Succession Planning for Small Mutual Insurance Companies

1
Succession Planningfor Small Mutual Insurance
Companies

• 2014 WAMIC
• FMDC Courses

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Managing Risk

• Insurance people, be they Directors or managers,
  are, or should be, risk managers
• Managing risk involves more than our customers
  risks
• As businesses, we have our own risk to manage...

3
Succession Planning

• Plan aheadNot having a successor for a key
  position is a risk a company cannot accept
• Succession Planning is an ongoing process
• It involves management and the Board

4
The Talent Pool

• National surveys show that the number of farms
  are declining
• While the average acreage per farm is increasing
• And the average age of the farm owners is
  increasing
• See the USDA Census of Agriculture, updated
  finally for the 2012 data

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Farms in Wisconsin

• 2007 to 2012 Wisconsin
• Farms 78,463 down to 69,754
• Acres 15,190,809 down to 14,568,926
• Avg 197 up to 209

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Talent Pool

• What do these numbers mean to small insurers?
• Fewer young people on farms
• Fewer prospects for tomorrows Managers and
  Directors of small insurers
• Is there a next generation to replace todays
  older farmers?

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Succession Planning

• Companies need to have plans in place to replace
  managers and Directors
• At small companies, having staff to train for
  promotion may be a big problem
• Think about other talent pools

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Talent Pools

• Agency Force?
• Local Banks?
• Other Mutuals?
• Be very, very careful with this
• Unrelated Businesses
• Educators
• Non-profits and volunteer groups

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Manager Skills

• What are you looking for in a new manager
• Understand the business of Insurance
• Ability to organize
• Understand Financial issues
• People person
• Public face for the company

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Manager Skills

• Managers must be able to handle stress and crisis
• Managers must be able to gain a working
  understanding of technical issues
• Financial matters
• State Regulations
• Insurance Contracts
• Claims Process

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Manager Skills

• COMMON SENSE
• and a
• SINCERE SMILE
• go a long way
• some days

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Talent Pool

• Similar issues for larger companies
• Talent is likely in-house
• Still may want to look outside
• Financial abilities may be overriding issue
• dont forget the Claims Department
• People skills are still critical

13
Talent Pool

• Gender cannot be a qualification for being a
  manager or Director
• Even if the company is too small to fall within
  the jurisdiction of state or federal statutes,
  the publicity is not something you want to deal
  with...

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Planning

• A company should have a succession plan in mind
• doesnt need to be in writing, but that may be a
  good thing
• the plan needs to be flexible
• the target might want to know
• advantage you have a career here
• disadvantage impatience, incentive

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Planning

• Letting people know
• Advantages
• You have a place here!
• Desire to learn the business theyll take
  over one day
• Understand that todays actions have consequence
  for the future
• Develop management skills (PFMM programs)

16
Planning

• Letting People know
• Disadvantages
• Complacency
• Relations with other employees
• Late arriving stars
• Losing patience waiting for the change

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Inside vs. Outside

• Many companies like to promote from inside, and
  thats a good thing.
• It probably doesnt hurt to at least look
  outside.
• If going outside, be discreet
• for the benefit of the inside folks
• for the benefit of the outside folks

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Inside Successors

• Make sure they have necessary training
• have them attend seminars
• have them participate in process, when
  appropriate
• at small companies, managers should not be in
  training for too long (you dont want to be
  poached)

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Director Succession

• Directors come (and some even go, eventually)
• If you are bound by law to have a policy holder,
  be aware of who is an insured
• more than just your friends
• retirees
• spouses

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Director Succession

• The Board and management need to work together on
  knowing who is in the pool
• Look for specific talents to complement other
  Board members
• Be mindful of personalities

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Director Succession

• Director Skills
• Different Directors can fill different roles not
  everyone needs to be a financial whiz or
  insurance agent
• All Directors need to know about financials and
  the insurance industry
• Marketing, PR, HR, Computers, Administration are
  all valued skills

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Director Skills

• Director candidates must be able to work to
  consensus
• Directors must be able to continue working
  together even after a contentious debate
• They must have time
• They must be able to read, or be trained to read,
  financial reports.

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Director Skills

• Directors must be more than a nice person
• Directors must be able to think independently
• While SOX will not apply directly, the standards
  for competence for larger corporations will begin
  to apply to small insurers

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Director Skills

• NEVER UNDERESTIMATE
• THE
• VALUE OF
• COMMON SENSE!!!
• A lot of being a Director is exercising common
  sense

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Agents as Directors

• Generally, not a good idea. We can talk

26
Succession by Merger

• Succession by merger is usually to replace
  management
• It needs to be carefully thought out
• It can be a positive way to bring together two or
  more companies with strong histories but a need
  to be larger for the future

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Succession by Merger

• It probably blows up about as often as it
  succeeds
• Merger means more than a shared manager
• merged boards
• merged reinsurance
• merged computer systems
• merged agency forces
• merged employees

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Succession by Merger

• Most importantly, it is the merger of two groups
  of policyholders
• Historical Ties
• Company philosophies
• Local Sensibilities
• Local Institutional Support
• These issues are NOT trivial some will mourn the
  loss of their company

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Succession Planning

• Things to keep in mind
• Succession is what keeps the mutual going
• Small companies face huge issues today
• New blood needs to be up to the challenge
• New experience and training is critical today

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QUESTIONS??
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Would You Like a Copy?

• Contact Tim Sullivan
• TSullivan_at_NAMIC.org
• or call Tim
• [phone]