurance industry are closer to retirement than we care to admit. While a large portion of the insurance industry workforce begins to dream of year-round golf, traveling, and pina coladas, leaders must first pave the way for new workers to fill the gaping talent hole that the baby boomer insurance generation will leave behind.
According to one report, the industry will have 400,000 positions to fill by the year 2020. That’s a pretty tall order which is made all the more challenging when the industry is also faced with some stigmas in the minds of young people who are considering both academic and career options. When I talk to young people about the insurance industry as a career option, the most common initial reaction is some variant of, “I’m not interested in selling insurance.” The challenge that must be overcome, if the industry hopes to attract sufficient young talent, is communicating the variety, stability, rigor, and reward of an insurance career.
Over the coming weeks and months, I will write about some specific insurance career options that young people should give serious consideration. For now, let me close with this: I recently had the pleasure of talking with a principal of a very successful independent insurance agency in southeastern Michigan. We talked about this very issue as he related the fact that there are probably one-fourth of the independent insurance agents who are now (or soon should be) giving serious consideration to succession plans. He said that they need to do a much better job of communicating the opportunity for challenge, reward, and perhaps business ownership to young people. We covered quite a bit of territory in our 90 minute conversation, but this was the most striking part of the conversation for me. The career opportunity is significant, and insurance is so much more than just “peddling policies.” That is a reality that I will revisit in the coming months, as I attempt to do my part to vividly communicate the scope of insurance career opportunities and get past the stereotypes and stigmas.