1. Succession Planning for Small Mutual Insurance Companies 2014 WAMIC FMDC Courses

2. 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 ahead…Not 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

5. 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

6. Talent Pool What do these numbers mean to small insurers? Fewer young people on farms Fewer prospects for tomorrow’s Managers and Directors of small insurers Is there a “next generation” to replace today’s older farmers?

7. 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

8. Talent Pools Agency Force? Local Banks? Other Mutuals? –Be very, very careful with this Unrelated Businesses –Educators –Non-profits and volunteer groups

9. 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

10. 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

11. Manager Skills COMMON SENSE and a SINCERE SMILE go a long way some days

12. Talent Pool Similar issues for larger companies: –Talent is likely in-house –Still may want to look outside –Financial abilities may be overriding issue don’t 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...

14. Planning A company should have a succession plan in mind –doesn’t 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

15. Planning Letting people know… Advantages: –You have a place here! –Desire to learn the business they’ll take over one day –Understand that today’s 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

17. Inside vs. Outside Many companies like to promote from inside, and that’s a good thing. It probably doesn’t 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

18. 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 don’t want to be poached)

19. 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

20. 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

21. 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

22. 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.

23. 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

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

25. 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

27. 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

28. 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

29. 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

30. QUESTIONS??

31. Would You Like a Copy? Contact Tim Sullivan TSullivan@NAMIC.org or call Tim (800) 336-2642