Insurance industry must nurture leaders

Gareth Stokes, FAnews Online Editor

What makes a good leader? When we plugged this question into the Google search engine the application returned 1,620,000 results in approximately 0.30 seconds. As we wondered how any mere mortal could separate quality from chaff given a collection this la

The 10 characteristics mentioned in the opening paragraph apply to leaders across all economic sectors and geographies. An individual who possesses these traits should be able to lead successfully at any organisation, regardless of culture and size. Yet a quick scan of the domestic political landscape suggests South Africa has a severe shortage of worthy leaders. It’s going to fall on the private sector to restore the country’s leadership credibility.

Sustainable growth through people and leadership

Under trying macroeconomic conditions – or in specific industries – leaders may require some additional skills. Clem Booth, Member of the Management Board at Allianz SE, tackled the leadership concept from an insurance perspective when he addressed The Insurance Conference, held in Sun City, 23/26 May 2010. The conference is a joint initiative between the Insurance Institute of South Africa (IISA), South African Insurance Association (SAIA) and the Financial Intermediaries Association (FIA). The last slide in Booth’s presentation addressed leadership challenges in the post-recession environment – leadership in the ‘new normal’.

Booth has a fairly simple leadership philosophy. “Sustainable growth,” he says, “is all about people and leadership.” While he recognises the value attached to the traditional leadership attributes already mentioned, he concludes that good leadership is really about people. “Growth profit and success are merely outcomes of good leadership.” A successful leader must encourage and coach his followers to produce astonishing outcomes. Booth believes that South Africa’s political leadership vacuum stems form the number of politicians who lead for expediency rather than belief. You shouldn’t blindly follow a politician who is bereft of belief!

Why insurers need good leaders

The sub-prime financial crisis was a crisis of leadership and a victory of fear over greed. Chief executives and senior managers at developed-world banks gradually created an unnatural system. Their mistake was to build financial instruments on the expectation of never-ending real returns. Booth notes: “Sub-prime was a bad piece of underwriting!” Bankers created portfolios of mortgages issued to individuals who had little prospect of repaying them – and still rated these portfolios triple-A. They then packaged and sold these portfolios to financial institutions across the globe under the false security of constantly increasing house prices. Bonuses and compensation – and leadership decisions – were skewed by impractical expectations of linear growth.

Insurers face numerous business risks and regulatory challenges as the global economy crawls out of its recessionary abyss. The main challenge – introduced by turbulent stock market performances – is the huge drop in investment income. At the height of the crisis South African insurers were writing off billions of rand in ‘fair value’ impairments (or notional losses on policyholders’ funds). A second challenge to the insurance industry is the disappointing rate of recovery in new business premium. Premium growth is lagging the economy by some distance.

Tighter regulation and the recent industry-wide consolidation means growth opportunities (through merger and acquisition) remain limited. And finally, insurer margins are under significant pressure. Escalating compliance requirements mean the industry will face higher fixed costs in relation to premium income. Certain macroeconomic factors will also require insurance leaders to keep their thinking caps on. Low interest rates, for example, make it extremely difficult for insurance companies to generate income on policyholder funds.

Leaders on leadership

Leaders in the insurance industry will have their work cut out for them as the industry tries to restore credibility. They will have to work with regulators to carve out new, applicable and transparent regulations. The win/win situation for regulators and insurance industry stakeholders will be a set of integrated regulatory frameworks that avoid multi-dimensional bureaucratic reporting and focus on consumer protection and prudential investment guidelines. “We hope that out of this global financial crisis will come a new era of better leadership,” says Booth.

We enjoyed Booth’s thoughts on leadership, fear and greed, and the inevitable collapse of linear market returns. As the insurance industry gets down to the ‘new normal’ we’ll leave you with one of the many quotes by leaders on leadership. US General Dwight Eisenhower famously said: “Leadership is the art of getting someone else to do something you want done, because they want it done!”

Editor’s thoughts: Accountability is missing across many spheres of modern society. Both individuals and corporations seem incapable of accepting blame for negative outcomes. And without acceptance of wrongdoing the likelihood of long-term sustainable solutions to many of the world’s problems evaporates. How accountable should corporate leaders be? Should banking executives carry the can for the sub-prime crisis and subsequent market collapse? Add your comments below, or send them to gareth@fanews.co.za