Paul Ricard: Welcome to a special edition of Oliver Wyman’s Reinventing Insurance podcast. I'm your host, Paul Ricard. Our partner team recently gathered for a global meeting in New York, and we held a series of fireside chats with senior leaders in the insurance and asset management industry.
My colleague, Lubasha Heredia, a partner focused on the asset management industry interviewed Joan Lamm-Tennant. Joan is the Chair of the Board of Directors for AllianceBernstein and Equitable.
Joan shared valuable perspectives across the insurance and advisory industries. Lubasha and Joan’s conversation covered a range of topics from building successful partnerships and driving innovation to integrating generative AI into business strategies. Enjoy the conversation.
Lubasha Heredia: Well, thank you Joan for joining me here today. We are very excited to have you. You are also obviously very closely involved with AllianceBernstein. What are the challenges in that more traditional, if you will, asset management industry?
Joan Lamm-Tennant: In that market, you've got a talent force that has largely grown up in a time of economic prosperity, with compensation structures making it very hard in today's market to maintain margins and meet those compensation structures.
And so, it's doing things smarter. It's opening markets, and it's more less frictional distribution channels or things that we're very focused on. When Equitable spun off from AXA about six or seven years ago, AXA did a fabulous job setting Equitable up for success. It could be a Harvard Business School case study. I'd love to write it because they really set the company up for success and they sold down on highs as opposed to kitchen sink it.
One of the things they did is collect all their holdings of AllianceBernstein and put it into Equitable because they thought Equitable needed an asset manager more than they did. So, Equitable owns now 62% of AllianceBernstein. I wanted to make that very clear. Now of course they are the majority owner, but they are still in owners as over and above Equitable. So that's been a real advantage for us. And so, they too are working with Equitable on expanding out their alternatives. We just bought CarVal Investors (an established global private alternatives investment manager) a few years ago, and Equitable put lot of money behind making that deal close so that Equitable would get access to alternatives properly structured on their balance sheet.
And that's an example of how AllianceBernstein can move in different places but benefit from the partnership or the ownership structure that they have with Equitable.
Lubasha: From a board standpoint, when you look at the management teams and the challenges that management teams are facing today, what is the thing that keeps you up at night, that takes up most of the conversations in the board meetings?
Joan: Yes. This is not just our management team, but we think about it in terms of our customers at best. And that's overall wellbeing, defined very broadly. So, when we speak about wellbeing for our employees, we think about their financial wellbeing, we think about their mental, their physical and their social wellbeing.
On financial wellbeing, we actually started a program for our employees for our entry level and support staff employees where we realized that they have their ability to save and an emergency fund of $1,000 to $2,000 was very limited and we created vehicles that allowed them to start saving for these emergency funds. Well, the good news is that led to more confidence that they could save, and we started getting massive participation in our 401k.
We want them to participate because we want to match it and we wanted to support their financial wellbeing. We're looking at other issues on physical, mental and social wellbeing, and of course social brings up all the issues of hybrid work, return to the office. So as a board, the thing that we focus on the most for our employees and our customers is wellbeing broadly defined.
Lubasha: How do you think generative AI is going to embed itself into the way we do business in the retirement and asset management space?
Joan: We have been making significant investments in generative AI and we have democratized it. Gen AI has created a tremendous energy in the company because we're starting to watch how employees are creating efficiencies in the way they're doing business. They know better than anyone. Now, of course we have the proper safeguards. We do not allow our data to go out into the public market. We allow our team to work in a closed environment, but with the access of a defined and dedicated tool for us.
And we look at generative AI as having three swim lanes. We look at it as having efficiencies in the way we do business. We are getting a lot of traction in that one just by democratizing access to AI amongst our employees. Second, we are using generative AI to better understand our customer’s needs and their challenges. This also depends on how well our customer data is accessible and there's some work to do there. And third, using generative AI for better decision making. This one is going to be the most challenging.
Innovation is what will drive success. And so, if we emulate it through an Insurtech or a Fintech, or if we emulate it through a big corporation coming up with a new product —innovation is still here to stay.
A good place to start is to look at how and where we are innovating. And product innovation is one place, but innovating in new distribution channels is another. And I've always cringed at innovation for the purpose of stealing market share. Really? There's a whole underserved market out there. Why are we not innovating for underserved sectors of this society? Be it the world's poor or be it the working middle class who have not saved for retirement. Why not open up their markets? If we frame innovation properly, with the understanding on who and what we are innovating for, finding the opportunities to solve bigger problems, I think we could be quite successful at it.
Lubasha: You've mentioned employee wellness. You've mentioned how AI is impacting employees and how they do work. You've mentioned talent compensation. So, if we take a step back and think about talent more broadly, what do you see as the next set of challenges and opportunities to attract the best talent?
Joan: Now, it’s important to recognize that talent is the root, it's the engine that drives value for all of your stakeholders. And so, it really important to develop a culture of inclusiveness. We are trying to create a mindset of inclusivity throughout the organization. It starts with a lot of resource groups but not resource groups that are exclusive to women or exclusive to men. Resource groups that are saying, "We are trying to understand the needs of working females," and it's open to all leaders in the organization. And so those type of resource groups help to drive an inclusive mindset and also build an awareness of the different sectors of our society.
Lubasha: What does a true partnership looks like? Many of us have worked with asset managers that have historically done everything themselves and are only now starting to venture into building partnerships?
Joan: A true partnership is where the twosome is really solving a very significant problem for a customer group or sector of society. They are bringing to bear what they can do in that partnership. Now it's got to be economically viable. But the purpose, design, and the incentives of the partnership must be in the customer's best interest and focused on meeting unmet customer needs.
Lubasha: Moving back to the retirement space, what do you see as the most important challenges that the retirement industry is trying to solve today?
Joan: In the US, we have about 4.1 million individuals that will be retiring between now and 2027. We estimate that by the year 2050, the US will face a $137 trillion retirement gap. My daughters will be retiring around 2050, and I think about what kind of life they are going to enter into. It won't be their golden years for sure. And so, understanding how ill-prepared we are as a society for retirement and solving that problem for the mass public is critical, the most important retirement challenge to address. We won't be able to accomplish it alone. So, like I mentioned, we have a very solid partnership, and perhaps we'll have more. In fact, we have a team working to expand those partnerships as I speak.
Lubasha: Our audience today is a collective group of our global insurance and asset management partners at Oliver Wyman. We want to be relevant. We want to contribute to the impact and transformation happening in the industry today. So, we would love to hear your advice on where we can be most impactful.
Joan: Well, I'd like to start with ‘you are relevant.’ I would say to think about it in the context of the bigger social problem that you are trying to solve. And it’s about understanding your clients unmet needs and the purpose. And thinking about it in terms of your clients’ customers. That opens up tremendous doors. And so back to our story on wellbeing. We've made some progress but very little in solving for financial wellbeing. There's lots more to be achieved there. Find your north star and your your purpose. How does it lead up to solving a more broad-based social problem? Today, it’s about creating efficiencies for your value chain. But even that can be reframed.
Lubasha: I love that answer and the part about the purpose. Of all the things I aspire to accomplish, there's probably two or three different career paths. For example, I may want to be a university professor, or start a business, or chair a board for an asset manager. And Joan, you have managed to do all of those and some in one lifetime and more to come. So, I would love for you to walk us through what was the unifying driving force behind all of those different career choices?
Joan: Well, thank you for that question because I know if you read my resume, it does look a bit like a smorgasbord. I started my career as a doctoral student and really set out to understand how risk was being priced — and not just credit and structure — but insurable risk as well, catastrophic risk, the risk of not properly saving for your retirement. I wanted to understand and view how risk is layered in the economy at large, where it breaks down and where we make decisions. Risk was a topic I wanted to understand from different vantage points.
Maybe I could give a few examples, and I'm going to start with Equitable. Larry Fink, Chairman and Chief Executive Officer of BlackRock and Mark Pearson, President and Chief Executive Officer of Equitable Holdings, met three years ago.
We were facing a challenge of going from defined-benefit (DB) plans (traditional pension plans funded by employers) to defined-contribution (DC) plans (retirement plans that allow employees to contribute and invest in funds and other securities over time to save for retirement), and as a result, the risk of not saving adequately for your retirement was on the shoulders of people who could least afford it.
We moved it off the balance sheets of corporates, so they were happy, but we now have it on the shoulders of the individuals who could least afford it. To start, we conducted some real inquiries through Larry Fink. We really wanted to understand the market and the employees of the companies whose 401k’s that he managed.
And we found that 89% of the employees were asking for guaranteed income in retirement. And it didn't matter. It cut across generations. It didn't matter if it was Gen Z or Millennials, or if it was Baby Boomers — they all wanted some certainty.
It’s been a three-and-a-half-year journey and it’s just gone live, and we've just reported it to the market. And the title of this innovative product is called LifePath Paycheck. Now it's not our product, it's Larry's BlackRock product. The approach provides access to guaranteed income through a target date fund. Plan participants have the option to use a portion of their plan account balance at retirement to purchase a fixed individual retirement annuity from Equitable.
And for Equitable, it’s allowed us to gain access to the mass market as opposed to just serving the wealth and retirement needs of say the top 10%. And we're solving a big challenge as we moved from defined-benefit plans to defined-contribution plans. And so that's an example.
And one more example is Blue Marble, which delivers socially impactful, commercially viable protection. Blue Marble will always have my heart. I started the company in 2014, setting out to create financial services and in particular an avenue towards risk transfer for the working poor in developing countries. In 2015, we originated our first parametric cover for smallholder farmers in Columbia. And these were coffee growers. And of course, fast-forward nine years, parametrics have become mainstream and people know what they are.
Back in 2015, it was complex to even get insurers to back it, let alone to get customers to buy it. I learned that if we could allow the smallholder farmers around the emerging world to transfer their risk and we did it properly and in a way that created incentives, that they would make better investments in their business, which as a result would keep their children in school and they would have better livelihoods. And that's exactly how we did it.
Now, to fast forward the story, I stepped down in 2021, but one of the very first individuals I hired is now leading the company. I talk to him from time to time. I'm so proud of him. That program, that very first program that we did in 2015 now has the backing of the United States Agency for International Development (USAID) and is now being scaled worldwide. So, we took it from Latin America to Africa, but it now has USAID backing, the world’s premier international development agency that is primarily responsible for administering civilian foreign aid and development assistance.
The Blue Marble story is interesting. The emerging world was able to transfer risk. And we also did it through new distribution channels and partnerships. We built trust and true partnerships with other participants in their value chain. We had partnerships with Nestlé Nespresso, which gave us access to the coffee cooperative (co-ops), a business model in which coffee farmers come together to collectively grow, process, and sell their coffee.
And we had partnerships with nongovernmental organizations (NGOs) that were lenders and partnerships with input providers as well. And some of those lessons learned helped me think about how we established our partnership with Larry Fink and his BlackRock team. Because a partnership is not, ‘let me put my product on your shelf and let's share the proceeds.’ It's a lot different than that.
I will say we did major transformation at Equitable by adopting new ways of working. We adopted it right before the pandemic. I remember the phone call from Mark Pearson, saying, "Do we go full speed ahead with this or do we back off on it?" And Mark had the courage to go full speed ahead.
We have a very different talent model in our organization where we allow teams to focus on the problems to be solved. It’s very agile and driven by design thinking. And you do not get appointed to be on that team, you volunteer and raise your hand. The talent model allows a workforce to solve problems, as little or as big as they might be — bringing their collective skillset, for example actuarial, finance or marketing. The new ways of working model has created a fresh sense of energy and passion to innovate within our organization.
We are looking on ways to expand our embedded solution in 401ks, but it was the new ways of working team that resolved the mathematics of that challenge. And it was a cross-functional team. One of leaders by the way is an alumnus of Oliver Wyman. He was our chief risk officer and he joined us from Oliver Wyman. So that's why I say you are relevant.
Lubasha: Thank you, Joan, for joining us today.
Paul: Thank you for listening to this special edition of the Reinventing Insurance podcast. For more information about our Reinventing Insurance series, you can find everything on our website at www.oliverwyman.com/reinventinginsurance. Thanks for listening, and we’ll see you next time.
This transcript has been edited for clarity.
