Too Much Specialism: Why Insurance Innovation is Hard?

When I joined the insurance business, I looked at the bios of executives at major insurers. One of several common threads: “[Name] has over [30] years of experience in insurance.” 

Insurance has been a business that values longevity, experience over cycles, and deep specialist expertise. As I approach the midpoint of my career, I ask myself whether traditional forms of expertise and specialism are really as valuable as the bios would lead one to believe. If not, how should people and organizations in insurance prepare for the world of 10 to 20 years from now? 

More practically: when should a person spend more time building specialism in their current role or seek a new role to build breadth? What about hiring – how should one consider the deeply experienced specialist vs. someone with broader skills? To what degree should talent models in insurance change to encourage breadth at the expense of specialism, or vice versa?

[This post contains solely personal opinions; the views of my coworkers and my employer may differ.]

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In the past couple of months, a book and two long-form articles have been published challenging the concept of expertise. There is no mention of insurance, but they illuminate our industry’s challenges. I recommend for your summer reading list:

1. Range: Why Generalists Triumph in a Specialized World, by David Epstein
2. At Work, Expertise is Falling Out of Favor, by Jerry Useem
3. Your Professional Decline is Coming (Much) Sooner than You Think, by Arthur Brooks

Here’s the big idea synthesized across the three:

Expertise and generalist skillsets need to support each other, but many organizations tilt the balance in favor of expertise/specialization and thus have difficulty thinking outside the rules and concepts that are learned in a specialist environment. Organizations that require deep expertise have further difficulties innovating because around age 40, fluid intelligence (which drives innovation) is declining while crystallized knowledge (i.e. accumulated facts) continues to grow. As the world becomes faster-moving, more complex, and less predictable, “general athlete” skills are more valuable, at an individual level but also firm-wide and industry-wide.

The current insurance talent model

There is evidence that insurers, compared to other industries, place higher value on longevity and specialism - growing in place. Consider the characteristics of its leaders:

• About half of insurance CEOs (group and divisional) have worked only in insurance.
• Insurance CEOs are less likely than CEOs of other industries to have international experience. 
• The insurance industry does worse than other industries (on average) at moving women through the pipeline to senior management. (Potential contributing factor: time off for children interferes with longevity.)

(Sources: 1, 2, 3)

Having grown up in a single industry or company can be a good thing to the extent that a person collects a variety of experiences along the way. One senior executive, a lifer in his big insurance company, recently told me that his concern is whether his company is producing the next generation of talent through the general manager rotations within the company that produced him. “When I learned the business, it was by being a regional leaders at a young age, running a P&L, and having a new assignment every few years, with a wide range of responsibilities. Today we have deep functional experts, so the range is narrower. I worry: can my generation recreate ourselves?"

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What do Roger and Tiger have to do with insurance?

In a traditional conception of insurance, one got good at the job by doing the job over a few decade-long cycles. Situations repeated themselves, clearly-defined rules were set-out in detailed manuals, the toughest decisions were referred, and feedback (such as underwriters getting claims info) was reasonably rapid and accurate, even in longer-tailed businesses where results take a few years to be known. 

This is a “kind” environment. In a kind environment, the formula for success is to start early, focus, master the rulebook, take feedback, repeat, enjoy being very good after 20 or 30 years, then take a comfortable retirement. Skills like stability and conscientiousness lead to success.

Such was the path of Tiger Woods, as detailed by David Epstein in “Range”. Tiger won his first golf tournament at age 2 and never stopped practicing and playing.

Golf is a kind environment. Golf has a thick rulebook, a limited number of strokes, time to prepare each stroke, and a limited number of tools: 14 clubs, a tee, a standard ball, and a cooler of beers. An opponent never touches your ball, so feedback is rapid - you either hit well or you didn’t. Your score is the direct result of how well you (and only you) played the course. In a kind environment like this, specialization wins. Golf isn’t easy, but it is a sport in which repeated and focused practice lead to skill development -- the 10,000 hour rule.

But then there’s Roger Federer, another GOAT, pictured above. Federer dabbled in at least a dozen sports as a kid. He only focused on tennis in his mid-teens, when the adolescent Tigers of tennis were well ahead of Roger in terms of both practice and ambition. Even then his parents expressed reticence that he would choose tennis.

How can Roger’s upbringing be just as critical to his success as Tiger’s? 

Tennis isn’t a “kind” environment. Someone on the other side of the net keeps messing with your ball, there is no time to stare at the ball and think, rapid foot movement is critical, your opponent changes every few sets, and there’s even a teammate to deal with in doubles. You might hit a good shot, but it’s hard to tell how good if your opponent smashes it back. This is a “wicked” environment, where years of repetition are important, but a good “general athlete” can beat someone raised like Tiger Woods. Even Venus and Serena Williams, drilled on public courts from age 4?, developed more like general athletes than tennis brats in their formative years. 

The path to greatness in tennis and golf are different. But both tennis and golf have stable rules. In insurance, the rules of the game change, often without notice. 

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Insurance is more wicked than we think

In insurance, new competitors come up, customer needs change, risks evolve, trial lawyers and fraud rings concoct schemes, regulations and accounting standards evolve, new forms of capital arise, and there’s the occasional hurricane or terror attack. The industry can feel like it was designed by MC Escher rather than Ellsworth Kelly. 

In a world where the rules change, often without notice, what happens to expertise? Jerry Useem’s essay “Expertise is Falling out of Favor” discusses studies such as one where participants are asked to do four things simultaneously on a computer screen. Each completed task is worth one point, as is apparent from the on-screen scoring. 

The people who do best on this test have simple raw processing power - “fluid intelligence” combined with conscientiousness. Young people tend to beat their elders at this game.

But when the scoring rules change without notice, such that one task becomes worth more points than the others, things go haywire. Useem writes: “When [the rules changed unbeknownst to the participants], players who scored high on conscientiousness did worse. Instead of adapting to the new rules, they kept doing what they were doing, only more intently, and this impeded their performance. They were the victims of their own dogged persistence …

“The people who did best tended to score high on ‘openness to new experience’—a personality trait that is normally not a major job-performance predictor and that, in certain contexts, roughly translates to ‘distractibility.’ To borrow the management expert Peter Drucker’s formulation, people with this trait are less focused on doing things right, and more likely to wonder whether they’re doing the right things.”

Wait, so in a more rapidly-changing environment, we should look for smart people who are distractible and aren’t very conscientious? Isn’t this the stereotypical overeducated millennial?

Perhaps. Or maybe we’re just getting older and managing our own declines. In a depressing half-hour of reading, Arthur Brooks makes the case that certain skills begin declining as early as one’s 20s. According to Brooks, musicians, scientists, and entrepreneurs tend to produce their greatest work in their 30s, long before they have expertise in the way insurers tend to define the term. In an industry where learning the state of the art takes 30 years, innovation won’t happen because it takes 30 years to reach the boundaries in order to push them.

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How many signatures does it take?

When I was a consultant early in my career, I saw a deal with 23 signatures on it - one underwriter, 22 approvers. As the hierarchy was only five layers from CEO to underwriter, most of the signatures were from risk, compliance, regulatory, accounting, and other functional staff.

Suddenly I understood Gordon Gekko’s remark in his famous speech about “paperwork going back and forth between all these vice presidents” as a cause of sluggish corporate performance. 

Why all the paperwork? As explained in McKinsey’s classic Journey publication, insurers typically establish sets of rules to define what is and is not acceptable. The underwriting manual defines the acceptable risks, and the pricing manual defines the acceptable price. Other rules define what contractual terms are or are not acceptable. Yet another set of rules defines who can bind the company for what amounts.  

Business that falls outside the rules requires a “referral”. Referrals are designed to enable deals to be done while avoiding mistakes - an important part of running an insurer. If done properly, a referral process injects creativity and experience by bringing multiple perspectives to a complex deal. 

This is fine as a start, but not an end. McKinsey explained why in The Journey 25 years ago:

Robots, of course, can do a lot more now than in 1993. 

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Above: Shanghai, 1980 and 2010

Not just insurance - the world is wickeder

“Specialists specifically peaked about 1985”, said Andy Ouderkirk, an inventor at 3M. Oudekirk pinpointed 1985 as the peak of specialism by studying tens of millions of patents and inventors, classifying the inventors as generalists or specialists. He told Epstein that he believes organizations have less need for specialists today because specialist knowledge is more easily available. 

In a wicked world where integrative capabilities and “adjacent knowledge” matter more and specialism is in less demand, Epstein says that more professionals are having “sampling periods” like Federer, when they try a variety of sports/jobs and eventually settle on one, where they are both good and passionate - a concept called “match quality”. This doesn’t mean to job-hop; it means that people who have done a few different things may find themselves in a role that better suits their skills and interests than someone who spent less time sampling.

What the generalists lack in repetitive practice, they can make up for in creativity, ability to integrate multiple disciplines, and the match quality that comes from learning-by-doing in many industries and roles before choosing one in a more mature stage of life. It is well established (example) that much innovation comes from the joining of multiple unconnected domains.

I recall a legendary insurance CEO known for innovation giving advice to the Bermuda Under 40s when he told the story of his career. One day early in his career, he was sitting at one end of his employer’s box at Lloyd’s. Next to him was his boss, then his boss’s boss, and so on down the line to Lord So-and-So. “It would be the longest journey of my life - 40 years to go 10 feet,” he said.

“That’s when I went to China.”

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Above: Never trained, but revolutionized their industries

Wickedness requires a new talent model: “I can’t read. I just play"

The kind-to-wicked shift of the past 30 years has profound consequences for insurance. As Epstein tells it:

“In the company man era, firms were highly specialized, with employees generally tackling the same suite of challenges repeatedly. By the 1980s [when specialism peaked], corporate culture was changing. The knowledge economy created overwhelming demand for employees with talents for conceptualization and knowledge creation. Broad conceptual skills now helped in an array of jobs, and suddenly control over career trajectory shifted from the employer to the employee, who peered out at a vast web of possibility.” [Ellipses omitted]

Change comes slowly in insurance. “Company men” may be the homogenous “pale, male, and stale” face of industry, but this will change, and it will be far more of a shock than people entering Lloyd’s without neckties.

Epstein tells repeated stories of people who innovated because they had never learned the rules, and thus were unconstrained in their ability to improvise. They didn’t care about or even realize the “mistakes” they were making, and it turned out not to matter.

To me, the most illuminating story is a meeting between Django Reinhardt and Les Paul. Reinhardt was the greatest European jazz musician and composer, and Paul pioneered the solid-body electric guitar (as everyone who watches Pawn Stars knows). 

The two music legends were in a cab. From Epstein: “Reinhardt asked Paul if he could read music. ‘I said no, I don’t’, Paul recounted, ‘and he laughed till he was crying and said, “Well, I can’t read either. I don’t even know what a C is; I just play ‘em.”’”

Epstein also quotes a world-renowned concert pianist, classically trained at all the best conservatories, who says he can’t improvise anything not written on the page. If we hire mostly the concert pianists and few people like Les or Django, we shouldn’t be surprised if it’s hard to innovate.

Above: “Why is that man in pink? Judging by his outlandish attire, he's some sort of free-thinking anarchist.”

A shifting talent model

There is some evidence that the top performing insurers have stocked themselves (and grown internally) a greater-than-average portion of people with broader, perhaps less conventional skillsets. In one study, the better-performing insurers are more likely to have a CEO with broader experience, including international experience. 

None of this is to say that expertise is not valuable, nor to diminish those who have grown up in the insurance business. Generalists have to have some specialism(s), even if they are not the best at any one thing. On the other hand, specialism and longevity alone cannot be the only conception of talent in insurance. 

By taking a broader view of what talent is, insurers will be able to attract high-quality talent who will help the industry respond to its external threats while driving innovation that makes insurance relevant as a product and a career choice for a new generation. 

A broader conception of talent in insurance will also help solve the diversity problem. It’s swell to recruit more diverse school leavers to fill junior ranks, but today’s leaders will be dead before they reach the top, if they hang around that long. Faster progress will come from recruiting experienced professionals from other industries, recognizing their skills, and creating roles for them to thrive.

“We’re starting to see a big shift,” says Guy Halfteck, a people-analytics expert, quoted in Useem’s article. “Employers are looking less at what you know and more and more at your hidden potential.

Useem continues: “Halfteck’s advice to employers? Stop hiring people based on their work experience. Because in these environments, expertise can become an obstacle. … The more we invest in building and embellishing a system of knowledge, the more averse we become to unbuilding it.”

The big problems our industry faces today - lack of innovation, a protection gap, a negative public perception, threats from tech-driven outsiders, low diversity, difficulty penetrating new markets -- aren’t actually new, but they are getting worse as the world gets wickeder. 

Nonetheless, the industry’s talent model undervalues broadly-gauged generalist skillsets while over-rewarding systemic, crystallized knowledge applied to existing problems. That’s because, in Epstein’s telling, “there is often no entrenched interest fighting on the side of range, … even if [specialism] is a poor long-term strategy.” 

For people planning their career and evaluating multiple paths, I believe that obtaining a breadth of high-quality, formative experience will ultimately pay off, even if it means falling behind the advancement of peers who are more specialized from the start.  Forget Tiger and Tiger Moms. Wear a pink shirt. Go to China. Worry less about reading music than playing what sounds right.

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On a personal matter

After 9 years living abroad, I am returning to New York City in two weeks. Same role helping to build underwriting and investment relationships with innovative companies in the insurance business. I look forward to reconnecting with people based in the area or who are passing through. 

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An endnote about Venus and Serena

It is well-known that Venus and Serena Williams were drilled in tennis from age 4 1/2 by their father, Richard, whose 78 page plan called for the girls to become #1 in the world.  

Isn’t this basically what Earl Woods did with his son Tiger? No. 

Earl Woods trained Tiger while himself being a serious amateur with a single digit handicap. Richard Williams had only recently started learning tennis -- from a guy named “Old Whiskey”. 

Richard wasn’t an effective coach of the finer points of tennis in the girls’ younger years. The sisters’ first professional coach remarked: “They were technically flawed and very raw, and they improvised a lot, but it was obvious they had the goods to transcend the sport. Venus was so tall, could run like the wind, and had incredible power. Serena had a fighting spirit that was off the charts.” 

This tendency towards improvisation and transcendence is a hallmark of people with a breadth of skills rather than mastery of the received wisdom. Richard Williams wanted to create tennis stars, but he first created great general athletes, which was precisely the right thing to do to create a tennis star. 

Richard may have understood what he was doing. Richard was asked how he built mental toughness in his daughters and pointed not to tennis training but to general athlete skills. 

“[They got mentally tough the] same way they got human tough. Running for their life! In the ghetto, no matter what color you are, you’re gonna run for your life.” 

As it happened, these two outsiders, initially dismissed for not coming from the traditional tennis background, made the tennis establishment run for their lives.