Areas of focus
Clarify value proposition and messaging to stakeholders
The committee believes that Northwestern Mutual policyowners get the advantages of membership in a mutual company with a culture that consistently reinforces principles that place policyowners and clients first. In fact, the committee observed an ecosystem of distinct factors like exclusive distribution that together provide a competitive advantage, factors which are difficult to replicate and are jealously guarded. The committee believes that Northwestern Mutual is the best choice for financial health and peace of mind and wants all Northwestern Mutual policyowners to be able to easily explain the advantages of membership. In order to help convert more clients into advocates and sources of referrals, the committee believes that the Company's value proposition could be more clearly articulated to demonstrate why Northwestern Mutual is the best choice.
The committee believes that additional clarity of message is important to both internal and external audiences. Therefore, the committee encourages the Company to consider the most effective message to reinforce the value proposition to home office employees, financial advisors, and clients. The committee also believes that clarity of message will help focus the Company on setting priorities that support the value proposition, sequence these priorities, and provide valuable context about how Northwestern Mutual should invest to position itself against the competition. For example, if the Company's value proposition is to be the best choice for comprehensive financial health and peace of mind, then other mutual companies may not be Northwestern Mutual's primary competitors. Instead, the Company's competitors are a broader set of financial services and investment management firms. To keep its value proposition relevant, the Company should also continue to recognize how the world is changing (e.g., the democratization of wealth management). In summary, Northwestern Mutual does mutuality best because it has internalized its belief in putting policyowners first, and it should continue to explore ways to communicate those benefits most effectively to stakeholders.
Continue prioritizing technology initiatives and balance with prudent expense management
The committee observed and compliments Northwestern Mutual on its approach to expense management, which was clearly top of mind. The committee also notes that Northwestern Mutual has a solid understanding of the Company's progress on its digital transformation journey. Nevertheless, the committee believes that the Company's evolving business model has implications for how technology initiatives are prioritized and funded. The committee believes that Northwestern Mutual should continue to evaluate the sufficiency of its digital applications based on the desired client experience, the needs of clients, and the offerings of other holistic financial service firms. The Company should continue to differentiate its technology offerings where appropriate and use its offerings to reinforce the Company's value proposition as a holistic financial services firm. The committee believes the Company can leverage its long-term outlook to evaluate projects and take the long view on technology-based differentiation by continuing to invest in initiatives that are multiyear and impactful. While the committee acknowledges the burden of legacy technology on the speed to delivery and the need to balance disciplined expense management with technology investments, the committee encourages Northwestern Mutual to continue to look for ways to accelerate the desired changes and ensure that the most important projects are prioritized to maximize results.
Continue posture of innovation and risk product discovery efforts
The committee had questions as to whether and how the Company is allocating resources to risk product innovation, which the committee believes is essential to increasing the number of policyowners. Management discussed recent introductions of new risk products, including a whole life limited pay product and a hybrid life insurance and long-term care product. Both of these products show early promise in terms of expanding the Company's ability to meet different client needs and therefore increase the number of policyowners. Despite these efforts and recognizing that the Company has continued to fund an innovation lab focused on experimenting with new technologies like artificial intelligence, the committee encourages the Company to maintain its posture of innovation to avoid falling prey to the innovator's dilemma (i.e., a theory that incumbent firms are disincentivized to invest in new products that could undermine existing ones). In addition, the Company should continue to consider the ways its business model could be disrupted by new entrants and consider speed to bring new products to market while at the same time remaining steadfast and disciplined in its principles.
Periodically reevaluate enterprise risk management approach
Finally, the committee observed strong governance and disciplined risk management, noting that the Policyowners' Examining Committee is a testament to the Company's rigorous approach. The committee was impressed by the Company's openness and transparency during its review of Northwestern Mutual's operations. In fact, the committee reviewed the Company's dividend process and discussed the unique risks arising from the current economic environment and came away feeling confident in Northwestern Mutual's ability to continue to navigate economic challenges while maintaining its superior financial strength.
The committee also evaluated the Company's regulatorily required "own risk and solvency assessment" and believes it is market leading. The committee notes that the Company's unrivaled capital position among life insurers provides a significant backstop against potential risks. In addition, the committee met with the Company's highly qualified risk management professionals and came away impressed. Despite all of these positive attributes, the committee encourages Northwestern Mutual to periodically reevaluate whether it can bring additional clarity to its governance structure in order to make clearer to outsiders how enterprise risks, accountabilities and lines of authority are drawn between the risk functions and the board. To summarize, the committee does not have concerns with the Company's ability to manage risk or any of the individuals accountable for risk management or governance, on the contrary, the Company's approach is sound and effective. Nevertheless, the committee does propose that the Company periodically reevaluate its risk management approach, including from an external perspective, to ensure it is well understood and functioning as intended.
