Episode 12 with Tom McInerney, CEO at Genworth – Growth Strategies During Times of Disruption

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Beyond the Challenges is a podcast where executives in the insurance and financial services industry share their insights and experiences. Host Kevin and Sandy Dougherty talk with today’s top business leaders about what keeps them up at night and the biggest opportunity organizations can capitalize on today. We encourage you to listen, share, and subscribe to our program.

Kevin and Sandy Dougherty each have over 20 years of experience in insurance and financial services, corporate leadership, and executive search. They’re the owners of Global Corporate Solutions and Global Corporate Leaders. Global Corporate Solutions partners with organizations to gain efficiencies and contain costs. Global Corporate Leaders partners with organizations to enhance and evaluate talent.

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Welcome to Beyond the Challenges. Here are your hosts, Kevin and Sandy.

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Sandy: Today, we’re talking with Tom McInerney, CEO at Genworth, about the challenges faced by carriers and producers in a new virtual environment. Tom, can you tell us a little bit about yourself and your background?

Tom: Well, so June 5th of this year, I celebrated my 43rd year in the insurance industry. I started on June 5, 1978, at Aetna. I actually started as a property casualty underwriter and spent a couple of decades at Aetna and had almost all the jobs you could have at Aetna. When I joined, it was a multi-line company. You know, today, it’s a domestic health company. In 2000, I was running Aetna’s global financial service business so that had businesses like life insurance, annuities, mutual funds, defined-contribution businesses, and all of that in 25 countries around the world and that division was sold to ING, the largest Dutch financial services company based in Amsterdam, and I went with the deal. Could have stayed at Aetna but decided to go because I wanted more of a global experience and I spent a little bit more than a decade at ING. Actually moved to Amsterdam for four or five years, had a terrific time there. I’m sure people know all the stories about Amsterdam but it’s a very nice livable city for a bigger city, very easy to get around walking and a lot of the Dutch people actually ride bikes everywhere so I got a little exercise in as well, and then I ended up — I was in Amsterdam, my family, I have three daughters, were in the US so I decided to leave in 2011, came back, worked for Boston Consulting Group for a little while but then ended up joining Genworth in January 2013 and I’ve been the president and CEO and a director for about eight and a half years now.

Kevin: Thanks, Tom. Welcome to Beyond the Challenges. Tom, so far, insurance carriers have weathered the COVID crisis exceptionally well, largely due to the investments they have made in the networks, applications, laptops, and more. The crisis did expose a number of gaps and vulnerabilities. The big question now facing carriers is this: How do we adapt business strategies to accommodate a new way of working and still grow? Tom, from your experience, how can insurance carriers embrace innovation and transformation to improve performance and drive long-term growth?

Tom: Well, I do think the insurance industry, because we don’t make widgets, our products are products and services that can be documented electronically or in writing. I think we did prove what I always thought was the case but we’re forced to work remotely but I always thought that was possible and I think our experience at Genworth, but all my CEO colleagues in the industry have been very surprised and pleased with how well working remotely has gone and I agree with you, Kevin, that we have been spending money and technology giving all of our employees, you know, laptops, iPads, iPhones, all of those kinds of things that enable you to do work wherever at Genworth and I think, generally, it’s been the case for most companies, based on my conversations. People have been as productive remotely as they were in the office, but you miss a lot of things, particularly new products, new services, marketing. I think being in the office, being in a conference room with a whiteboard and talking about ideas, brainstorming, all those kinds of things, I think, are better served together but I do think that, because of the success over the last almost 18 months, I do think insurtech, finantech types of firms have also figured out that this role, any role in insurance can really be done remotely so I do think that we have invested over time in technology. One of the things we found at Genworth is not every employee, wherever they live, has access to Wi-Fi broadband on the scale that allows them to do their jobs. Obviously, when they’re in the office, we’ve got these big pipes that make Wi-Fi and those kinds of things much quicker and so we did, at Genworth, we gave everybody a one-time stipend to set up their home offices but then we realized that they did connect, they did need better Wi-Fi and so we, on an ongoing basis, have been giving employees an extra $100 a month to cover those kinds of costs. I do think while there’s still gonna be a need for distribution and producers, more on the advice and consulting, I do think that the administrative services that agents used to do with paper applications and those kinds of things will go away but, clearly, particularly for more complex products, I do think there’s still a significant role for producers, but will producers have to meet face to face all the time? I think not. Obviously, to develop a relationship, you’d wanna meet with your clients face to face on a reasonably periodic basis but I think you can also do more and I think these Zoom kinds of technologies will be there and facilitate not always having to travel to meet with clients or clients meeting with a producer so — but I think we all are going to not be able to go back and unwind the clock and do things like we did before. For example, at Genworth, we’re not gonna require people to go back in and work in the office, we’ll leave it up to them and I think we’ll have, you know, a minority will wanna come in every day, a minority will wanna work remote every day, I think most will wanna work out some scheduling where they can be in the office but also not always have to be in the office and I do think, for distribution and staff of companies, my sense is the travel for face-to-face meetings will be used more judiciously. You know, in the past, I’ve jumped on a plane to go to China for, you know, a three-hour meeting and so you take the time to travel over, 15 hours, catch up on your sleep, have a meeting, and then leave the next day and have to do it all over again and so I think there are gonna be times when you have to do that, even for a three-hour meeting, it’s so important to do it face to face, but I think we’ll find we can become more efficient and productive by being more judicious in terms of when we feel we have to be there live and when we think we can be there through some kind of a technology solution.

Kevin: Tom, what do you see as the industry’s biggest growth strategy?

Tom: So, I think it matters whether we’re talking about the property casualty industry or the life and health industry and so let me take each one of those separately. I think, on the property casualty space, there’s a significant risk with cybersecurity and all those kinds of things and I do think, for property casualty insurers, creating products and risk management tools that allow companies and individuals to be more protected from a privacy perspective, from a data security perspective, is gonna be a very significant opportunity to ensure those kinds of risks. Whether business interruption insurance changes, you know, one of the negatives about the current business interruption insurance pre-pandemic is most of them excluded war and pandemics and all of that and it’s kind of boilerplate because no one — we haven’t had a pandemic in 100 years. I think now, there will be opportunities, I think, for insurers and producers, distributors, agents to work with clients on a new definition of that and so now that we know things can occur where you have to go remote and be forced to go remote, I think there’ll be real opportunities for companies to figure that out. I also think that major risks of being in site risk is gonna be different and people will congregate perhaps differently and so there may be opportunities there. I also think and maybe Progressive and Geico deserve a lot of credit for, even pre-COVID, being ahead of the game with devices and cars from an underwriting and pricing and premium perspective, risk management, obviously, how people drive, whether they obey the speed limits or not, now you have these devices that you can know that all the time and so I do think it will be interesting to see how that all works out. On the life side, there — with very, very low interest rates, I think that will require a lot of rethinking of products because when you were investing the premiums for a life insurance or long-term care insurance, say, where you have a Treasury Rate, 10-Year Treasury at 4 or 5 percent and then a spread on top of that, the investment return, investment income provides a lot of leverage on the long-duration life products and with interest rates, you know, 1.5 percent 10-Year Treasury and so maybe it’s 3 percent today versus higher, all of that’s gonna have to be rethought and so, again, there’s both the threat, how do you make these long-duration products more economic, but there’s also an opportunity to be first in the market with new ideas, new concepts about how you make the economics work even in a prolonged low interest rate environment. There’s also a major challenge coming that I think will be implemented in 2023 which is long-duration US GAAP accounting, that will be much more of a market regime so Solvency II in Europe has been in place for many years but that will also change how you do the economic analysis for products and so I think that’s an issue that will be interesting to see how that all plays out. I do think with most of the wealth being controlled today by baby boomers, the oldest of whom are in their mid-70s, that whole transition of the baby boomers and their wealth to others will provide a lot of opportunities for investment-oriented products. Obviously, the unique advantage of the life sector is the long-term guarantees that we provide so there’ll be, I think, a lot of changes because of the accounting regime, certainly for the publicly held companies. And then on the health side, you know, I think there’s gonna be dramatic changes on how health is delivered, telehealth, etc., and so I think for health insurers, long-term care insurance, one of our specialties, I think all of that will need to be rethought and I think the most innovative creative insurance companies can — and maybe some insurance tech, telehealth companies may really change the dynamics and so I think there’s gonna be a lot of change across the whole industry with opportunities and some threats from new players because of all the new technology that will be brought to bear and, ultimately, customers wanting to be interacted with using — taking advantage of all this new technology.

Kevin: What are some other revenue generators that the industry is exploring?

Tom: There’s a lot going on in the retirement services space. I think on the life and annuity companies, I think there’s a lot going on there and I think how you convert savings into ongoing monthly annuity streams, I think, is a really big opportunity. I also think that there’ll be more opportunities for services and advice, not just the risk-bearing insurance product but advice as to, you know, how you should protect yourself from a comprehensive basis and I think we will see opportunities for companies to add additional revenue streams from the insurance product that they’re selling where they’re taking a risk and exposing capital but also more advice and counsel as to how to manage all the risks that insurance companies usually protect you.

Kevin: Tom, how has COVID-19 changed the way your producers reach new clients and service existing clients?

Tom: I do think there was a slow moving trend pre-COVID to do more electronically, you know, straight through processing of applications, not a lot of need for face-to-face interactions, but the insurance industry was slower than most other industries for whatever reason. Maybe it’s because there’s this concept that insurance is sold, not bought, and so that face-to-face interaction was critically important, but I think COVID-19, for 18 months, producers have had to dramatically change what they do and how they do it. The face-to-face meetings, you know, the taking people to lunch and talking through their portfolio of products and services, that is not gonna probably go back to the way it was and so I do think that producers are going to have to maximize and leverage the use of technology, whether it’s Zoom, Teams kinds of platforms or not, and I think those producers that don’t wanna now really step forward, because I think the pace of changing from the old ways that producers worked with their clients to the new is dramatically changed over the last 18 months, I can’t imagine those traditional ways of interacting with customers will remain and so I think how to figure all that out so that you are top of mind with your clients but in a more electronic, technology-enabled interaction than face to face and it’ll be interesting to see how far that goes. I think it’s gonna go pretty far. I also think, if you’re, you know, I have three daughters who are older than 30, younger than 40 and, again, they buy insurance products totally differently than I did. You know, I remember when, 1978, when I bought my first car, I didn’t have an insurance agent so I asked my dad, “Who’s your agent?” and met with his agent and insured the car. You know, my three daughters have been Geico or Progressive, you know, online, they don’t have agents, they — today they don’t. They still don’t have independent agents for property casualty. They do everything online and so I think that’s gonna be more and more the case and whether you’re an insurer doing business, you know, business to business, insuring companies or employers or employees through their employer or individual, I think it’s gonna be very, very different and I think producers, their firms will win or lose on how well they interact with clients but using all of these new technologies more than the traditional strength of the face-to-face interactions that, you know, they built their businesses on.

Sandy: Tom, with all the new technology that we’ve been talking about, how are you dealing with the tech debt? There’s a lot of legacy systems that are out there, especially in life insurance, how are you dealing with it?

Tom: It’s a fundamental problem for Genworth and all insurers. Our original, original company was Life of Virginia founded in 1871 so you can only imagine, since 1871, all of the paper and then a lot of electronic legacy systems, mainframe IBM systems that all were great in the 50s, 60s, and 70s but that’s not how you do it today but yet, many millions of policies are still on those old legacy systems and that’s a huge problem because they’re old, they need a lot of work, a lot of Band-Aids, they’re very inflexible. You really can’t use them for things like artificial intelligence or data mining because they just were never set up that way, but it’s extremely expensive to do the conversion and so I think what is likely to be more often the case is companies, carriers will move what they can on to newer systems that are more data mining enabled but they’re still gonna have a lot of business on their old legacy systems and they’ll be spending millions of dollars on keeping those systems up and running because to convert everything onto the new would be too expensive or take too much effort. I do think there will be firms that emerge that will be more administrative firms that will be able to bring, “Look, give us your in-force bulk of business and we’ll put it on our systems or we’ll adapt your systems to ours,” and I think there’ll be more of those opportunities but I think most companies will, for decades, will have some of their most profitable in-force business on these old, antiquated systems that will be very expensive to maintain. At the same time, they’re gonna have to heavily invest in all the new technology for the new products. And so I think the IT costs will be significant to maintain both but I think that’s just because so many of the leading carriers in the industry have been around for a long, long time, they all have these legacy systems that have been piled on top of each other and you would never use those on new products but, for most companies, you know, 90 percent of their in-force is where most of the profitability comes from versus the new business that takes years really to develop and provide the return. So, I’m sure companies would love the ability and maybe someday there’ll be a new Bill Gates who will come up with a way to take all the legacy stuff and modernize it, you know, by pushing a button, but it’s not there today and it is a major handicap, I think, for large insurers. The new players, the more nimble players, the new fintech kind of players, will have the advantage of being able to do the new without having to bear the cost on the old and how do you cover those costs so that would be an interesting dynamic. I would say of all the challenges that Genworth faces, that issue that you raised is probably the most critical that we get right because it’s tens and hundreds of millions of dollars that are being spent every year on technology, mostly, about 80 percent of it goes to maintain the old versus the new, innovative technologies.

Sandy: I guess that’s the good and bad in having a 100-year shelf life product. 

Tom: That’s correct.

Sandy: What do you see changing in the insurance marketplace over the next three to five years?

Tom: You know, I think there’s gonna be dramatic change. I can’t predict all of it. I think a lot of it will be technology enabled and will change the industry. I think this pandemic, who knows how long the behavior will last, you know? I’ve known Gavin for a while and we would meet at ACLI meetings face to face to shake hands and have a cup of coffee and you wouldn’t think that could be a negative to do that and so, you know, I was in New York City last week for a few days and even though I assume most people are vaccinated, I’m vaccinated, almost everywhere you went, half the people have masks on, whether outside or inside, and half the people didn’t and some people, people I know when I meet, they’ll shake hands, other people will do a fist bump and some people will say, you know, “I don’t do that anymore,” and I don’t know if the way people interact is gonna be permanently different. I think there’ll be some differences. If we don’t have another pandemic, you know, in 5 or 10 years, I mean, I think human nature is you sort of forget and go back to what’s most convenient, but I’ve been surprised to see that still half the people and even ones who are vaccinated are still very, very cautious and if that human exchange is changed dramatically, then it really can have a dramatic impact on the future. I do think there’ll be new products and services. I do think the demographic trends in the US, that’s even worse in China, we do business in China, and Western Europe, Japan, the aging of societies is also going to dramatically change the kinds of property casualty, health, financial service, life, annuity products that we all offer. On the one hand, it’s a huge opportunity to work with how those baby boomers transition their wealth, but, for the last 20 or 30 years, most of us, particularly on the life side, have been about how do they accumulate savings for retirement and now it’s gonna be how do they utilize all of the wealth created and does that move to the next generation? Do they spend it? What do they do with it? And then, you know, the tax regime, there’s a lot of, more on the life and annuity, defined-contribution plans, mutual funds that a lot of insurance do, the tax regimes for how much of insurance products are supported by favorable taxation and whether or not I think the current administration, you know, does look to wanna put a much heavier burden on people making over $400,000 a year, many of them are clients of life insurers and so it could mean that all of the estate planning that has been a cornerstone for life companies is an even bigger opportunity but it could also be that, for younger people, they aren’t as interested in building big wealth positions because, you know, at the end of the day, that all gets taxed away so it’s hard to know how these societal changes, diversity, inclusion, equity, how far does that go and, depending on how far it goes and how dramatic the tax or the wealth transfer payments become, it could either be really helpful for insurance or it could close some opportunities so, yeah, I just think the societal changes, particularly given all the things that have happened in the last year or so on equity and with police departments and concerns and all of that, it’s gonna have a dramatic impact on society and it’s really hard to know how that all plays out but insurers and producers are gonna have to react to all of those societal things that are happening as well as other things that are more specific to the industry.

Kevin: What is the best decision you made that had a positive impact on your career?

Tom: You know, Kevin, that’s a great question, I get it a lot, and my answer surprises some people and I’ve been very unsuccessful convincing any of the employees I’ve mentored to do what I did. So, when I was at Aetna, I was in the corporate finance part so I reported underneath the chief financial officer for a period of time and the person who is my boss, the vice president, that directly reported to the CFO, was moving into a different position so it was natural, you know, I was an assistant vice president, natural for me to step up into that job, promotion, more money, more responsibility, but the chairman and CEO of the company, this guy, Jim Lynn, wanted me to leave corporate finance and go over to the strategy M&A group, but they had a vice president who wasn’t going anywhere and so it would have been a lateral move where I wanted to stay and be promoted and it was right there but he said, “Tom, I get all that,” and I was probably in my mid-30s, “but trust me, this move, you will report through the head of planning in M&A but because of what you’re working on, it’s much more relevant and you’ll have much more exposure to be in the board at a much younger age,” and so, against my gut instinct, I took his advice and took a lateral move and it took me about two years to make it to the vice president level but I did ended up planning and strategarian and that all occurred in the early to mid-90s and that’s when Aetna decided to go from a 40-country multi-line insurance business to only a domestic healthcare business and so I really led with the board all of that transformation, buying and selling. You know, we were the number-three property casualty company, we sold that to Travelers, Sandy Weill and Jamie Dimon and Jay Fishman, that’s where I got to meet all of them at a pretty young age and then we redeployed the proceeds from that, $8 or $9 billion dollars, into buying U.S. Healthcare and, ultimately, I ended up running the global financial division, which got sold to ING, which was a great step for me and so, coming back to early mid-30s and people wanting the immediate promotion, because, you know, there, as you can imagine, the difference between assistant vice president and vice president was a pretty big leap and to give that up and take a lateral move worked out totally well. I have tried to convince hundreds of people in my 43-year career, the same conversation that Jim Lynn had with me. Yeah, I know that the track to the next promotion is faster here but you really need to broaden your expertise, your experience, and it gives you more exposure to more senior people to move. It’s a lateral move, no pay increase, no promotion, but, longer term, it’s better for your career and I don’t think anybody I’ve given that advice to has ever taken me up on that and so it’s an unusual story but I will say it was a move that I thought was the wrong move. I did it because I had some loyalty to the chairman and, in retrospect, you know, when he would — long after he retired in 20 years, I said, “You know, I still think that I questioned whether I really should have done that move but as I look at my career, absolutely.” How it would have turned out if I had gone a different way, I mean, who knows? But I will attribute that career change and taking the unusual approach. But it’s interesting that I, you know, and I’ve given that example to people but I haven’t really convinced anybody to give up a near-term promotion for a lateral move for the long term and it’s just interesting.

Kevin: What advice would you give to someone looking to get into the insurance industry?

Tom: I talk to a lot of college graduates and MBA graduates, we hire a lot of MBAs in our investment group, and I think there’s a view that insurance is very boring but what I have been more successful in convincing people, “But, you know, you’re really, whether you’re helping businesses, if you’re part of the commercial insurance or individuals, you’re really there saving their fortune, for protecting themselves against all the risks that we all face,” and when you pay a claim and deliver a claim check and you know that without, you know, whether it’s a life insurance proceeds to a family so their kids could go to college or, you know, their home is in California, burns down from wildfires and they would be devastated without it, and thinking, particularly today’s people coming out of school, they’re much more purpose driven and so I do think, recently, I’ve had more success with — and overcoming that, “Hey, I wanna go work for Google,” or go work in New York to going for a boring insurance company because your purposes, you know, for long-term care insurance, you’re helping people when they’re older and frail and disabled, mortgage insurance business we have, you’re helping young couples who have good jobs and good incomes and good credit scores but they don’t have enough for a down payment so you let them into the benefits of homeownership earlier and I do think we are finding that the current generation cares a lot more about that. They wanna do well in their career but they also aren’t gonna stay likely with one company for 40 years, like it used to be the case when I joined in the 70s, but I think I have more hope for recruiting the best people into the industry than I did because I do think what we do and the benefits we provide to all of our insurance customers, no matter what line of insurance you’re talking about, whether risk management and, you know, the savings for the future, annuitizing their wealth so they have a monthly income for life, paying a death benefit to a family with three young kids and the primary breadwinner is gone, all of those things, I think, are really rewarding and I do think that’s becoming hopefully more of an attraction to the industry so that we can, I think, despite the issues around not being exciting enough, I do think we’ve recruited really good people to the industry and once they’re in the industry, I think they do understand the purpose, the mission that we have, and they stay in the industry but I do think it’s more likely that the industry will be successful with the current generation than maybe we were 20, 30 years ago because of the purpose-driven nature.

Kevin: From a professional standpoint, what is it that keeps you up at night?

Tom: Well, to me, it’s all of the macro risks that we face as Genworth, and even in the industry. You know, for us these very low interest rates for long really has significantly challenged the economics of our business. You know, the pandemic, I remember, for a long time, when — not to get too inside baseball but in term life insurance, the requirements of the regulators under a lot of these reserve requirements were to weigh in more than I ever thought was appropriate the 1918 pandemic mortality and so a lot of us complained for years that that made no sense because with modern technology, modern medicine, pharmaceuticals, pandemics don’t happen, particularly in the United States or the developed world. They may happen in Africa or parts of Asia but never here and I do think that what’s happened in the last 18 months totally changed the view that there’s so many times in the past where, you know, we knew there was a huge risk but, “Hey, it’s never gonna happen,” and now I think that’s all changed and we have a risk committee in the board and they’re much more focused — and management is much more focused on what is the macro unexpected risks, low probability but could happen, and I do think that that’s a big worry, you know? I’m not convinced that the next macro disaster is gonna be the next pandemic. Usually, it’s not what just happened, it’s something else. You know, 2008, there was the housing crisis for all of the bad underwriting and all the things that happened, which obviously had a huge impact on our mortgage insurance business but, the last 18 months, it’s all about, you know, what that’s done for life mortality, it’s, you know, it’s hurt us on the life side, it’s helped us on the immediate annuity side and the long-term care insurance side so I think CEOs and leadership at companies have to be much more aware that these major disruptive risks can really happen, as remote as they may be, and you have to be more prepared for them and I think the next big risk, there’ll be less tolerance by investors, by customers, by regulators, by the government for missing things because, “Yeah, we knew that risk was sort of there but, you know, we thought the odds on it were so low, we didn’t really prepare ourselves for it.” These macro mammoth risks, I think, the black swans, as some people call them, they’re there and we’ve just seen one happen where I can’t tell you how many presentations I’ve given over 40 years to various boards and said, “Well, here’s the black swan event, but, you know, we’re gonna do this anyways, even though that risk is there because these black swans never happen,” and, now, that’s still probably the case but I think people will be much less able to say, “Well, that’s a risk that no one could have assumed would have happened,” because I think now you’re expected, for whatever the next one is, that you’ll be fully prepared for it and, you know, that’s, who knows, it depends on what that risk is and it’s somewhat unknowable but you have to be as best prepared as you can for anything that may come your way.

Kevin: Tom, lastly, what is the single best opportunity the insurance industry can capitalize on today?

Tom: To me, I think it’s how we deal with the retiring baby boomers and how we help them with the risks that they face from aging, health-related, long-term care-related, but also how they maximize whatever they’ve saved and, of course, many baby boomers haven’t nearly saved enough but how to maximize that and to provide, because we’re all living longer and that will continue, how do we make whatever their resources are last as long as possible and I think, particularly the insurance industry, because we’re willing to take long-term risks, products with long durations, willing to provide more guarantees than most other industries, including banking, I think using our very strong balance sheets and our risk management capabilities, I think we can really help people protect themselves and particularly specifically to your question, for the 76, 78 million baby boomers, because of all the wealth they control, helping them manage through that aging transition, I think, to me, is the single biggest opportunity for the industry.

Kevin: Tom, thank you for your time today. It’s been great to learn more about you, Genworth, and your view on the industry and business strategies to accommodate new ways of working and finding new ways to grow revenue.

Tom: Thank you very much for inviting me. I thought you asked very good questions, very pertinent questions, and, hopefully, with some of the experience I’ve had, I’ve been able to help some of the listeners to this podcast in the future so I enjoyed it, thank you very much for including me, and all the best with the podcast and I’ll be very anxious to see how it goes and what people think.

Kevin: Thank you.

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