Playing to Win The Shrinking Insurance Workforce The Talent Crisis and its impact on Risk Managers

1. Playing to WinThe Shrinking Insurance WorkforceThe Talent Crisis and its impact on Risk Managers Presenters: Mark Charron Karen McDonald

2. Macro Workforce Trends Talent Trends in the Insurance Industry A New Approach to Managing Talent Getting Started

3. The Talent Game is Changing • Rise of global talent markets: • The 20th century saw the rise of customer and financial markets • Talent will be the scarce resource as we move into the 21st century • Firms will have to source talent needs across global market as local pools of critical talent dwindle • Nature of work: As ‘knowledge work’ prevails, organizations will have to find new ways of achieving higher returns on their largest investment. • Supply-demand: The gap is coming; between the Generation X and Generation Y groups there is a substantial short-fall in the numbers of available talent. • Shifting expectations: Not just the number of employees is at issue; recent statistics suggest that fully half of the workforce is disengaged.

4. Recommendations • Fore Street • Old Port Sea Grill • Cinque Terre • White Barn Inn • Arrows

5. Key Terms • Substitute “a” for “er”, thus • Lobster becomes Lobsta • Chowder becomes Chowda • Risk Manger becomes …..

6. Key Demographic Trends: For the first time in American history, the number of younger workers entering the labor market will not replace those who are leaving Every day 10,000 Baby Boomers turn 55 years old One in six workers will be over the age of 60 by 2011 For every two experience workers leaving the workforce, one will enter Workers age 25 to 34 will shrink by almost 9% in the 10 years ending in 2012 Labor Force Make-Up Percentage Change By Age Group (projected 2002-2012) 2002 30% 2012 20% 10% 0 16-24 25-34 35-44 45-54 55+ Macro Workforce Issues – Demographic Trends • By 2010, American businesses will face a labor shortage of more than 10 million workers • By 2030, the gap will grow to 35 million

7. Macro Workforce Issues – Skills Shortage Not only will there be fewer available, but new workers are not bringing the skills or education necessary to perform jobs being vacated by the retirement boom: • Today, 85 % of jobs require education beyond high school, compared to 61% in 1991 • Graduation rates at public universities have fallen from 48% in 1998 to 41% in 2002 • Only 38% of the US labor force holds at least a 2-year degree • It is estimated that 60% of future jobs will require training that only 20% of the current workforce possesses • By 2012, the American labor force will experience a 33% shortage of four-year degree candidates (a shortfall of 6 million graduates) • Even with unemployment at a relatively high level in the recent recession, unemployment rates were deceptive because of the lack of qualified candidates in many professions

8. Four Generations in the Workplace Generations Corporate Influence Characteristics • Birth Years (1925-1945); Age: 62-82 • Dedicated, respect authority • Share information as needed Board of Directors Veterans~5% • Birth Years (1946-1964); Age: 43-61 • Competitive, driven to succeed • Accept existing corporate structure C-Suite High-level Management Boomers~45% • Birth Years (1965-1981); Age: 26-42 • Pragmatic, adaptable, informal • Take charge of career • Use personal networks Low-to-Mid Level Management X-ers ~40% Entry Level • Birth Years (1982-1993); Age: 14-25 • Value empowerment, idealistic • Technology as a “way of life” • Value open, honest communication Y-ers ~10%

9. Macro Workforce Trends Talent Trends in the Insurance Industry A New Approach to Managing Talent Getting Started

10. Property & Casualty Trends Underwriting and claims workforces are encountering an “aging population.” Exhibit 1 Age Distribution of CPCU Members Age Distribution of Company Adjusters Source: CPCU Society Member Statistics, 2006 Source: Conning Research & Consulting, Claims Survey Property & Casualty underwriting and claims workforces are rapidly approaching retirement age, while…

11. Property & Casualty Trends …the number of professionals sitting for respective advanced professional designation examinations continues to decrease. Exhibit 2 CPCU Examinations Given AIC Examinations Given Source: American Institute for CPCU, 2006 Source: Insurance Institute of America, 2006

12. Increased Demand For P&C Talent Estimated Annual Company Underwriter Requirements Estimated Annual Company Claims Adjusters Requirements In 2004, the insurance industry had 101,000 P&C underwriters. By 2014, the demand is expected to grow to 109,000. Combining this growth trend with an aggregate estimated turnover rate of 15 percent over ten years means 23,000 new hires will be needed to fill this demand. Similarly, in 2004, the industry had 263,000 P&C claims adjusters. By 2014, the demand is expected to reach 308,000. Combining this growth with a aggregate estimated turnover rate of 15 percent over ten years will result in a need to fill 84,000 open claims positions.

13. Distribution Channel Key Concerns Other Cost of distribution 1% 25% Determining the best strategy 32% Attraction and retention of good producers Channel conflict 30% 12% Life Insurance Trends As companies look to improve profitability and grow their distribution, attraction and retention of the best agents is a major concern: • 30% of Deloitte survey respondents consider attraction and retention the biggest challenge in distribution • After 4 years only one in six agents remain with the average insurance company • The cost of developing one agent (identifying, recruiting, training) is $100,000 - $200,000 • A 5% increase in retention can mean a 15% saving in overall training cost • Seasoned agents write more profitable business

14. Age Distribution of Sales Agents1 65+ 9% 21% 45-54 29% 24% 0-35 17% Percentage of Population Life Insurance Trends The Life Insurance sector is witnessing an “aging workforce” pattern for sales agents. • Average age of an agent is 47 years old • Nearly 60% of Sales Agents are over the age of 45 1Data Source: Deloitte Consulting LLP Study, 2004

15. Acquiring Future Talent Reliance on college graduates to fill open positions is becoming increasingly difficult when competing with other industries. Exhibit 5 Employment Growth Rate Projections for College Graduates Cumulative Percent Change 2004-2014 Occupation Computer Software Engineers (Applications) Computer Support Specialists Computer Software Engineering Systems Network & Computer Systems Administrators Network Systems & Data Communications Analysts Database Administrators Computer Systems Analysts Physical Therapists Physician Assistants Postsecondary Teachers Claim Adjusters Underwriters Insurance Sales Agents Source: Monthly Labor Review, 2005

16. Implications • Insurance companies and brokers will be challenged to service their clients • Account teams will be less experienced • More job hopping as companies desperate for experience bid up compensation • The industry attempts to reverse “brain drain” through creative use of retiring boomers • Experienced Risk Managers more in demand to offset industry shortfalls

17. More Implications • Risk Managers will represent their risk more actively in the marketplace • Underwriters will have less experience forcing more automated underwriting decisions • Insurer and Broker employees will rotate through many positions: will they have the necessary depth? • Technology familiarity of Gen Yers and their focus on social networks develop new ways to communicate between organizations

18. Questions to consider • What is the team composition that is serving you? Higher compensation for better teams? • Reduction in risk management outsourcing? • Implications of “bid rigging” and ethics violations on the insurance industry? • More attorneys handling claims? • Higher compensation for industry professionals passed on through premiums?

19. Macro Workforce Trends Talent Trends in the Insurance Industry A New Approach to Managing Talent Getting Started

20. More Than Just Buying Talent • A 2005 Conference Board study asked employees what they expected from their employers. The top three responses were: • Interesting and challenging work • Open, two-way communication • Opportunities for growth and development • Money finished eighth on the list • Rich compensation packages are easily matched • Monetary rewards do not necessarily foster long-term commitment (see sidebar) • Average cost to replace an employee is 1.5 times average salary • On average, U.S. companies spend $1,415 in recruiting costs for every $10,000 of compensation • Developing internal strategies to retain and re-skill existing employees can save an organization anywhere from three to ten times the cost of replacing employees Retaining and developing current resources is more cost effective. Source: It’s 2008: Do You Know Where Your Talent Is?, Deloitte Research

21. A New Approach to Managing Talent Develop Building capabilities to achieve personal and business goals Deploy Creating experiences to perform to full extent of abilities Develop Deploy Performance Connect Connect Cultivating networks of high-quality relationships

22. Develop Ensure that critical workforces are acquiring cutting-edge skills Special Considerations for the Insurance Industry • Invest in new and more robust training approaches to deepen skills within underwriting and claims workforces, in order to develop next generation leaders • Foster a culture of constant learning and openness to new ideas; become more “cutting edge” on learning and innovation • Formal training is helpful for newcomers or the inexperienced • Most of what people know they learn on-the-job • Learning is social in nature; people learn through collaborating with others • People are more committed to the learning that occurs when they are “tested” in ways that matter

23. Deploy Strategic deployment of critical talent will enable intensified growth Special Considerations for the Insurance Industry • Consider sourcing semi-retired insurance professionals • Increase diversity within workforce segments • Look to new and innovative ways for recruiting college graduates • Focus new talent on expanding business to a wider variety of financial products & services • People learn the most in jobs that stretch them, and perform the best when they can define the role that taps their deep interests and the conditions required to succeed • Different people have different needs (flexible work arrangements, job re-design, totally different role, etc.) • One-size-fits-all policies and programs don’t meet diverse situations

24. Connect Enabling relationships will truly connect employees to the organization and each other Special Considerations for the Insurance Industry • Establish knowledge management programs to retain key knowledge from aging employees and pass down to new employees • Build a culture of compliance and integrity that can be leveraged to attract and retain employees • Organizational issues are becoming increasingly complex – collaboration is imperative • Who you know is becoming increasingly more important than what you know • Work is increasingly done in informal networks • People with rich networks tend to solve problems faster, with better results

25. Between Customers and Suppliers Between Strategies and Goals Connections Through Technology Across Teams and Silos Why Connect? Case Study: SAS – Bringing it all together SAS has been consistently recognized for taking care of its employees and has seen the return on its investments: • Provide aid for finding daycare and healthcare, on-sight workout facility and Montessori school reduce the number of distractions that hold people back from doing great work. • Vast majority of employees are given individual offices to help provide a space to concentrate. • Customer complaints are monitored and acted upon daily through a website and via phone. Once a year, SAS seeks customer input into what additional product features they seek and typically acts upon the top ten requests. • To address survey results, employee committees create action plans and present them to executives . Connection drives: • Innovation and value • Loyalty and commitment • Effective execution • Learning and growth

26. Three Distinct Types of Connections Connect People-to-People People-to-Purpose People-to-Resources Cultivating high-performance networks of high-quality relationships Building and sustaining a sense of personal and organizational mission Managing knowledge, technology, tools, capital, and time to achieve professional and business goals

27. Eight Practical Ways to Connect for Performance 1. Get strategic about onboarding • Assign mentors, coaches and role models • Encourage new hires to ask questions and listen (rather than reinforcing old behaviors by jumping right into projects) 2. Encourage ongoing performance conversations • Provide regular and frequent feedback on performance • Supplement formal performance reviews with informal feedback • Real-time technologies for collaboration and knowledge sharing (e.g., shared white boards, video, chat) • Blogs and Wikis • Communities of Practice (CoP) 3. Provide collaboration tools 4. Stimulate networks of high-quality relationships • Formally allocate time for people to connect • Social networking tools (e.g., MySpace, NineSigma.net) • Social Network Analysis

28. Eight Practical Ways to Connect for Performance • Actively encourage communities of practice around a shared interest or purpose • Help communities overcome obstacles such as organizational boundaries, time and distance • Shift the focus from individual capabilities to group capabilities 5. Cultivate communities 6. Make meetings meaningful • Keep status updates to a minimum • Foster meaningful conversations • Provide exercises to stimulate thinking, sharing and learning 7. Design physical space to foster connections • Group people around strategies and projects, not departments • Provide a mix of space (e.g., formal areas for teaming and collaboration; quiet space to think and reflect) • Provide people a cushion of time – to learn, think, reflect, or pursue other interests • Devote an allotted amount of time for employees to pursue projects they are passionate about outside their typical specialty • Make the hours that people spend at work more meaningful 8. Build an organizational cushion of time and space

29. Macro Workforce Trends Talent Trends in the Insurance Industry A New Approach to Managing Talent Getting Started

30. A Holistic Talent Management Approach

31. 1A. Creating a Talent Management Strategy • The Talent Management Prioritization Roadmap provides a detailed outline of actions and business case for the organization to enhance and integrate Human Capital programs over a defined time period • After analyzing and linking business strategy to the workforce, The Diagnostic Summary categorizes the results into 4 buckets based on industry trends: Strengths, Weaknesses Opportunities, & Threats • The Human Capital Program Diagnostic Tool is used to analyze current Human Capital programs with focus on Critical Workforce Segments Capability Commitment Alignment We then translate the results into three key outcomes of Develop, Deploy, and Connect that directly impact business execution Integrated Talent Management Strategy

32. 1B. Additional Strategic Planning elements Talent Strategies establish talent links to business strategies helping to identify future needs critical in driving the both organization wide and function specific strategies. Utilization of Human Capital Diagnostic Tools and Talent Management Prioritization Roadmaps helps to inform these strategic elements, which then contribute in building sustainable talent solutions. Critical Workforce Segments • The means by which organizations anticipate, develop, and secure an adequate supply of talent to ensure leadership continuity in key positions and develop and retain key talent for the future Succession Management • A methodical process by which organizations plan ahead to avoid surpluses or shortages of critical talent Workforce Planning • The groups within an organization that drive a disproportionate share of key business outcomes, influence organization’s value chain significantly, and are in short supply from the respective labor market

33. Recruiting & Staffing • Identifying and engaging the most appropriate candidates to staff an organization. Staffing includes placing the right people with the right skills in the right jobs to maximize personal performance and organizational success. Orientation, Onboarding & Assimilation • Provide employees with the skills, tools and insight they need to facilitate/accelerate their integration. Learning & Development • Develop the capabilities of individuals and teams to deliver sustained success to organizations through a focus on learning strategy, systems and courses, knowledge management and leadership. • A strategic and integrated process of setting, tracking and measuring individual performance objectives against organizational goals and competencies to develop the capabilities of individuals and teams to deliver sustained success to organizations; including compensation strategies for hiring and retaining talent. Performance Management & Total Rewards Workforce Transition • Proactively managing the transition of people to minimize the risk of operational disruption. • Competency models are a set of observable behaviors that encompass the knowledge, skills, and abilities that drive high performance for a particular role, job family, or function. Once defined, they serve as the integrating platform across interview assessments, learning paths and performance evaluations. Competency Modeling 2. Building Talent Solutions Talent Solutions begin by assessing the effectiveness of existing Human Capital (HC) programs to determine the need for enhancements or the development of new programs to improve the overall Talent Management effort.

34. Organization & Job Design • In addition to having the right talent it’s critical to have that talent operating in an organization and jobs structured for optimal performance and learning. • Culture can support or work against the business and talent strategies. Understanding what it is and desired changes can help shape the talent solutions chosen; for example, performance and rewards are key influencers of culture and behavior. Culture Collaboration & Knowledge Management Technologies • In order to enable talent solutions, technology must be included as part of the overall solution and incorporated into the long-term talent roadmap. 3. Utilizing Talent Enablers Enablers are significant elements in the organization environment that enable successful talent strategies and solutions and unlock talent potential. Virtual Workplace • Workplaces of the future often focus on virtual and remote spaces but we must not lose sight of physical spaces. The design of workspaces to reflect the nature of work – not hierarchy – is now recognized as an enabler of productivity.

35. Macro Workforce Trends Talent Trends in the Insurance Industry A New Approach to Managing Talent Getting Start

36. Summary • Significant percentages of the Insurance workforce will begin reaching retirement age in the next few years • Strain on brokers and underwriters to handle more complex risks • Declining pool of well-trained insurance professionals • There is a large number of underwriters and claims adjusters that will need to be recruited in order to meet future employment requirements • Risk Managers will need to manage this trend to achieve objectives of efficient risk transfer and quality service • New methods of attracting and retaining an increasingly diverse workforce will be necessary – the time to act is now

37. Contact Information Mark Charron National Actuarial & Insurance Solution Leader Deloitte Consulting LLP 860-725-3088 mcharron@deloitte.com Karen McDonald Manager Financial Services Industry Deloitte Consulting LLP 312-486-5022 karmcdonald@deloitte.com

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