How Principal is helping small business

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Beyond the Challenge is a podcast where executives in the insurance and financial services industry share their insights and experiences. Hosts 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.

Beyond the Challenge podcast is sponsored by Exactuals, perfecting payments and the data driving them; Techficient, transforming the protection journey with intelligent data and machine learning to drive better outcomes; and JourneyGuide, improving your clients’ retirement outcomes through interactive planning software.

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

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Kevin: Today, we’re talking with Amy Friedrich, President, US Insurance Solutions at Principal Financial Group. In her work at Principal, Amy is regularly engaged with small business communities, chatting frequently with business owners about the challenges and opportunities they face. Amy, can you tell us a little bit about yourself and how you got into the insurance industry?

Amy: Sure, absolutely. Thanks for having me on today. My journey into the insurance industry was a little bit of a byproduct of I followed some great leaders and worked for a great company. So, I actually was in consulting prior to doing this. I was with what was Andersen Consulting and is now Accenture, but growing up in Central Iowa was home for me so I came back to Central Iowa which is where Principal has its world headquarters and started a role in here. I originally was doing a role that was more about things like strategic planning, sort of looking at the future for Principal, and one of the pieces of the future I became convinced was going to be a really big growth accelerator was our benefits business. So, I came in on the group insurance side and then moved over increasingly into more of the individual retail insurance side so everything from dental and vision to life and disability to some of the accident and critical illness products are under my accountability right now. So my journey was a gradual one but it’s one that I feel like I’m doing something that really makes a difference for both the company and the customers we do business with.

Sandy: Thanks, Amy. All sectors face challenges, but in the insurance industry, the list seems especially long. Many carriers seem to be struggling to stay relevant while others are embracing new technology to help scale and cut costs. What do you see is the main barriers to innovation?

Amy: So when I think about innovation, I think one of the things you have to start with is you have to understand where as a company you might have some blind spots and where you’re not going to be able to see things like other people have seen them. So, I think a barrier is simply understanding sometimes that you need help and sometimes, if you’re a big insurance company who’s had a rich 140-plus year history, it’s kind of hard to recognize that you don’t have all the solutions, that you don’t have the capability to sort of test your ideas as quickly as you need to. So I think a barrier that we got to take down is just our willingness to learn from one another. So, if you’re a small fintech, if you’re a small startup company, if you’ve been providing insurance at a regional basis, I think a barrier we got to take down is that bigger is always better. I think big often partnered with small is kind of the excellent formula for success. I think I also can’t answer this without saying a lot of our companies have built legacy systems that are not as simple as we want them to be so we have to acknowledge that a barrier to innovation is the fact that we’ve got legacy systems that slow us down a little bit, but I think it goes back to my first answer on that is that if we’re willing to look outside our own walls for solutions, we can get past some of those legacy systems faster. 

Sandy: Great. From your experience, how can insurance carriers embrace innovation and transformation to improve and drive long-term growth?

Amy: I mean, one of the things we got to do is we got to do small sort of proof of concepts. So we got to have a bunch of small bets going at the same time and we have to be willing to have some of them not work out. I particularly feel the pressure as a public company to make sure that all the investments that we do always pay off so that we’re making sure our policyholders and our shareholders and all the other folks who need us to handle capital wisely are doing it, but in the end, I think we make the best decisions when we start two or three or four or five things at one time and we end up saying this one or two has the best payoff. So I think one of the things we’ve got to embrace is we got to have small proof of concepts going and we got to be able to learn from our mistakes.

Kevin: What are unique challenges small businesses have faced in the last few years, particularly when it comes to offering benefits? And what do you predict for the future of small businesses?

Amy: So one of the challenges in offering benefits, I think, has been that the demand has shifted underneath them. So small business owners were used to dealing with, “Okay, if I’ve got a basic health insurance package and maybe if I’ve got dental or vision, I’m pretty much gonna be competitive.” What they’re finding is a lot of their employees are asking about things like disability coverage, life insurance coverage. The pandemic has made some people face sort of their own mortality a little bit more and so they’ve had to broaden up their knowledge set. We’re going to have a situation where someone’s going to ask me a question about a mental health benefit. I don’t have the answers as an employee. So their benefits program and their benefit structure has had to be broader than it has been in the past to attract and retain talent. The second part of your question was what do I think about the future of small businesses. I have so much confidence in the future of small businesses. Small businesses are the most adaptive segment I’ve ever seen. So when I think of small businesses, what I think of is they’re going to pivot, they’re going to adapt, and they’re going to change the way they meet the market demand. Now, it’s going to be kind of painful but they’re the most creative set of people I’ve ever worked with. So, the future of small business is strong. We got to do the right things to keep supporting them but the future of small business is strong.

Kevin: What is your opinion about the future of insurance regulations and compliance as you know it today?

Amy: So I want to start by saying I think regulation and compliance absolutely have their place. I know when we think about things that sort of slow us down or get in the way of being able to talk about things the way that we want to, I do think a very good practice of making sure we’re holding private data private, making sure that we’re not using inappropriate data during the underwriting process, making sure we’ve got sales practices that are impeccable in terms of the types of ways we go to market, I think there’s more scrutiny happening around those things and it’s appropriate, given the time. I think when I look at the future though, we sometimes are using that as a reason to not still be creative, as a reason not still to bring different experiences, probably more human experiences, that really speak to people’s needs of protection and savings and security and so I think regulation will continue to grow or have the same amount of regulation that we have but I think our ability to be creative and to work often in public-private partnerships with regulators and others will need to get even better at that than we have been. And I think there’s lots of room to improve that. 

Sandy: Thank you. Is the current low interest rate and high inflation affecting Principal’s products and pricing? And what are the biggest impacts you’re seeing within the small business community?

Amy: So I’m going to go to the second part of that first. Low interest rates in the small business community has actually been a bit of a tailwind. They could extend credit and borrow at lower rates so they could lock in some of their longer term or mid-term obligations at rates that made great sense for them, because they were functioning in this scenario as the consumer who needed some of the credit there. So, for small business owners, the low interest rate environment has been one that has helped a bunch of them, has helped them expand, has helped them secure lines of credit at rates that make good sense for their own financials. As an insurance company who has long-term obligations and products that were built on some of those long-term expectations, it’s caused a little bit of dislocation from what we believed 20 years ago to what we believe today. So I think when I think about the insurance companies and long-term low interest rates, I’m pleased to see the interest rates rising just a bit to a level that I feel like is a bit more stable and is a bit more appropriate to the economy that we have. I think inflation is one of those factors that everyone’s feeling the pain on that. Now, I’ll give you the other side of the equation on inflation for a company like Principal, some of our products and the benefits that we provide are really a function of wages and so when we think about covered monthly earnings for a disability product or something, if someone’s wage goes up, we’re actually covering more of that and our premium goes up. So inflation, if it’s hitting wages, is not always something that provides challenges for companies like us that have sort of wage-based premium levels. But, in total, inflation is one of those things that we hear small business owners talking about a lot and they’re saying it’s painful. It’s painful in terms of what’s happened in terms of slowdowns in some of the supply chains and it’s painful in terms of the cost of goods and services that they hate passing on to their customer base. And so I would say, in all the things you’re asked about, low interest rates and inflation, it’s sort of a mix of bad news and good news and as long as we can keep that mix of bad news and good news at a stable point, I feel like we’ve got good room for growth.

Sandy: What is your opinion about the future of distribution as we know it today, looking at different types of distribution channels or direct to consumer or even embedded insurance products? What do you think? 

Amy: I think someone much smarter than me said over the course of two years, people might think that things are going to change too much, they might overestimate the pace of change, but over the course of 10 years, you might underestimate the pace of change. So I think this is more of that 10-year inflection point. I think over the course of the next 10 years, we’re really going to start to see some things shape the nature that we have distribution happening. I don’t happen to think that a lot of our products and services are best served going directly to the consumer. Let me explain that. It’s not that I don’t want the consumer to benefit from direct purchasing power and direct information, it’s that I think a lot of the intermediaries, especially the ones that are doing their job really well, are out there adding knowledge, they’re adding education, they’re adding tool sets, and providing calculators that really help people understand what they’re purchasing and why they’re purchasing it, and if those intermediaries keep checking in with their customers, year 1, year 2, and year 3, it can really be a value-add to understand how your protection needs are changing over time. So, I would say the role of distribution is going to become more digital. I do think direct to consumer will continue to increase but I think the role of the intermediary is probably even more important in the next 10-year cycle as it has been in the past 10 years. 

Kevin: Amy, what type of strategic partnerships do you see working best for carriers and, particularly, what strategic partnerships is Principal engaged in?

Amy: I think strategic partnerships that make the most sense are when smart groups of people get together and say we can’t do it all ourselves. So the best strategic partnerships are the ones that play on each other’s strengths and gaps. So, if someone has access to market intelligence or information that others don’t have, that’s a great partnership to have. If some have access to saying, I know small business owners but I know their economics versus I know small business owners and I know what they’re going to do to meet their ongoing needs 10 years from now, then you should partner up that small business knowledge so that you can find the right partnerships that make sense. So, when I think of partnerships, I really think of those that take into account people’s gaps, people’s pain points, and it brings smart people together doing good work. When I think of Principal’s partnerships, that’s really what it is. We look for companies that are ethical, that need a need, that are doing the right things that we think for the customers and consumers and who can sit down and be creative for us. I also look for the right partnerships that are going to stand the test of time. So even when something begins to move off track of where you’ve planned, you can come back and work on it together rather than always ending up with a bunch of lawyers or attorneys in the room sort of interpreting a contract. So I think partnership means something, and for Principal, our best relationships are true partnerships and I feel like I’m really lucky to have a bunch of those. 

Kevin: Amy, what do you see as the biggest opportunity for the insurance industry over the next three to five years?

Amy: Human experience. I think the insurance industry has lived too long with the thought that it’s sort of a sales-driven practice and I think the insurance experience is the best when it’s truly focusing on human questions that people have. “I have a concern,” “I have a gap,” “I don’t feel secure enough,” “I’m worried about something.” When you think of the things that insurance products can do to keep people from poverty, to preserve income, to make sure people have the security to know that they can visit the health practitioner that they want to see, insurance can change the world and I think the biggest change I see is we’ve got to really lean into that and we’ve got to have our experience show up as powerful experiences that can change the world. When I think of soap, when I think of coffee, and I think of the types of brands that people have put into that, insurance is more powerful than that. We need to own it and we need to build the character, the integrity, and the experiences that help people understand that insurance can change the world.

Kevin: What’s one of the best decisions you made that had a positive impact on your career? 

Amy: So it’s kind of a tough question but let me give you a couple things. Someone once told me it doesn’t matter really what you do as much as it matters who you’re doing it with and for. And so I’ve remembered that time and time again. So when I’m looking at opportunities sitting in front of me, I don’t look at always the compensation or the clear move to the next level in the organization. What I look at is who am I going to be working for? Who am I going to be doing work for? Who am I going to be benefiting? And what I’m finding is that keeps my passions aligned and then when you distinguish yourself through your passion, your career tends to follow that trajectory. So I would say one of the best pieces of advice I got is who you work for really matters and who you’re doing work for really matters. So I think about that every day.

Sandy: Great. So what advice would you give to somebody looking to get into the financial services or insurance industry? 

Amy: If you want to change the world, this is the career for you. If you’re curious, if you really want to get after something that allows you to solve problems that really matter, societal problems, financial problems, intellectual problems, then being in financial services or being in insurance should be attractive to you. I would give them advice that would say that if you’re curious and a problem solver, you should gravitate towards this industry.

Sandy: Great. Can you talk a little bit about the current labor market and how it’s impacting insurers and the financial services landscape at large and what you at Principal are doing to attract or retain the best talent?

Amy: Sure. I think it’s no surprise to see that the labor market is tight and it continues to be tight. We probably have as many open jobs at Principal as I’ve seen us have right now. That’s great news on one hand, in that we’re growing and we have jobs that we need great talent to fill, but on the other hand, we have business coming in that we have job openings that we don’t have enough hands on deck to get after everything. So that’s not necessarily unique to Principal but I would say what we’re finding is that the companies, and I would put Principal in this category, the companies that are able really to lead with purpose, that are able to lead with “Here’s why it matters” in what we’re doing are the ones that are probably having the best luck attracting and retaining talent, because I think what the pandemic has helped people understand is life might be a little bit more fragile than they thought of it, might be a little bit shorter than they were thinking of it, and that people want to come to work and, number one, work with people that they enjoy being with and, number two, do work that really matters. So, what I’m seeing is the best attraction and retention is happening with companies that really make the case that what we do matters. And so I feel really comfortable that Principal has a very strong case and a very strong and well-demonstrated history that what we do matters. So, I feel like that’s the biggest differentiating factor going on in the labor force today.

Sandy: Can you tell us or can you discuss Principal’s ongoing pulse check on business owners, the well-being index?

Amy: Sure. I could talk about the well-being index all day and I swear I will not, but the well-being index is something we’ve done for a number of years. It’s a pulse check that we do about three times a year that’s basically going out there to business owners and by business owners, we catch business owners of all sizes but we have a particular focus in those small- to medium-sized business owners and we’re basically doing both a sentiment check as well as a check on what do you think is going to happen. So, when we do that survey of business owners, what we’re asking them is what’s the current climate that you’re seeing? How are you feeling about your ability to grow? How are you feeling about cash flow? How are you feeling about your employees? Are you feeling like they’re being taken care of? Are you taking care of yourself? Are you worried about things like cybersecurity? Are you worried about growth? You know, what are the things you’re most excited about and what are the things that you’re most worried about? I feel like that check, that pulse check that we do is great primary data that helps us understand what we should be responding to and what the broader industry should pay attention to. Principal has hundreds of thousands of small business relationships and that pulse check is a really great sense of sentiment and it often links to some of the other broader economic indices we see, but sometimes it gives us even more granularity on we’re seeing this happen with female small business owners or we’re seeing this happen generationally with younger generation business owners. So it gives us the ability to do a little bit of in-depth look at what business owners are thinking, and sometimes it’s surprisingly positive and other times it’s a lead indicator of where they’re worried about something that really ends up being a true challenge in the economy. 

Kevin: Amy, thank you for your time today. It’s been great to hear your thoughts on how carriers can stay relevant and the opportunities you see for the industry in the next few years.

Amy: Thanks so much. I’ve appreciated the opportunity and keep up the great work you guys are doing to get the message out there and talk about interesting things.

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