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Running-Off With People

Charles Sutton, senior partner of Organizational Edge, and Dennis Eve, managing director of Whittington, examine how, in the pursuit of finality in run-off, the choice of exit strategy must address ‘the people dimension’ to achieve success.

Introduction

The purchase and sale of an insurance run-off business is based upon a set of clear strategic decisions, which focus on financial expediency.  For the vendor these decisions include improving liquidity, reducing exposure, effectively managing costs, reducing business complexity, and achieving finality. For the purchaser the decision centres almost exclusively on the opportunity to make a substantial return. These considerations constitute the hard factors, with a clear relationship to the balance sheet; historically they have provided the key criteria for decision making. So, why should a business in run-off focus on people?

Acceleration is a central factor in run-off strategy, and it is delivered through people. This calls for personnel with the skills to deal with an increasing number of pressures and considerations from regulatory bodies, creditors, and shareholders to developing awareness of ethical responsibilities and fair processes.  Speed of run-off is also key – few companies now intend to run-off to expiry.  Indeed the majority are developing exit strategies that achieve finality within five years.  Here again there is a demand for a skilled and flexible workforce.

The run-off service sector is changing, and changing fast.  Keeping abreast with, or leading these changes will differentiate service providers; marking the difference between historic style and a modern professional approach.  And this is why the people factor now sits at the heart of this rapidly changing business. 

Broadly speaking there are a few phases in the life of a run-off.  Early engagement, shaping and focusing the organisation to deliver, and finally adapting shape and focus as you work past each of the run-off mile posts to achieve closure.

Early engagement is a rapid process that occurs post-purchase.  Real benefit is gained by focusing attention on the new senior management team. This is not traditional team building per se, but much more concerned with business focus, lifting the individual and collective corporate understanding (rather than continuing to be functionally based managers), and developing a real sense of direction.  In short it’s about enabling existing managers to start to unfurl their leadership wings. 

Ensuring Delivery

The second phase is about ensuring delivery.  This means making sure that people understand the new purpose and different relationship with various third parties (e.g. the administrator, creditors, lawyers, brokers and shareholders).  But it also hits the more operational activities, which require effective internal communication and co-operation – improved data management and information sharing, greater flexibility and speedier processes.

The final phase sees the business life of a run-off move rapidly from this more stable platform towards finality, with a number of clear ‘mile posts’ along the way: Scheme Agreement (if this is the selected exit strategy), Valuation Date, Scheme Document release, Bar Date, Crystallization Date and Final Payments. At each of these points, different demands are made upon the company.  For example, just prior to Scheme Document release there is a need to ensure rapid, professional and accurate communication with clients and this focuses attention on relationship management. Put another way, it involves ‘people planning’ that recognises that during the process there is a reducing resource pool, with, at the same time, a requirement for greater flexibility of staff.

During the final phase there is an increasing awareness of the actual meaning of closure – the realisation that people are working themselves out of a job.  It also hits different areas of specialism at different times.  This creates other business challenges: how do you keep the right people focused on the right things and motivated, and how do you grow people’s flexibility so as to develop a more fluid workforce?

Running along side these three phases of run-off (encounter, adjustment and stabilisation), is a fourth, parallel phase, ‘preparation’.  This is an important factor in the process, as it enables the employer to develop a motivational support mechanism for staff and it also serves to prepare the organisation for the next run-off account. 

Preparation is about enabling individuals to prepare for new roles as their existing roles come to an end.  The importance of this factor is easily overlooked, and the support activities that might be employed by an organisation often do not take place.  But employee opinion research identifies preparation for a future role as the most significant motivational engagement factor between the employer and employee [Journal of Organizational Behaviour; The Relationship between Career Management, Performance and Employee Development, Raymond Noe]

This phased approach to a run-off provides a useful overview from which to understand the changes that take place.  But running throughout the life of the business are some topic strands that should occupy the minds of the leadership team.

First is the provision of a clear vision and direction. During early engagement this is of particular importance because there are so many changes due to the acquisition and the shift in working to accelerated closure, rather than continuing to expiry. And again, after the period of shaping the business to deliver, the next phase of activity - from Bar Date to closure - requires significant change, which staff need to be able to understand.

Second is enabling staff to understand changed circumstances. This is not only important from the perspective of business effectiveness but also has an impact at a very personal level, associated with identity and personal sense of value.  Individuals typically gain a sense of identity from the work they do. 

Emotional Impact

Consequently, the shift from employment within a live insurance company to an existence in a new world of run-off can have a bigger emotional impact on staff than might be imagined.  The management of the acquiring organisation may never recognise this – they have achieved a business success and a contract won; they do not see the situation from the staff point of view, of a business failure and a contract lost.

Third is the need to retain key employees. There is often a belief that because of the very nature of the business – accelerated closure – staff will leave in droves.  This means that the company will lose professional and institutional knowledge causing serious business concern. This fear is understandable, but the cause for leaving employment is not necessarily determined by the fact that an individual’s role will only continue for another two to five years.  The primary causes remain the same; typically the nature of the relationship an individual has with his or her manager, and the ‘fairness’ of treatment by the employer.

Flexible Processes

Finally comes the need to create flexible management processes and develop sound management systems. Success is dependent upon creating an engaged work force and upon sound management practices, and there is of course a strong relationship between the two.

Understanding the life phases of the run-off business and the power of good leadership is central to success.  This is success in terms of achieving business objectives, ensuring creditor satisfaction and developing productive and meaningful business relationships for the future.  However, it is also success for employees, through ensuring development opportunities, providing quality feedback, gaining high level engagement and building a sense of identity.

Success does not just happen. It requires real investment of effort and time.  It is not just saying that people are key, it means recognising this through providing a real sense of business and personal direction, lifting management ability and fully engaging staff in the process of the business itself.  Whittington’s people are central to success.  This means enabling staff to participate, and trusting them in the process.  It means staff understanding the business, becoming engaged, and feeling proud to be part of it.

This article was published in Insurance Day during 2006.