In 2020, businesses in all sectors were forced to think differently about how they operated, with entire organisations working from home. The future of the pandemic remains uncertain in 2021, but it is clear some (re)insurance businesses will have to change - either to adjust to the ‘new normal’ way of working, or to survive the inevitable challenges of economic recession.
“The priority is creating new models for a future reality,” says James Berkeley, founder of Ellice Consulting, which has worked with Aon, Travelers, and Jiangtai Insurance Brokers. “One of the main reasons for restructuring insurance companies is a recognition that the product, service or relationship has moved to a point where it is uncompetitive and needs to be addressed.”
This means leaders must ask themselves where they want their business to be and how this then influences their products, services, and relationships. Berkeley says this helps identify where “drastic change” can be achieved, but points out that restructures themselves are now being approached differently.
“In the past, organisations undertook lengthy reviews, bringing in a lot of consultants to create a report that then gathered dust,” he adds. “That way of working doesn’t apply anymore, and immediate action is now needed. As we’ve seen from this pandemic, looking further than 12 months out is a fool’s errand. Those days are over.”
Kevin Cunningham, managing director at investment bank Stephens, also sees the pandemic driving restructures in the (re)insurance sector, but warns against overlooking the end customer.
“Particularly because we are in a hardening market, and people don’t know how long this will be for, a lot of management teams have been reviewing their operations and picking out where the growth is going to come from,” says Cunningham. “Operational efficiency is key and Covid has accelerated people’s thinking in terms of changing the structures of their business.
“People need to remember the end client is the most important thing though,” says Cunningham. “Most likely a restructure will be carried out for cost saving purposes, so it’s important to ensure customers are as least impacted as possible.”
All in it together
Restructures mean upheaval and this can often spark concern among employees, who start to fear for their job security - especially with unemployment already spiking during the pandemic. Keeping staff motivated during these periods is critical to the success of a restructure, according to Dr Simon Hayward, CEO of management consultancy Cirrus.
“Most restructures fail to add a great deal of value largely because of people not feeling engaged with or committed to the process,” says Hayward, whose firm has worked with ReAssure, Standard Chartered and Allianz. “That is a leadership problem of not engaging people enough early on.”
For Hayward, the focus needs to be on three words: clarity, meaning and connection.
“If leaders can give clarity about what is happening and why, that is key,” he says. “Employees also need to find meaning in this too. And connection is about empathy and understanding what change means to people, making them feel supported and listened to. These three things can lay a good foundation to an effective restructure.”
Importantly, this kind of motivation can prove more fruitful that just offering financial incentives. In fact, Berkeley argues, motivating through salaries alone may be counterproductive.
“There’s often a confusion with managers in how they reward results,” says Berkeley. “Everyone wants to maximise their earnings and it’s important to understand that, in isolation, financial incentives don’t address everything. The key is to reward the right kinds of behaviour.”
Surplus to requirements
Unfortunately, restructures can realise some employees’ worst fears and result in job losses. This can be an extremely delicate period for employers, not just from an emotional perspective but because of the reputational risk and significant liabilities they face if redundancies are handled incorrectly.
“Right now, many people in insurance are working remotely and having difficult redundancy conversations via video call, which is far from ideal,” says Victoria McLean, CEO of City CV.
“Trust is everything in this industry and you will face scrutiny and long-term reputational damage if you ‘do an Uber’ and make 3,500 redundancies over a mass Zoom call,” she says. “Redundancies are inevitable in this climate, but the world is watching, and we expect reputable businesses to treat employees with respect and sensitivity.”
A similar approach is also advocated from a legal perspective, as Stephen Ravenscroft, partner and head of employment at law firm Memery Crystal, attests.
“When I talk to my clients about this, I stress the importance of transparency and clear communications,” says Ravenscroft. “From a strictly legal perspective one of the most important things is to get right is the timelines for communication, because there are minimum periods required by law for consultation. If an employer gets those aspects wrong, it can potentially be very costly from a legal liability perspective.”
The timelines work as follows: if an organisation is proposing making between 20 and 99 people redundant within 90 days at the same place, consultations need to begin at least 30 days before any dismissals occur. If those numbers tip over to 100 or more then the consultation needs to be started at least 45 days before dismissals.
Sprawling corporate structures can complicate this.
“We often find companies trip up if they are part of a group of companies with an overseas parent,” says Ravenscroft. “If decisions are made at HQ in the US for example about redundancies in the UK, that can create really significant difficulties because it undermines the rationale of consultations.”
Job losses may be unavoidable for some businesses but for others these should be approached sparingly. Managers may be tempted to focus on the cost savings they produce, thereby overlooking the damage that can be caused.
“Often restructuring means a reduction of headcount and this needs to be done in a sympathetic way,” says Cunningham. “This means making sure employees that remain are still motivated and the culture of the firm is not impacted. A lot of people just go in for cost cutting for the sake of it without understanding the impact.”
