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It Figures Podcast: S4:E11 – Labor Market Changes and Effects

On this week’s episode, join CRI Partners, Scott BaileyJoseph May, and Steve Williams, as they discuss the recent labor market changes and their effects on matters of compliance.

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From Carr, Riggs & Ingram, this is, It figures, the CRI podcast, an accounting, advisory, and industry focused podcast for business and organization leaders, entrepreneurs, and anyone who is looking to go beyond the status quo.

Scott Bailey:

Hello and welcome to the CRI It Figures Podcast. My name is Scott Bailey and I’m joined today by Steve Williams and Joe May, Steve being from our Montgomery, Alabama practice and Joe May from our Jackson, Mississippi practice. Would you guys like to introduce yourselves briefly?

Joseph May:

Sure, Scott. I appreciate that. I’m Joe May again, like Scott said, from Jackson, Mississippi. But I’ve worked all over the country, worked in the insurance I industry line for Carr, Riggs & Ingram for about the past 16 years. Before that, had my own consulting practice. I specialized in regulatory consulting with insurance departments. We did a lot of work with statutory filings, examinations for insurance departments, that sort of thing. Before that was with Deloitte & Touche, years ago. That’s where I started out. So that carries back about 30 years. So that goes back in my insurance experience.

Scott Bailey:

Great. How about you, Steve?

Steve Williams:

Well, thanks Scott. I’ve been with CRI Montgomery for a little over 20 years. Primarily, I focus in the insurance industry, captive self-insured groups, carriers. As Joe mentioned, annual statements, external audits, you name it, I’ve seen it.

Scott Bailey:

Awesome. So a lot of depth of experience that we have here today for our insurance discussion. Again, my name is Scott Bailey. I’m an audit partner out of our Raleigh, North Carolina practice, and I work with both of these esteemed gentlemen in the insurance industry. So what we want to talk about today is to discuss some changes that we’ve seen in the labor market, particularly over the last two or three years, and what effect that’s having on matters of compliance. So things insurance companies are doing to maintain levels of compliance in the face of these unprecedented changes in the labor market. And some thoughts on where we see these things going and ultimately, how these can be helped or things that can be done to supplement those processes. So just starting from the top, I think it would come to no surprise to either of you that we’ve seen a lot of changes in staffing. Is that right?

Steve Williams:

I’d agree, Scott. I work a lot in the captive insurance industry, which is a segment of the insurance world. And in that world we see a lot with the managers from Delaware to Utah over the last two or three years, a lot of their experienced, qualified staff have either retired out or completely gotten out of the industry as a whole.

Scott Bailey:

For sure. And I think we’re also seeing that effect on more of the traditional insurance side too, right, Joe?

Joseph May:

Absolutely, Scott. We’re seeing that with the insurance carriers, whether it be PNC, life title, whatever you want to name in that space. And in fact, I mentioned regulatory consulting, we’re seeing that with insurance departments as well. And that’s across the country, spanning from the West Coast to the East Coast and up into the northeast. It’s a problem not just in the insurance industry, but in our profession, we’re seeing it, we’re reading about it in almost every profession now. And it’s certainly in our space.

Scott Bailey:

Right. Well, I didn’t mean for us to pile on, but piling on, you are exactly right. And you beat me to the punch there on the insurance departments. So as you say, we’re seeing a significant amount of talent drain coming as a result of this. But it is no surprise to any of us that the compliance requirements, many of those are written into law either through model audit rules or various other forms of either… It’s statutory in nature primarily. So all the rules and regulations that we’re seeing insurance companies have that they must comply with, there’s no relief there. They’ve still got it and there really is not a lot of relief. Isn’t that a fair way to-

Joseph May:

I would say that’s very fair. And Scott, you and I did a podcast on the evolution of regulatory space for insurance companies and how we’re seeing, over the past decade or so, really going back to SOX and then how MARs spun off from that, but really getting into how there’s been an emphasis on processes, internal controls, getting into corporate governance. We’ve seen recently in the last couple of years, the Corporate Governance Annual Disclosure Model Regulation Act come out. All the states have that now. So all of these regulations are piling up. We’re seeing more and more, which makes sense. But on the opposite side of that is we’re not seeing an increase in the labor market available to help the insurance companies comply.

So it’s a problem that that’s across the board. And there’s really not a way for the regulators necessarily to relieve the companies of that, and we haven’t seen that, because the need is there. And companies have to figure out, and we do with them, a way to make sure that we’re meeting those demands from a regulatory perspective.

Scott Bailey:

Right. So just at a short-term level, and Steve, we can go with some of the most basic compliance activities that certainly we’ve been a part of and that insurance companies are all faced with, in terms of things as simple as completing annual statements, things like that, whereas it’s not something that is rigorously difficult, but it is very specialized in nature, so what are we seeing some of these companies do? What are they turning to in order to maintain their levels of compliance?

Steve Williams:

Well, when you talk about annual statements specifically, it is a highly specialized area. And you’ve got to have some expertise in preparing that statement and putting it together because of all of the supplemental schedules and things of that nature. So what we’re starting to see is because of a lack of staff and lack of experienced staff, many of the carriers are starting to outsource or look for help, look for software, look to us to assist with that preparation. We already have the software packages in place and the staff that are used to putting that together and preparing those. And as we mentioned with the statutory deadlines, that March 1st filing deadline does not change.

Scott Bailey:

That’s a hard deadline.

Steve Williams:

Everybody credits Ben Franklin for saying, “Death and taxes are the only two things guaranteed.” But in the accounting profession, we know that those March 1st, June 1st, those are big deadlines and they don’t go away. So from our perspective, that is one of the areas that we have been able to assist a lot of our client base in in recent years, annual statement prep, assistance with premium tax returns, premium tax filings, things that recur but are they’re due.

Scott Bailey:

Right. And you mentioned premium tax compliance there as well, and that’s its own little animal, right?

Steve Williams:

It’s its own world, because it varies state by state by state, and by line of coverage. So a reinsurer is going to be taxed differently than a domestic property coverage or a foreign reinsurer is going to be taxed differently than a domestic reinsurer.

Joseph May:

And to go beyond that, in some states you may have the Mississippi department, for example, maybe responsible to collect that. And then you may go to another state and you have that state have the Department of Revenue be responsible. So you’re actually dealing with potentially different departments in different states that’s responsible for collecting the premium data on all these different lines. So it can be pretty confusing even though when you first look at it seems simple.

Scott Bailey:

And I think my favorite states are the ones where you file premium tax returns, but then also file a state income tax return. And really they want,

Joseph May:

Why not have that?

Scott Bailey:

Yeah, so they get two bites at the apple there on those. So no, that one is a really, really funny animal and another area where we’re seeing a real loss of talent and we’re seeing those services look to outside.

Steve Williams:

And as Joe mentioned, it varies state by state. I have a client now whose premium tax returns for the last two years are being examined by the state. As Joe said, they’re looking for premium coverage and support for each of the different lines and each of the different states that they’re writing premiums in. And it’s state by state, looks for different information or asks for different requests. So on top of my client already being short of staff and having their other normal deadlines, they’re now experiencing this additional stress from this premium tax exam that the State Department is going through the process of. And it really begins to put a strain on the company’s staff.

Scott Bailey:

Not even to mention the fact that the person who could answer the questions is no longer there, right?

Steve Williams:

Correct.

Scott Bailey:

Right. So certainly, those are the first and foremost that we think of when we’re talking about compliance and the low hanging fruit. But Joe, as you mentioned earlier, one of the things we had talked about on our prior podcast, that’s right, this guy right here, we had talked about some of these new compliance requirements, especially some of these internal audit-related requirements such as CGAD and ORSA. Some that have been in place for longer, such as market conduct and things like that. So it’s one thing to take something that’s routine and that our clients have done for a while. What about some of these that are new, that are new on the market that our clients are having to react to and having to learn while facing these shortages?

Joseph May:

I know. That’s a great point. They may not let us sit in the same room and do one of these again. I was giving Scott a hard time. But look, you’re exactly right. It’s hard enough when you have a recurring item that you know you have a static deadline, it’s 3/1, we’ve done this before, but we’ve lost talent. And now, we have to replace that. And Steve’s talked about how we can step in and help that space. But what really becomes difficult with companies is when you have the NAIC, and they should, rules evolve, things change. And as new requirements come out, well, departments will push that through and then the companies have to deal with that too. So you have all the things that they’ve dealt with in the past. You have an ever-changing regulatory environment, which is good. It’s healthy, but it creates a significant demand on expertise, and staffing, and the needs that the company has.

So one of the things we’re seeing is a lot more specialized outsourcing, whether it’s internal audit support on specific things that we can come in and look at, whether it’s an entire internal audit department, whether it’s coming in and consulting on implementation of a new filing. So all of those things are things that we can help with and we’re seeing what you would expect, an increased demand on all of those things.

Scott Bailey:

So in thinking about one of these projects, as that gets outsourced, what’s the time commitment that we typically see? How long does one of those last? What’s the level of involvement? How does that typically look?

Joseph May:

That’s a great question and I don’t know that I can even answer it because it completely depends on the-

Scott Bailey:

Company-to-company share.

Joseph May:

Company to company, issue to issue. There are times when we can come in and spend a few hours and help someone get to where they need to be, because it’s dependent upon the needs of the company. Maybe you have the expertise, but you’re a little short on time. Maybe your demands are a little high. That doesn’t usually take as long. If you have a company that’s had a key person roll out, then we may have to take on that role.

Scott Bailey:

That being, say, maybe a Chief Audit Executive or something like that?

Joseph May:

Exactly. It could be that or it could be something as simple as the person who filed premium taxes, anywhere in between. So it’s amazing you find out how important your people are in an organization when one of them is gone. And our insurance clients, they see that. We know that. But you really feel it when suddenly someone’s not there that’s been taking care of one of those recurring items.

Scott Bailey:

And the three of us had a chuckle over that, even though it’s-

Joseph May:

It’s painful.

Scott Bailey:

It’s a painful laugh, right.

Steve Williams:

Well, it’s quick to also reveal how well your processes and controls have been designed and how effective they are, and do you have backups in place? Or do you have the capacity for backups over those certain processes and controls, which is another area where we’ve come in over the past several years and evaluated some of those controls and processes to help streamline or identify some areas of weakness. So if we do have a person who, all of a sudden they don’t show up for work. And three or four days down the line we get a, hey-I’m-sorry-I’m-not-coming-back call. Well, do we have someone who’s been filling in for them? Or have we rotated out those processes? And it’s quick to see that when you get into the situation that Joe’s talking about.

Scott Bailey:

So it really even goes back to that push-and-pull that we even see on the traditional services side, which is how well documented are your processes? How well documented are your controls and key activities? How well documented is your org chart? Something as simple and straightforward is that.

Joseph May:

I would 100% agree. And I’ll tell you, it’s what you would think. Our larger clients tend to have better documentation on that. But even that being said, even if you have the documentation, you need to assess that occasionally. No matter what size you are, certain people in certain positions and all, well, any position in that space is important. But it’s really not uncommon at all to see some of the clients that aren’t as large, not even have adequate documentation. So suddenly, you’re missing a key person that’s been there a very long time. And maybe key people around them, executives, may not know exactly what they did. And that’s a real problem.

Steve Williams:

A very common problem though.

Joseph May:

It is.

Scott Bailey:

Unfortunately. So one of my last questions here being, you teed it up for me there, when it is more of the senior-level executives, when it’s the folks who historically had been making the decisions and things like that. So we’ve talked a lot about those instances where say, the person who completed the premium income tax returns retires, or we’ll throw out a best case scenario, they win the lottery. So job done, congratulations. What about when it is that Chief Audit Executive, or your Chief Risk Officer, or someone like that who is not the day-to-day, but is the figurehead and the driving force behind these initiatives? I guess my first question is, how difficult or less difficult is it to have that role be filled in some way, however that shakes out? Or what is the typical timeframe, if there is a typical timeframe, in reestablishing that strategic direction for those compliance activities?

Joseph May:

Well, when you’re missing a key executive that’s a big deal, no matter how much you plan for it. I mean, that involves growth potential, cultural changes. I mean, a lot of things, key decisions obviously are made at that level. So it can happen at any time with any company. An emergency happens, somebody’s just no longer there for whatever reason or if they transition out. But I would say when you’re looking at that space, look quickly to the people from the outside that know those processes, whether it be your auditors, or your consultants, people who know what’s going on, people that work around that position. It’s urgent that you get someone in quickly to assess damages. Knee-jerk decisions on who to pick, I don’t think I would advocate for that at all. But it’s a really important thing that needs to happen very urgently. And whether it be your CPAs, whomever you’re working with, usually a good place to go and talk.

Steve Williams:

Real-world example, last year, had a client, worked with a client for probably 8 or 10 years. They had one person who prepared their Schedule F and their Schedule P every year. That was their responsibility. Well, the person’s daughter had a grandchild. And the person came in November and said, “Hey, I’m out. I want to stay home and take care of this grandchild for my daughter.” And the guy calls and says, “Hey Steve,” he said, “I just lost my Schedule F, Schedule P. I have nobody that has ever prepared either one of these. What do I do?” And I said, “Well, you’re already looking to replace.” He said, “I am, but they had no experience.” And what we ended up doing is for the last two years now, last year and this year, we have worked alongside of the person who came in to help them through.

The first year we helped them through the Schedule F, the Schedule P, how to combine, how to build up all these schedules. This second year we’ll just be reviewing. But the first year we spent a lot of time training, showing, walking through the process and helping the new person get up to speed. And this year we’ll just be reviewing. And then by next year we should be out of the process. So that’s a real-world example. Not a very complex area or time-consuming. Well, it is kind of time-consuming. So over a three-year process we were able to come in and it should be phased out.

Scott Bailey:

For sure.

Joseph May:

We’re seeing that as well be a more common need and a demand from our clients. And Scott, you and I have actually recently talked with someone that’s looking for that. We have clients now that we’re working with transitioning schedules on [inaudible 00:18:38] we’re doing a lot of training. I think that’s a great thing. We can come in and help transition and help train just what you’re talking about, Steve. Or we’ve had people, clients that come in and say, “Look, we want you to take this for a while. We’ll reassess in a couple of years what we want to do, whether we want to keep outsourcing it.” And all that’s on the table.

Scott Bailey:

Right. So ultimately, really what it comes down to is having that chat with your board or with your key executives and things like that and just making sure whatever decisions you make align with the strategic objectives at the time.

Joseph May:

Couldn’t have been said better.

Scott Bailey:

Well, thanks. And I think that’s all we really had to talk about today. So thanks to the two of you for your time. Really appreciate you joining us. And thanks to all of you listening as well. If you want to keep a lookout for us and other content that we’re producing, you can look at our website, that’s CRICPA.com. You can find us on YouTube, Instagram, Twitter, Facebook, all the major social media networks. That’s CRICPA. And if you want to give us a like and subscribe, that would be terrific as well. Thank you so much for joining us and have a great one.

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If you want more CRI insights or are interested in learning about our firm, please visit our website at CRICPA.com. Thanks for listening to this episode of It Figures, the CRI Podcast. You can subscribe to It Figures on iTunes, Spotify, or wherever you prefer to listen to your podcasts. If you liked what you heard today, please leave us a review.

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