CEOs Discuss Outsourcing’s Moral Dilemma

Ethical issues surrounding offshore outsourcing, the difficulty of technological consolidations and whether mergers and acquisitions really are the best way to add value to an organization were among the topics of discussion during a frank CEO panel presentation held at yesterday's Property/Casualty Insurance Joint Industry Forum at New York City's Waldorf Astoria Hotel. The panel of CEO speakers moderated by State Farm CEO Edward B. Rust Jr., included W.G. Jurgensen, Nationwide; Lord Peter Levene, Lloyd's of London; Edward M. Liddy, Allstate; Michael S. McGavick, SAFECO; Ronald R. Pressman, G E Employers Reinsurance Corporation; Catherine A. Rein, MetLife Auto & Home; and Jay S. Fishman, The St. Paul Companies, Inc.

An audience question posed to the company heads about sending work offshore sparked a discussion on the controversial topic. Moderator Rust warned that the U.S. could face obsolescence as a global economy competitor if it doesn't begin investing more in the education of its people. And although The St. Paul Companies, Inc.'s Fishman acknowledged that the shift in resources is part of a disturbing trend, the leader also highlighted the fact that he must weigh the importance of his company's bottom line in the balance.

"If we keep taking our service-based economy and moving it offshore, we might one day wake up and find ourselves having to press each others pants because that will be the only way to make a living," joked Fishman. "But as the head of a company you also need to maintain your competitive posture. So we are finding ourselves having to wear two hats; we'll wear those two hats uncomfortably."

Allstate's Liddy who brought attention to his company's offshore outsourcing operation, Northbrook Technology of Northern Ireland Ltd. (Belfast), acknowledged facing a similar conundrum. "You can't close your eyes to [outsourcing] because you need to have a competitive structure, but you also can't disenfranchise your employees," said Liddy.

The panel also affirmed the need to take their customers' expectations into consideration. MetLife Auto & Home's Catherine A. Rein pointed to the fact that customers are beginning to pushback when they recognize that call center functions have been outsourced. "And as companies continue to send jobs that touch the customer offshore, the fallout will increase," she contended.

In addition to the outsourcing discussion, CEOs views of industry mergers and acquisitions were also polled by Rust who pointed to a spurt in such activity. Fishman--whose St. Paul Companies is in the process of merging with Travelers Property Casualty--related that the appropriateness of consolidation is dependent on the individual insurers. He also contends that although these deals have increased, the industry still remains fragmented.

SAFECO's McGavick also expressed doubts that there will be a "Darwinian movement toward [mergers and acquisitions]." Although he acknowledged that many consolidation strategies have met with success, he stressed the importance of looking within one's company for value. "An organization can grow by focusing on discipline in its core areas; investors will reward that," said McGavick.

GE Employers Reinsurance's Pressman also affirmed the value of self-reliance. "Which mergers and acquisitions have been huge successes? It's a short list," he said. "I think we should be careful when we view consolidations that come through mergers and acquisitions; it may be best to focus on our own innovation and technological advancement, and strive for excellence. I wonder which is the more intelligent path."

If a carrier does decide to merge with another organization, MetLife Auto and Home's Rein contends that no matter how prepared organizations are, they will hit some roadblocks. Although she asserted that it was well worth the trouble, Rein shared her experience with a challenging technological consolidation that took three years to complete. After stressing the importance of "knowing where you want to go" with this type of project, Rein conceded that although her plan had a clear direction, a disruption of business was inevitable. "You can't just quarantine these projects off so that they don't affect the rest of the business," she said.