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Talent management and succession planning in the European insurance industry

about spencer stuartSpencer Stuart is one of the world’s leading executive search consulting firms. Privately held since 1956, Spencer Stuart applies its extensive knowledge of industries, functions and talent to advise select clients — ranging from major multinationals to emerging companies to nonprofit organizations — and address their leadership requirements. Through 50 offices in more than 25 countries and a broad range of practice groups, Spencer Stuart consultants focus on senior-level executive search, board director appointments, succession planning and in-depth senior executive management assessments. For more information on Spencer Stuart, please visit www.spencerstuart.com.

about the spencer stuart european Insurance practIceSpencer Stuart conducts senior-level executive searches, board director appointments and human capital assignments for a wide range of clients within the European insurance industry. Our consultants, many of them with years of senior-level executive experience in the insurance industry, have access to more than 15,000 insurance executives worldwide and are knowledgeable in key areas that are critical to many companies, including product management, alternative distribution, offshore operations, risk and capital management, and governance. We conduct assignments in the Broking, Life, Property-Casualty and Reinsurance sectors.

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Our research into attitudes and approaches to talent management

and succession planning involved a series of in-depth interviews with

senior executives from 15 leading insurance companies in Europe. The

themes emerging from these discussions are developed in this paper.

The companies we talked to range from brokers to primary insurers to

re-insurers. Although these businesses differ from each other in many

respects, in this study we set out to discover how the wider European

insurance industry is approaching the twin challenges of talent

management and succession planning, and to what extent companies

are preparing for a future in which securing top-flight leadership skills

and experience will be critical for their long-term success.

ContentsIntroduction 2Approaches to succession planning and talent management 3Competency models and performance measurement 5Balancing technical expertise with broader business management skills 5Building a mobile, global talent pool 6Diversity in the European insurance industry 6The value of job rotation 7External benchmarking 8Rewarding people for developing talent 9Who is responsible for succession planning and talent management? 10Conclusion 11

Participants 12Spencer Stuart European Insurance Practice members 12


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Introduction

Talent management and succession planning go hand in hand.

Managing talent is about providing opportunities for people with the highest potential in an organisation to learn, develop, gain useful experience and progress in their careers. It means stimulating and retaining the people who are destined to play a major role in the future of the organisation.

Succession planning is about the identification and development of future leaders. This task is made much easier where talent has been well managed. After all, the right successors are unlikely be found inside an organisation where the talent has not been properly nurtured and developed. Succession planning forces an organisation to look closely at its talent, develop reliable assessment procedures, and ensure that they are applied systematically across the board.

In most European insurance companies, formalised talent management and succession planning processes have been introduced relatively recently, i.e. within the last five years. Based on comparable studies we have conducted in other parts of the financial services industry and in consumer and technology businesses, it is clear that the insurance industry lags beind other industries in this respect. But even for those that have been active in this area for some while, getting people’s attention and doing it right remain a challenge.

European insurance companies are starting to recognise the value of talent management and succession planning, although in many cases there appears to be a substantial gulf between intention and reality. Many good programmes exist, but do they deliver?

Rolling out a succession plan across an organisation usually involves significant cultural change, and the insurance industry finds it harder than most to embrace such change. There is evidence of excellent programmes in place and there is plenty of innovation; but there is also conflict between progressive ideas and some of the more traditional, conservative approaches that resist the performance-based analysis and appraisal procedures necessary for creating a meritocracy.

Finding potential successors — being able to replenish and enhance leadership from within — requires discipline, sound processes and commitment from all levels of the organisation. The impetus and framework need to come from the top (this is not always apparent), but much of the effort takes place at grass roots level. In the next section we look at some of the efforts being made to introduce best practice into European insurance companies.

Talent management and succession planning in the European insurance industryTalent management and succession planning in the European insurance industry

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Approaches to succession planning and talent management Most companies have prioritised their succession planning by giving greatest emphasis to the top two layers of executives. The executive board of one major company reviews its top 50 positions — a mixture of senior functional roles and business leaders — as often as quarterly.

“Succession planning has to be driven from the top. Its purpose is to ensure that a pipeline of talented individuals is in place.”

Many companies are only now beginning to build talent management programmes for high potential middle managers and junior staff. Among the businesses we spoke to, the number of “high potentials” being tracked varied hugely, from as few as 30 to as many as 1,400 in one of the larger companies.

The most interesting and dynamic programmes reach right down through the organisation, identifying promising talent from senior managers to recent graduates, and seeking opportunities to develop that talent.

“We are focused on continuity and longevity.”

One company uses its organisation and development review as a mechanism for identifying areas in which it needs to excel, what the implications are for leadership, and where those leaders might be found. Both immediate and longer-term succession issues are examined, and a range of information is maintained on key prospects, such as career moves to date, perceived strengths and weaknesses, language ability, and mobility. People are “force-ranked” based on a range of performance criteria.

“Previously succession planning meant having nice talks with nice people; now we take care of the succession of over 150 people all over Europe in key functions.”

Companies categorise their high potentials in different ways. One has four grades (including one for specialists whose skills mean that they are unlikely to move into general management roles). People in the junior grade are, wherever possible, placed in generalist roles early in their career and given “stretch promotions”. People in the higher two grades are given individual development plans and offered tailored coaching. A second company first looks at key succession areas, then assesses people in terms of timeframes and their readiness for positions in 0–2 years, 2–4 years and 4–7 years. It has created a series of development programmes to accelerate individuals and move them up in a shorter timeframe. A third company has identified a “raw talent group” to ensure that it does not overlook its outstanding junior staff.


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“It is all about training, self-discovery and learning.”

One of the hardest challenges is identifying talent early and giving people significant roles — or at least meaningful projects or development activities. This sometimes means moving someone senior, which can be awkward. So, the challenge is not always about identifying an internal candidate when there is a vacancy, it is about creating a vacancy in the first place.

“I think it’s quite likely that in five years time the leadership profile will be very different, and in any case I don’t think that leadership is a fixed concept.”

At the heart of any talent management or succession planning programme there has to be a clear understanding of where the company, and indeed the industry, is going. It stands to reason that the business strategy will determine what kind of people the company needs in the future and where they may be found.

Leadership is not a fixed concept — as in other sectors, insurance business models are changing. Companies are diversifying into new geographic markets, for example China, Russia, India and Eastern Europe; a variety of new strategic partnerships are evolving; and there is a significant increase in off-shore and outsourced activities. All these factors increase complexity and change employee profiles. They call for the introduction of new management skills. Flexibility is essential — companies with the ability to identify these new skills and develop their talent accordingly will have a competitive advantage over their competitors.

“I am a great believer in saying that the process doesn’t make it good — what really matters is the quality of the discussion and the actions that are taken.”

Talent management and succession planning initiatives have to deliver results or they will lose support. Insurance companies have to contend with the reality that assessment procedures are often unpopular or applied inconsistently, the evaluation of individuals can be highly subjective, transparency may be lacking, and processes perceived as bureaucratic.


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Competency models and performance measurement Most companies we talked to operate competency models, managing them entirely in-house. These vary in sophistication; some are specifically designed as an internal leadership assessment tool, others are fairly generic. Not all are linked to succession planning, although they often feed into training courses that are devised to fill competency gaps.

“The CEO wants to change the business and its culture: We will need new type of managers. As a result, the leadership competency model will be revised.”

Competency models are usually directly influenced by strategic plans, but not in every case, which is surprising. Competency models designed to evaluate managerial and leadership skills tend to be fairly mature and consistently applied, but technical competencies (in actuarial and risk areas, for example) rely on other methodologies to capture performance achievement.

Annual appraisals (increasingly 360 degree appraisals) are becoming more common, although these are not at all popular, especially among brokers. Increasingly, bonuses are being linked directly to appraisals as companies relate compensation models more closely to competency and performance issues. That said, succession planning is not always linked to the competency model, and more could undoubtedly be done to connect the two.

Balancing technical expertise with broader business management skills

“Until very recently, company culture focused more on technical rather than managerial content of executive roles, as often happens in this industry.”

The combination of general management and technical skills is highly sought after in the insurance industry. The changing pace and shape of insurance is putting a premium on business and managerial competencies. While technical roles (e.g. risk, finance, actuarial) remain critical, there is no question that increased emphasis is being placed on the development of managerial skills.

One company that has traditionally focused on retention and remuneration is now turning its attention to development and management. It has undertaken to train the top 500 executives, mostly managers and some brokers, on leadership and the inner workings of a business.


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Building a mobile, global talent pool

“If we had built this requirement into our talent management four or five years ago we would not have the difficulties that we have now.”

Within larger, international companies, there is a widespread recognition of the importance of building an international talent pool that is capable of meeting the challenges of an expanding, increasingly global business. Perhaps inevitably, nationally based insurance companies are less interested in developing international talent.

Global functions in particular require a global approach to developing talent. Many companies keep track of who may be suitable to take up cross-border appointments. Indeed, individuals who are interested in and available for overseas postings are at a distinct advantage when it comes to joining the high potential talent pool in some companies.

“There is an international talent pool, but mainly for junior managers at international subsidiaries. Our goal is to implement a plan for an integrated strategy for all domestic and international employees.”

Diversity in the European insurance industry The insurance industry may not have been an early adopter of diversity policies, but the issue is now being addressed across the board. There remains a shortage of women in leading positions, although there is less gender imbalance at more junior levels. However, with the outsourcing of many back office roles, one company admitted that 90% of its remaining workforce is white and male.

“In terms of diversity we have an equal match of men and women but not an equal distribution in seniority. We have a culture of very long hours and that does not suit all women.” “Cultural awareness is increasingly on the agenda and diversity is included as a topic in our leadership academy programmes which is the training ground for our top people.”

Producing broader candidate lists is on the agenda of most companies, but efforts to improve race and religious diversity are generally less advanced than gender diversity. Promoting and hiring on merit is the norm, with affirmative action rarely practised in the European insurance industry. As one participant commented: “we stretch promote people according to whether


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they can do the job, not in terms of positive discrimination, but we are mindful that we have to manage candidates carefully.”

“There is only one woman in a top management position, despite the fact that 60% of our employees are female.”

“When looking at making internal promotions, we always try to have a woman’s name on the list.”

One company, frustrated with the finite talent pool within insurance, recently hired a number of bright people from outside the industry, particularly from law and consulting firms. Within a year these new recruits had gained a good grasp of insurance and were starting to make a serious contribution, bringing with them welcome energy and a fresh perspective. In their own way they had brought with them some diverse thinking into their new organisations.

The value of job rotation

“Insurance companies are still the domain of barons and godfathers. We are moving people across some geographical/functional boundaries, but not a lot and certainly not enough.”

Job rotation is generally recognised as a positive, desirable thing — for some companies it is a prerequisite for taking on senior roles. Job rotation is most common in the first decade of an insurance career, after which people generally become far less mobile than in other industries. Having encouraged people to move around the organisation it is important that they return to a more senior role.

Secondments — an alternative to job rotation, and a good way to give experience to high potentials — can be expensive to arrange. Business unit accountability can make it difficult for people to move around the company, and more conservative managers are often loathe to let good people go. Such attitudes will need to change if insurance companies are to retain and develop talented individuals for the long-term benefit of the organisation.

“Our businesses are like silos currently. We could benefit from rotation. But I don’t believe in top-down planning for people. I’d rather know the talent pool and make sure that internal candidates are brought forward between business areas when a position has to be filled.”

“We are putting in place a more formal and effective mentoring programme.”


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External benchmarking As we have seen, changes in the financial services industry, and particularly in the insurance sector, are forcing companies to revise their business strategies, often taking them into new and unfamiliar territory. Sometimes a company is unable to supply all of its leadership needs from within, and is left with no option but to look outside.

Even if a company believes that it is self-sufficient in terms of talent it is often regarded as essential, when a succession event occurs, to benchmark internal candidates against competitors and an even wider potential talent pool.

“The insurance industry traditionally tends to stick to its own”

“Recruiting for brokers is more of a wine bar scene.”

However, external benchmarking appears to be the exception rather than the rule for insurance companies. Few have a screening or assessment model for potential external candidates, and systematic benchmarking of the competition is extremely unusual. One person told us that he will occasionally meet high potential people from outside the organisation on a speculative basis, whether there is a job or not — but this is a long way from systematic benchmarking.

This lack of external benchmarking may result from the strong sense of self-sufficiency that permeates many insurance companies. In some instances this might be characterised as complacency or even insularity.

“In the broking industry we have been very myopic and very incestuous…our sons and daughters marry…and people remember favours dating back decades or generations.”

Insurance companies prefer to make internal appointments when possible, looking outside only when subsidiary and/or parent companies have not turned up suitable candidates. External hires tend to be more common in financial and other functional roles.

External consultants are occasionally used to validate internal promotions (for example, combining psychometric testing with in-depth interviews). However, looking outside the organisation for potential recruits is noticeably less common than in other industries.

“We are much more about internal mobility rather than looking outside. However, for functional roles we can be more external.”

“We actively try to avoid cannibalisation in the industry — it just increases pay-levels.”


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The creation of specific talent pools tends to be reserved for very senior positions only, and inclusion in such a pool can involve a tough selection process based on a set of leadership competencies.

External talent pools are developed in a less formalised manner, often as a result of networking and building professional relationships in the market. On the whole, insurance companies do not keep target lists of companies from which they seek to recruit.

“We are much leaner than we were, which does reduce opportunities, and the demands on senior people are much broader. An internal oversupply can lead to frustrations which need to be managed.”

Static employee populations in some companies can make them a recruiting ground for other organisations, which makes talent management schemes all the more important.

Rewarding people for developing talent

“This is a deficit. We still have a substantial number of people who think talent belongs to them and not to the company.”

Few companies issue financial or other incentives to employees for developing people with talent or contributing to succession planning programmes. Those that acknowledge the value of rewarding people for developing talent have yet to incorporate this into the assessment process.

“The incentive we have regarding succession planning is that people will not sit in a meeting with the chief executive with no plan in front of them. Peer pressure is helping in this regard.”

“Top management is being rated on the number of talented people identified who would be available for other parts of the company, and those willing to go abroad.”


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Who is responsible for succession planning and talent management?

“I wrote a paper with ideas about talent development and got management to agree it before I joined.”

“We have a short-term mindset in the industry and long-term planning is lacking strategy. In five years here, I have effected more change than in the rest of my career put together. A lot of further change rests on HR becoming more professional, less supporting and a more action-orientated function.”

Many of the HR people responsible for implementing succession planning and talent management schemes in insurance companies have brought their expertise, along with a raft of new HR policies, from other sectors. While it is clearly desirable to get succession planning right to create continuity and long-term stability in an organisation, a judicious injection of new ideas from outside the sector can have a positive impact — especially in an industry that has a tendency to be rather insular.

“Strategic HR was not always at the top of the senior management agenda. Recently I have been given a clear mandate to establish competency inventory, competence development, management assessment, and management development programs. We’ll see in a year how enthusiastic the business is.”

The companies with most effective succession planning and talent management programmes tend to be those in which the CEO and top management are driving the agenda. This is true of every industry, but in the relatively staid world of insurance the inspiration must come from the very top for such programmes to achieve their full potential.

In multinational companies which are often more progressive in this area, both talent management and succession planning are viewed as the shared responsibility of HR and the line. The best results are to be found where the CEO, HR team and business leaders are equally committed to managing talent and planning for leadership succession.

“We have a culture in which the bosses are involved in the businesses and no-one sits in an ivory tower. I know significant details about the businesses and know who the stars are three layers down.”


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Conclusion

“We could do better at retaining people. We lose people before they get a sense of what life could be like if they stuck around.”

Many strong talent management and succession planning programmes have been developed by European insurance companies, but there is a long way to go before most companies catch up with best practice outside the industry. During the next few years, companies will need to consolidate what they have in place already, and take their programmes deeper into the organisation for their long-term self-interest.

As the insurance industry becomes more global and business models change, a talent pool will have to evolve that is capable of meeting the challenges facing the industry, one that reflects the global diversity and cultural breadth of its customers.

There has been a noticeable change in the European insurance industry towards a more meritocratic environment. Many excellent programmes are in place throughout Europe, but they have not yet had a lasting impact. It is critical that insurance companies push ahead with the implementation of their human capital programmes, while maintaining a close eye on best practice outside the industry, so that they are receptive to new ideas, innovative solutions and fresh talent.

“Innovation and creativity are going to be at a premium. We can expect to see more and more non-insurance people on the executive board, most likely from other financial services companies.”


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Participants

We would like to thank all those who gave their time to participate in this survey. They included senior executives from the following European insurance companies:

Spencer Stuart European Insurance Practice members

AIG Europe (UK) LtdAllianz SEAon LtdAviva plcBarclays Insurance

ERGO (Munich Re Group)Eureko B.V.If P&C InsuranceING Group N.V.Prudential plc

RAS SpASEB Trygg LivFondiaria-Sai SpASwiss ReWillis Group Ltd

AIG Europe (UK) LtdAllianz SEAon LtdAviva plcBarclays Insurance

ERGO (Munich Re Group)Eureko B.V.If P&C InsuranceING Group N.V.Prudential plc

RAS SpASEB Trygg LivFondiaria-Sai SpASwiss ReWillis Group Ltd

Mauro Capriata — [email protected] +39.02.77125.222

Leopoldo Cortés — [email protected] +34.91.745.85.25

Henrik Engsner — [email protected] +46.8.534.801.60

Christine Johnston — [email protected] +44 (0)20 7298.3419

David Juster — [email protected] +44 (0)20 7298.3308

Ignacio Maza — [email protected] +34.91.745.85.07

Andrea Pecchio — [email protected] +39.06.80207.222

Bertrand Richard — [email protected] +44 (0)1.53.57.81.41

Ger Scholtens — [email protected] +31.20.305.73.82

Armen Simon — [email protected] +49.69.61.09.27.61

Mauro Capriata — [email protected] +39.02.77125.222

Leopoldo Cortés — [email protected] +34.91.745.85.25

Henrik Engsner — [email protected] +46.8.534.801.60

Christine Johnston — [email protected] +44 (0)20 7298.3419

David Juster — [email protected] +44 (0)20 7298.3308

Ignacio Maza — [email protected] +34.91.745.85.07

Andrea Pecchio — [email protected] +39.06.80207.222

Bertrand Richard — [email protected] +44 (0)1.53.57.81.41

Ger Scholtens — [email protected] +31.20.305.73.82

Armen Simon — [email protected] +49.69.61.09.27.61

worldwIde offIces

Amsterdam T 31 (0) 20.305.73.05 F 31 (0) 20.305.73.50

Atlanta T 1.404.504.4400 F 1.404.504.4401

Barcelona T 34.93.487.23.36 F 34.93.487.09.44

Beijing T 86.10.6505.1031 F 86.10.6505.1032

Bogota T 571.618.2488 F 571.618.2317

Boston T 1.617.531.5731 F 1.617.531.5732

Brussels T 32.2.732.26.25 F 32.2.732.19.39

Budapest T 36.1.200.08.50 F 36.1.394.10.97

Buenos Aires T 54.11.4313.2233 F 54.11.4313.2299

Chicago T 1.312.822.0080 F 1.312.822.0116

Dallas T 1.214.672.5200 F 1.214.672.5299

Frankfurt T 49 (0) 69.61.09.27.0 F 49 (0) 69.61.09.27.50

Geneva T 41.22.312.36.38 F 41.22.312.36.39

Hong Kong T 852.2521.8373 F 852.2810.5246

Houston T 1.713.225.1621 F 1.713.658.8336

Johannesburg T 27 (0) 11 707.9460 F 27 (0) 11 463.3371

Leeds T 44 (0) 1937.547700 F 44 (0) 1937.547710

London T 44 (0) 20 7298.3333 F 44 (0) 20 7298.3388

Los Angeles T 1.310.209.0610 F 1.310.209.0912

Madrid T 34.91.745.85.00 F 34.91.561.42.75

Manchester T 44 (0) 161 499.6700 F 44 (0) 161 499.6710

Melbourne T 61.3.9654.2155 F 61.3.9654.4730

Mexico City T 5255.5281.4050 F 5255.5281.4184

Miami T 1.305.443.9911 F 1.305.443.2180

Milan T 39.02.771251 F 39.02.782452

Minneapolis/St. Paul T 1.612.313.2000 F 1.612.313.2001

Montreal T 1.514.288.3377 F 1.514.288.4626

Mumbai T 91.22.6637.2006 F 91.22.6637.2008

Munich T 49 (0) 89.45.55.53.0 F 49 (0) 89.45.55.53.33

New York T 1.212.336.0200 F 1.212.336.0296

Orange County T 1.949.930.8000 F 1.949.930.8001

Paris T 33 (0) 1.53.57.81.23 F 33 (0) 1.53.57.81.00

Philadelphia T 1.215.814.1600 F 1.215.814.1681

Prague T 420.221.411.341 F 420.222.233.087

Rome T 39.06.802071 F 39.06.80207200

San Francisco T 1.415.495.4141 F 1.415.495.7524

Santiago T 56.2.940.2700 F 56.2.249.7883

Sao Paulo T 55.11.3759.7700 F 55.11.3759.7736

Shanghai T 86.21.6288.8989 F 86.21.6288.7100

Silicon Valley T 1.650.356.5500 F 1.650.356.5501

Singapore T 65.6586.1186 F 65.6438.3136

Stamford T 1.203.324.6333 F 1.203.326.3737

Stockholm T 46.8.534.801.50 F 46.8.534.801.69

Sydney T 61.2.9247.4031 F 61.2.9251.3021

Tokyo T 81.3.3238.8901 F 81.3.3238.8902

Toronto T 1.416.361.0311 F 1.416.361.6118

Vienna T 43.1.36.88.700.0 F 43.1.36.88.777

Warsaw T 48.22.620.80.87 F 48.22.620.81.87

Washington, D.C. T 1.202.639.8111 F 1.202.639.8222

Zurich T 41.44.257.17.17 F 41.44.257.17.18

For copies, please contact:Mark Tracey on +44 (0) 20.7298.3436 or [email protected].

©2007 Spencer Stuart.All rights reserved. For information about copying,distributing and displayingthis work, contact [email protected].

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Beijing

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Brussels

Budapest

Buenos Aires

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Hong Kong

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Johannesburg

Leeds

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Madrid

Manchester

Melbourne

Mexico City

Miami

Milan

Minneapolis/St. Paul

Montreal

Munich

Mumbai

New York

Orange County

Paris

Philadelphia

Prague

Rome

San Francisco

Santiago

Sao Paulo

Shanghai

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Singapore

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