Zurich Insurance was implementing organizational changes on its practices on manager development, diversity and inclusion, job model and data analytics, recruitment, and talent pipeline. This case study discusses the use of data analytics on the human resources field.
Boris Groysberg; Katherine Connolly
Harvard Business Review (417038-PDF-ENG)
September 23, 2016
Case questions answered:
- How has Zurich Insurance performed relative to the Insurance Industry? Provide evidence in the Tables of the case to discuss the results for 2015?
- How would you describe Zurich’s existing culture as discussed in the case? How has the culture negatively affected the performance of Zurich Insurance? Explain in terms of ERM?
- What actions relating to its corporate culture should Zurich take, given where it wants to go?
- How do Zurich’s ERM Tools help them better understand their existing and emerging risks?
- How are Zurich’s risk roles and responsibilities impacting the risk culture?
- Relate the culture in general as described in the case to its ERM program? How do we integrate the cultural issues into the ERM design?
- Describe two ways the ERM tool has been used to add value.
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Zurich Insurance: Global Job Structure and Data Analysis Case Answers
1. How has Zurich Insurance performed relative to the Insurance Industry? Provide evidence in the tables of the case to discuss the results for 2015?
- Zurich Insurance was mounted on 2 related industries:
- General Insurance: Underwrote policies relating to property, casualty, liability, and other general risks.
- Life Insurance: Paid beneficiaries upon the policy holder’s death.
- Despite challenges like the softening of the insurance market, low-interest rates, volatile equity markets, and catastrophic events, the general insurance industry performed well from 2011-2016.
- During this period, industry-wide revenue was projected to increase at the rate of 3.3% p.a.
- From Exhibit 1 & 2 (Income statement and Balance Sheet) project Zurich’s operating profit in 2015 by business segment:
- Farmers Insurance: over $1.4B
- Global Life Insurance: $1.3B
- General Insurance: $864M
- Global Life posting higher profits compared to General Insurance was exceptional and alarming, indicating that Zurich was losing its foothold in the industry and that its priorities need to be reevaluated.
2. How would you describe Zurich’s existing culture as discussed in the case? How has this culture negatively affected the performance of Zurich Insurance? Explain in terms of ERM?
- Zurich is a company that highly values integrity, thus creating a flexible environment for its employees to perform rather than a high-performance environment.
- The employees have probably become too comfortable since they did not face any challenges in the work environment.
- At a point in time, over a decade ago from 2016, when there was a need to save Zurich from the brink of its bankruptcy, it was important to centralize control and have strong governance; innovation and entrepreneurship took a back seat.
- In ERM terms, it resulted in stagnated skillsets and mindsets among employees, thereby decreasing their performance throughput. This enterprise-wide phenomenon hits the company’s performance.
- Over time people who wanted to thrive in entrepreneurship left the firm, and people who wanted to thrive in a powerful, strictly governing environment were promoted, rewarded, and recognized; thus, becoming comfortable.
- But the external context changed. There was a need for entrepreneurship and innovation.
- Zurich Insurance needs a vision for its people.
- In 2014, the HR team had to come up with a vision for its employees that linked to the company’s performance, resulting in “People Vision.”
- This was implemented globally by the HR teams working together and not in silos.
3. What actions relating to its corporate culture should Zurich Insurance take, given where it wants to go?
- The company survived near-bankruptcy because of certain practices it followed.
- 15 years later, these aspects of the company culture need not necessarily be the same.
- Hence desirable cultural traits need to be identified, and change needs to be driven.
- In 2015, Zurich Insurance launched corporate culture workshops for its leaders at the company corporate center.
- These workshops focused on the “overt and obvious” elements/artifacts of the organization like policies, physical spaces, and programs.
- Over 2 years, Isabelle Welton, Zurich’s Chief Human Resources Officer, implemented initiatives to strengthen the quality of the company’s workforce, focusing on
- Developing managers more aggressively
- Prioritizing diversity and inclusion
- Implementing global job model, used to drive data analytics
- Strengthening recruiting and hiring
- Building well-vetted talent pipeline
4. Based on Chapter 14, how do Zurich’s ERM Tools help them better understand their existing and emerging risks?
Zurich Insurance Group operates in more than 170 countries, and with its wide range of customers, it is exposed to more risks, but Zurich believes that risks should be taken at the right time in order to improve and protect the shareholder’s value and for the profitable growth of the company.
Zurich thus uses the ERM program to achieve a balance between the growth opportunities and with the reality of its worldwide operations. The ERM at Zurich is not only used at its business level but also aligned with its strategic, budgeting process and operational planning.
Zurich evaluates the potential risks and develops relevant actions to mitigate the identified risk exposure. With the ERM tool in place, Zurich can achieve the following objectives as listed,
- ERM monitors that the risks taken by Zurich fall with its risk tolerance level
- It provides timely and relevant risk information, which enables Zurich in its efficient decision-making process.
- It helps in developing action plans and risk responsibilities to protect it against any negative outcome.
- It identifies scenarios that require further risk information so that it can create a sound risk awareness culture, which helps to protect the reputation of the company.
- With the help of ERM, Zurich Insurance has been able to create new values for its organization in several business sectors. For instance, through ERM, Zurich introduced an enhanced operational risk management framework to add value to its operations.
- ERM program at Zurich contributed to sustained business growth throughout the recession, which is accounted for more than 40 consecutive quarters of growth.
The ERM tool plays a vital role in identifying and evaluating its strategic risk and reputational risk with the changing scenario. The ERM process is reviewed periodically on an annual basis and is aligned with the strategic planning process.
The procedures followed to review the customer risks through the ERM program at Zurich contributes to its core business activities. Zurich performs credit checks to monitor the collateral and financial viability of many of its customers and suppliers.
5. How are Zurich’s risk roles and responsibilities impacting the risk culture as described in Chapter 14?
The Zurich Insurance leadership team is responsible for a positive risk culture since it is considered to be the most important aspect for effective business management of the company.
In order to achieve this effective management goal, the following roles and responsibilities need to be followed:
- The risk owners at different levels in the organization should be clearly defined so that it enables them to manage their assigned risks, and also, the risk information will be shared with other internal and external stakeholders in the organization.
- Committed and effective leadership
- Timely escalation of procedures and efficient governance structure with clear risk responsibilities
- Active learning from past mistakes and relevant risk mitigation procedures for the same
- Risk appetite in the organization’s management of the business
- Improve the ERM program constantly, and the risk culture should not be treated separately from the overall business culture of the organization. It should be regarded as one element with respect to treating the risk exposures.
6. Relate the culture in general as described in the case to the ERM program described in Chapter 14? How do we integrate the cultural issues into the ERM design?
- The case discusses cultural changes brought about in Zurich with respect to the roles and responsibilities of its employees at various levels.
- Zurich employed 55,000 people worldwide, who created value through its brand promise of “intelligent protection.”
- The company was bringing about a cultural shift in a way to bring the employees out of their comfort zone and facing challenges.
- As the changes are being brought about, the ERM at Zurich Insurance should evolve parallelly to address any risks pertaining to these strategic changes.
- A resource could be allocated specifically to monitor these changes and report to the ERM team and Senior management about potential risks involved.
7. Describe two ways the ERM tool has been used to add value, as described on pages 274-277.
The ERM program at Zurich added value by introducing it to an enhanced operational risk management framework. Zurich uses two opportunity analysis tools with respect to the area of mergers and acquisitions to support the due diligence practices, which include the TRP (Total Risk Profiling) tool and the Zurich Risk Room in order to simulate the risk scenarios and to investigate the potential outcomes.
These two tools helped Zurich Insurance to identify the risk associated with strategy and to manage them accordingly. The KPI (Key Performance Indicator is used to analyze and understand the performance level of an organization with respect to its strategic objectives, whereas the KRI (Key Risk Indicator) is used the examine the risks associated with the business performance.
The ERM tool at Zurich uses the KRIs to add value by way of helping in determining or evaluating the potential risk exposure that may arise in the future or in other words. It acts as an early warning of the risks that are on the rise. Zurich can also create value for its business by addressing the disruptions to its operations through:
a. Supply chain risk assessment software
b. Business continuity gap analysis techniques
c. Combination of modeling software
It has appointed a supply chain risk officer who is responsible for reporting the appropriate findings to balance between cost and reliability. It has a business continuity team in place, which is responsible for enabling the company to thrive back its business to operate efficiently upon disruption.
Additionally, it also conducts stress testing activities to help Zurich Insurance remain operational, especially when the customers were suffered.
The following explains how the TRP tool is used to evaluate various risk exposures, thus enabling in adding value to the organization.
a. The TRP tool was used to evaluate the risk scenarios that prevent on-time delivery and with the expected results.
b. TRP tool was also used to quantify the risk exposure and the tolerance level. It was updated on a regular basis with changing risk or arising of new risks.
c. TRP assessment is used as a yes/no decision gate to examine whether expected results/benefits from the projects are more than the risk taken.
d. TRP method is used at top-level management to develop strategic scenarios that help to maintain a consistent risk exposure and the profit level.
e. TRP process helps in mitigating the risks that fall outside of the tolerance level and also to eliminate the barriers to achieve its business goals.
f. The TRP methodology helps in creating corporate risk tolerance, which enables business and profitability controls across the entire organization.
Customers are considered to be the most important factor in any insurance group. ERM helps Zurich Insurance in the procedure of reviewing and identifying potential customer risk.
Zurich evaluates its customer risk through conducting credit checks to monitor the financial viability and collateral of its customers. Through its cross-divisional emerging risk group, it manages and mitigates any new risk exposure across the enterprise.
Zurich adopts 1000 risk engineers to evaluate and manage the customer risk and provide the necessary support for their needs, and also protecting its own portfolio.
In conclusion, the above explains in detail the ways in which the ERM tool is used to add value to the Zurich insurance group.