Amidst the backdrop of higher interest rates, unforgiving market conditions, unprecedented natural disasters, and delayed legislative changes, one question lingers: Can these challenges truly jeopardize the future of the insurance industry? Interestingly, the industry could very well face extinction in the face of not being able to recognize, protect, nurture, and grow its most valuable resource, its workforce. 

The insurance industry has battled that need for sufficient and competent talent throughout time and is yet again facing similar circumstances imposed by trends such as the "great resignation," a widespread phenomenon where large numbers of employees are leaving their jobs. Recent demographics indicate that the average age of an insurance professional in the United States (US) is 59. However, it is preeminent to mention that these demographics also highlight that more than 65% of the workforce is above the age of 40.  

A large majority of these professionals are set to retire in the years to come. On one end of the spectrum, the insurance industry faces the exodus of a veteran workforce. On the other, dynamic demands, including remote work and enhanced benefits sought by the Generation-Z workforce might not be capable of filling the shoes of their predecessors.  

Factors Creating the Labor Shortage  

The US insurance industry is experiencing a growing shortage of competent talent. The US Chamber of Commerce, in a 2021 report, has shed light on statistics that are now being labeled as alarming. The report highlights that: 

• Less than 25% of professionals in the industry are aged below 35.  

• During the previous decade, the number of Insurance professionals aged 55 or older has increased by 74% due to millennials not showing significant interest. 

• Over the next decade, a total of 400,000 open positions in the industry are expected.  

It’s clear that an aging workforce is one of the factors contributing to the labor shortage in the insurance industry, as they are soon to retire. Sharing his thoughts on the U.S. Insurance Labor Market Study results that highlight similar figures, Greg Jacobson, CEO of The Jacobson Group that has provided talent to the insurance industry since 1971, has stated that:  

“We are at the lowest in the last 10 years in terms of the percentage of people who are being laid off, and we’re at the highest in the last 10 years in terms of the number of people who are quitting.” 

Insurance providers now must shift their focus towards hiring and nurturing young professionals to fill this soon-to-prevail gap in the industry. However, this is a pursuit that comes with its own set of unique challenges imposed by the amalgamations of the pandemic and Gen-Z entering the workforce. Sharing her thoughts on Gen-Z students now entering the insurance industry, Grace Grant, Executive Director of Gamma Iota Sigma that works towards promoting, encouraging, and sustaining student interest in insurance, has stated: 

“These students were really affected by the pandemic era shutdowns during very formative years in their development. The various forms of civil unrest of the past couple of years has definitely had an impact on what the current crop of students finds important.” 

Considering the recent changes in business processes and Gen-Z demands, it can be said that the insurance industry must now cater to providing a better work-life balance and a remote or virtual work environment for the incoming workforce. As the industry prepares to integrate the Gen-Z population into the workforce to tackle the exodus, we can argue that the expertise of veteran professionals will be missed.  

Impact of The Labour Shortage on Lenders 

Although this expected exodus likely to occur in the insurance industry may not directly impact lenders, its transitional impact will become evident over the years. As experienced professionals retire and new candidates join the industry, they will be left with a lack of expertise. Speaking about insurance as a career, Grace Grant has stated that: 

“This should be a first career choice rather than an area that one enters with curiosity and a little bit of hesitation. There’s so many different specialties and niches to explore.”   

Based on her remarks, it can be concluded that insurance, at the moment, is not a top career priority, and this reality is driven due to lack of awareness. The aftermath, including such a workforce in the industry, entails that lenders will have to collaborate with inexperienced professionals, those with less than a few years of full-time insurance-specific experience, which may cause problems in various operations, including policy underwriting.  

When lenders work with inexperienced insurance professionals, they can encounter issues such as incorrect coverage evaluations that don't align with collateral requirements, prolonged processing and approval times, communication gaps over policy terms and requirements, potential financial exposures from overlooked policy lapses, and challenges adhering to local and industry-specific regulations. 

In addition, lenders are also facing regulatory changes imposed largely under the purview of the Department of Housing and Urban Development (HUD). Given this, lenders may face challenges navigating the market and in aiding the development of new insurance products in line with programs like the Resilience Incentivization Roadmap 2.0, a comprehensive plan aimed to address climate impacts on infrastructure developed by the National Institute of Building Sciences and Fannie Mae, when working with inexperienced professionals due to their limited ability to work as efficiently as industry veterans.  

Can The Insurance Exodus Be Tackled? 

The aftermath of the insurance workforce shortage is undoubtedly quite significant. The industry may not be able to replace nearly 400,000 over the next year, nor the loss of knowledge and intellectual capabilities that follow. However, different strategic and technological solutions can be deployed to limit the impact and ensure a smooth transition.  

It's preeminent to mention here that the gig economy in the US is picking up pace, and the nation is expected to have around 90 million freelancers in the coming years. As an insurance carrier or lender battling the workforce shortage, leveraging the gig economy and seeking advice from consultants or independent contractors may help mitigate consequences but approaches in this regard may be exposed to limitations that are inherent in the gig economy which include: 

• Institutional Gaps and Security Risks 

  • Freelancers might lack familiarity with company-specific policies and culture, leading to potential service inconsistencies and because they will be required to handle sensitive insurance data, breach risks will increase. 

• Increased Training Costs  

  • The flexibility of freelancers may be offset by recurring training needs which would increase costs. 

• Oversight Challenges 

  • Remote or irregular working hours can complicate management and supervision and limited integration with internal teams can cause communication and collaboration issues. 

• Variable Quality and Costs 

  • Balancing multiple clients might lead freelancers to produce inconsistent work quality while their rates might fluctuate, leading to budgeting challenges. 

On the other hand, working with consultants allows lenders and insurance carriers to have skilled experts for specific projects, which will not only lead to improved quality but will also help reduce costs. Speaking about the talent shortage Greg Jacobson has stated. 

“Companies cannot hire fast enough to replace the workers who are leaving.” 

Leveraging the gig economy can also help cater to this temporary hiring freeze made evident due to inexperienced candidates. Furthermore, both insurance carriers and lenders can implement various strategic initiatives focused on increasing awareness and competency among candidates. These initiatives include: 

• Launching awareness campaigns about the richness of careers in insurance. 

• Offering internships to give hands-on experience. 

• Providing training and development programs to nurture talent. 

• Focusing on work-life balance to retain and attract talent. 

Conclusion  

With over 400,000 vacancies expected in the insurance industry over the course of the next decade, the insurance industry is gearing up to battle the workforce shortage. However, with nearly 50% of the workforce soon to retire, the industry will be left with a severe void that can only be filled with intellect and skill.  

Consequent to the workforce shortage, both insurance carriers and lenders may undergo challenges pertaining to the development of new insurance products and quality service. To cater to the prevailing uncertainty, the primary focus of recruitment and service procurement operations needs to be creating awareness, providing growth opportunities, and leveraging the gig economy in order to encourage and facilitate a healthy growth of interest in insurance as a career amongst the latest entrants in the workforce. The future of insurance rests on a foundation of adaptability and innovation, ensuring a seamless transition from the experienced to the emerging workforce.