Solvency & Success

Transforming The Talent Model Of The Insurance Industry

Insurers that succeed in the coming years will be those that recognize talent strategy has the same importance as core business strategy.

Excerpts from a new collaborative article by Tanguy Catlin, Ari Chester, Julie Goran, Megan McConnell, and Scott Rutherford, representing views from McKinsey’s Insurance and Organization practices. Read the full story here.

Talent strategy requires the same rigor and focus as business strategy, especially as the insurance industry sees accelerated change. At many insurers, however, talent takes a back seat to business strategy. As carriers pursue strategic ventures such as entering new markets or undergoing digital transformations, HR might be involved, but rarely to the extent necessary.

At the same time, insurance executives cite human capital—rather than financial capital or any other asset—as the scarcest resource in the current business environment. Talent can no longer be an afterthought.

Indeed, the insurance industry faces uncharted risks. Climate change now seems more ominous and imminent than previously thought. Cyberrisks continue to intensify. New liability risks are emerging across markets—including the COVID-19 pandemic, which took many by surprise.

New technologies are also rapidly gaining adoption. In particular, digital and analytics tools, and artificial intelligence’s expansion, have implications for all core functions in insurance. Customers are also becoming savvier and more demanding in parallel: consumers’ experiences with high-quality interfaces such as those from Amazon, Google, and other leading apps are becoming their baseline expectation for all digital interactions.

To manage these risks and trends and optimize the value of new technologies, the industry needs an infusion of technical skills, complemented by softer skills in areas such as customer engagement and empathy. The industry will need a new approach to talent—and to its core business—to gain value from cultivating these new capabilities.

An Evolving Risk paradigm

The changing risk landscape creates new talent requirements for insurers. This can be visualized as a “barbelling” of risk, in which risks become either more or less measurable .

On the side of the barbell where risks are becoming more measurable are higher-volume, more frequent risks for which there is much more available data. Information can also be collected in new ways for these risks: instead of the traditional chain of insureds providing information to intermediaries that then submit forms to insurers, disparate data sources can automatically feed information to be collated.

When the Internet of Things or telematics is involved, the pace and depth of data processing increase by several orders of magnitude. The richness and volume of data and new insights create a virtuous cycle of more data collection leading to even more additional insights, with algorithms automatically learning from past insights and companies investing more to mine and process data. The resulting—continuously updated—insights can lead to more risk mitigation and reduce frequency. This high volume of detailed data may challenge the notion of risk pooling, since it can be challenging to continue to hold low- and high-risk “units” in the same pricing class.

Shifting Skill Requirements For Insurance Functions

As carriers pursue strategic ventures such as entering new markets or undergoing digital transformations, HR might be involved, but rarely to the extent necessary...

Forces throughout the economy are remaking roles. In particular, our research found that automation will accelerate the shift in required workforce skills in unprecedented ways: the need for technological skills will increase 55 percent from now through 2030, while the need for basic cognitive skills (such as data input and processing) will decline by 15 percent.

In addition, a greater need for social and emotional skills will develop. As machines automate more knowledge work, the workforce will require more creativity, critical thinking, and social intelligence to shape and steer them.

To assess the effect of automation in insurance, we profiled roles at leading insurance companies in Europe and the United States, including underwriting, actuarial, claims, finance, and operations roles. We found that 10 to 55 percent of these functions could be automated over the next ten years.

Talent Strategy Cannot Be Business As Usual

By definition, meeting the insurance industry’s talent needs will require different talent strategies. We’ve identified five critical elements insurers should consider.

1. Talent strategy requires the same intensity as core business strategy
Many insurers’ business strategies are focused on modernization and digitization, but the industry faces significant hurdles in sourcing the necessary talent. Bridging these gaps means addressing talent strategy with the same intensity and rigor as business strategy: quantifying needs, translating these needs into targets, committing to investments, reallocating resources significantly, and instituting discipline around execution.

On the macro level, when considering groups of talent at scale, experience with some of the early movers suggests successful transformations broadly involve three phases: scouting, shaping, and shifting. While these phases are intuitive, each includes measures that are new to most organizations.

2. Upskilling and reskilling are as important as—if not more than—attracting new talent
Reskilling is critical to meeting insurers’ future talent needs because hiring externally for the skills required is costly and difficult. Replacing an employee can cost more than 100 percent of the role’s annual salary while successful reskilling can cost less than 10 percent of a role’s salary.

Significantly, our cross-industry research found that digital skills are becoming more scarce. Demand for agile skills are four times that of supply, and demand for digital skills is up to two times greater than supply. Most companies also fail to fill new roles at the required rates. It is even more challenging in the insurance industry, particularly for digital, design, and analytics roles. Indeed, the insurance industry struggles to compete with other sectors for tech talent, especially tech companies

Read the full article here.