Surplus Lines Reform Didn't Happen, But You Can Make Other Changes Yourselves

While leading industry trade groups vow to restart the momentum to get a bill passed in 2009, individually–in their offices and in their daily lives–participants in the specialty insurance market can work to make different kinds of changes.

As this gloomy year comes to an end, and you turn your attention to making resolutions for next year, here are some suggestions to consider, colored by my own personal experiences and biases.

In recent years, when I've asked industry leaders to list their biggest challenges, one of the answers I hear most often is that it's difficult to get young people interested in insurance. There has been a tremendous push at the association level to recruit college students, to educate them about specialty insurance, and to allow them to serve as interns–all in the hope of preparing the future leaders of the industry.

These are clearly worthwhile efforts.

But if you're as old as I am, you personally know some middle-aged folks who are currently unemployed–good, dedicated workers, many from financial services firms outside of the insurance industry who have been jobless for weeks or months as a result of the financial crisis.

Why not give them a shot at the same positions you're so eagerly willing to offer to younger applicants?

I'm not talking about lifting experienced underwriters from ailing insurance competitors here. I'm talking about giving consideration to hiring folks with experience from other types of financial institutions–investment portfolio managers, brokers, accountants, and others who lost their jobs due to mass layoffs, the shutting down of entire firms, restructurings, or the other consequences of this global economic crisis.

To some of you, this might seem a silly suggestion. You might complain: "We'd have to pay them more than college students? They won't accept entry-level wages. They're too old. I want someone who's going to be here 20 years from now. They don't know all the intricacies of insurance underwriting, selling, accounting, portfolio management."

But consider these counterarguments.

This may be a golden opportunity to hire someone with a proven track record in business, who can adapt quickly to a new environment.

Many of these folks need to find second careers because the industry they've worked in for years is collapsing around them. They have 20, 30 years in front of them before they retire.

As a result, these folks may indeed be very willing to accept salaries well below the ones they commanded previously in the hopes of learning your business.

In my part of the country, they're taking jobs at the local department stores and Starbucks just to pay the rent. They're competing with college kids for those positions, too.

Whether you're looking for folks to fill the front office or the back office, they will likely come to your door with r?sum?s that demonstrate staying power. They're not going to jump ship as soon as they're a little bit bored or a little bit overworked. You won't have to provide constant stimulation for them to remain engaged as younger folks might require.

Many will have transferable business skills in administration, financial reporting, maintaining budgets, valuing businesses and investments, research, communication skills and creating computer spreadsheets, ranging from simple to intricate.

They may not know our particular technology or the language of insurance, but let's face it, we're not as special as we make ourselves out to be. We learned this stuff. They're motivated and dedicated. They'll learn quickly.

Finally, you'll be able to learn from them as they learn from you. For those specialty insurers and brokers who want to write insurance for financial institutions and other ailing sectors in the future, this is an ideal way to gain the necessary knowledge from a former insider.

Of course, many firms in the insurance industry are not hiring now, either–constrained by their own budget issues.

But for those of us that don't have jobs to offer, remember to help out your unemployed friends, relatives and former co-workers by allowing them tap into your networks of contacts when you can.

Above all, continue to reach out to former co-workers with a phone call or a visit–not just when they first lose their jobs, but months from now if they're still out of work.

If you've ever been out of work for an extended period of time, you know what it's like waiting for that phone to ring.

The unraveling of the banking and credit markets also provides our industry an opportunity to learn some valuable lessons.

"I didn't think some of the things I learned…would even be relevant," Stanley Galanski, president and chief executive officer of The Navigators Group, said recently–referring specifically to issues such as mark-to-market accounting he heard about when he attended a financial institutions conference put on by investment bankers earlier in the year.

Speaking last month at the 20th Annual Executive Conference for the Property-Casualty Industry–presented by The National Underwriter Company, and sponsored by Ernst & Young and Dewey & LeBoeuf–Mr. Galanski gave his take on broader lessons learned from the travails of other financial institutions this year:

#1: Underwriting matters.

"Whether it's the mortgage business or D&O insurance, the quality of your decision-makers, your discipline, and the way you manage your corporate culture really matters," he said.

#2: Don't underwrite what you don't understand.

"There are a lot of boardrooms, I'm sure, where various quants came in to explain their models [and] nobody wanted to look like the dumbest guy in the room," he speculated, characterizing lesson #2 as a return to "basic country underwriting."

("Quant," by the way, is short for quantitative analyst–a financial professional who takes a mathematical approach to evaluate market conditions.)

#3: Don't put blind faith in quants and experts.

#4: Always understand your downside risk.

Skeptical that the financial product units of various financial institutions understood even one-quarter of their downside risk, he urged conference attendees to heed that lesson–and also to apply it to property underwriting, where insurers need to do their own assessments of the validity of the results of natural catastrophe models.

#5: A handful of people can really destroy a company and a culture that have taken years to create.

#6: Size doesn't equal strength.

For me personally, the lesson that stood out from this list was #5.

While Mr. Galanski was specifically speaking to the need for internal controls and enterprise risk management, his particular phrasing of the fifth lesson brought to mind another one–a single bad decision can destroy an individual reputation built over the course of entire career.

For a community of professionals that I used to work with before I joined NU, that lesson hit home with great force early this year, when one of most revered members of the Casualty Actuarial Society–General Re's former CEO, Ronald Ferguson–was convicted in connection with a fraudulent finite reinsurance transaction between American International Group Inc. and General Reinsurance Corp.

While there are surely other lessons to draw, one is certainly this–guard your own reputation. Whether you're asked for a recipe to cook someone's books or face an ethical dilemma in an insurance placement to edge out a competitor, trust your gut even when important customers, the lure of a big deal, or pressure from superiors push you in a different direction.

Our industry isn't just made up of a collection of quiet, unsung heroes who make ethical business decisions on a daily basis. There are many of you who also reach out to your communities as well, giving time and money to charitable works.

One participant of the specialty lines is reaching out to charity in an unusual way. Larry Goanos, president of Professional Indemnity Agency, has written a book about the professional lines segment and is giving the proceeds of sales of the book to four charities–Aniridia Foundation International, the National Sept. 11 Memorial and Museum, the National Transplant Assistance Fund, and the PLUS Foundation.

I found this out quite by accident recently when a copy of his book, "Claims Made & Reported: A Journey Through D&O, E&O and Other Professional Lines of Insurance," landed in my office–delivered by my boss, NU's editor-in-chief, Sam Friedman, to whom Mr. Goanos had sent a complimentary copy.

Serious stuff, I thought when I saw the title. The first sentence, however, provided me with a real glimpse of what was inside.

"The professional lines insurance industry is, surprisingly, somewhat of a seat-of-the-pants operation." (Note: if you're a stock analyst, investor or my boss, stop reading here.)

The book is just plain fun. (I warn you, however, that the frequent footnotes and parenthetical remarks asking readers not to sue him or to be offended are a little annoying.)

Once you get beyond the unconventional parentheticals, the numerous footnotes and the ugly type-setting, I guarantee you'll find something to laugh about–especially those who work in the professional lines industry, who will recognize your colleagues–even those not identified by name. (Be forewarned, many of you are identified.)

My personal favorite anecdotes involved "Party Man"–the guy who cleverly scammed his colleagues to contribute to pizza lunches, while pocketing most of the dough to support his partying ways–and the gentleman who delivered a presentation to his clients with his suit jacket on fire.

On a somber note, the book includes a detailed first-person account of downtown New York City on 9/11, and what it was like to live through the tragic events of that day.

In addition, there are reflections based on Mr. Goanos' former employment at the biggest specialty lines carrier–AIG–including his personal take on the "culture" so often talked about.

"I've read that when experienced race car drivers go into a spin on the track, they don't look at the wall because they know they will tend to travel in the direction that they're looking. Nobody at AIG ever looked at the wall; they were staring straight ahead at their goals the entire time, no matter how fast the world was spinning around them. Their eyes were always on the prize," Mr. Goanos writes.

Like any personal reflection, this one is brutally honest in some parts, and sketchy in others–selectively ignoring some of the well-known details of the professional lives of some of the high-profile executives in a list of biographical descriptions, for example.

But if you are looking for a holiday gift for an insurance colleague, or you're just seeking another way to give some money to charity, the book may be worth your consideration.

(Dear Readers: Please don't expect book reviews on a regular basis. I can't possibly comment on all the books that I receive, although you can rest assured that I do make an attempt to read every one of them.)