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Library: McKinsey – Transforming the talent model in the insurance industry

April 2021 featured report:

At The Digital Insurer, we’re all about digital transformation. But this month’s featured report takes a look at the other side, at the role of humans in an increasingly digital world.

 The Digital Insurer reviews McKinsey’s Report on Transforming the talent model in the insurance industry

Talent strategy is as important as business strategy, says report

This McKinsey report –  Transforming the talent model in the insurance industry – was published last year but human capital strategies were not at the top of the agenda at the height of the pandemic.

The main thesis is simple – even in the digital world, the people within the business will be essential to achieving success. It’s good to know we still have a role in the age of machines, but the report goes as far as to say: “talent strategy requires the same rigour and focus as business strategy, especially as the insurance industry sees accelerated change.”

Well, the last year has rapidly accelerated the transformation experience for insurers, whether they like it or not. And unfortunately, strategy concerning the people – or talent as McKinsey likes to call it – often takes a backseat to business strategy.

Businesses entering new markets or pushing ahead with digital transformation can overlook the people side of the equation. The irony is, that executives and insurance companies are forever telling researchers that human capital is scarcer than financial capital. This reinforces the need for a proper joined-up approach and a strategy for the acquisition and retention of the best talent in the first place.

There are a number of forces converging on the industry. The world has changed. New risks are developing all the time, including cyber, and the pandemic itself.

Technologies, especially digital, analytics, artificial intelligence and machine learning are being deployed to transform the core functions of insurance industry.

This has influenced consumer, who now has higher expectations as the online servicing they have received from e-commerce ecosystems has raised the bar considerably higher than most insurers can even aspire to – for now.

In order to manage these risks, insurers need their employees to have a new mix of technical skills coupled to customer engagement. Empathy is going to be absolutely essential, say the report’s authors, if insurers are going to thrive in this new environment.

Insurers are dealing with a barbell of risk – a spectrum which has increasingly measurable and more frequent risks at one end, and less measurable ones that are less frequent and are capital intensive at the other end (Exhibit 1).

The more measurable risks are measurable because we now have rich and deep data about them. This provides great insights and helps the insurer to mitigate them to a greater extent than in the past and reduce their frequency.

The other side of the barbell carries risks that are less measurable. These are things about which we cannot easily view the data. These include cyber and natural catastrophes. Even COVID-19 could be classified as such a risk.

As more insurers seek to manage this evolving environment, they will need new capabilities. They will shift towards mitigating risk more often and work more in partnerships rather than as discrete units.

increased automation is unavoidable and will itself accelerate the need to adapt skills in the workforce in new ways.

For instance the need for technological skills will increase by 55% to about 2030. By contrast, basic cognitive skills – eg data input and processing – will reduce by 15%, says the report (Exhibit 2).

The paradox is, that as machines automate more of the knowledge work, employees must become more creative, and engage with “critical thinking” and “social intelligence” in order to drive the business forward.

The report found that among the roles profiled at insurance companies in both Europe and the US (this included underwriting, actuarial, claims, finance and operations), anything from 10% to 55% of the functions would be automated over the next decade (Exhibit 3).

Though automation will have increased, that doesn’t necessarily mean there will be a reduction in the workforce as a consequence. Instead, employees will be channelled into higher value activities.

The report also found that the scope of between 10% and 70% of tasks will change. One example is of a claims handler whose focus will be less about processing a claim as providing a great customer experience.

Underwriters or actuaries may also find they are working more closely with data science and advanced analytics employees. Up to 30% of underwriting roles could involve more interaction with data scientists to improve the quality of quantitative tools, while another 30% could be automated to reduce routine low value tasks that are mostly manual today. This won’t make underwriters programmers, but it brings them closer to colleagues in data focused roles. As a result, underwriting will become more technical and require more social skills.

What this means is that every single insurance role is going to change considerably over the next decade. This will require new strategies for talent, says the authors, and they identify five elements that insurers must consider:

  1. Talent strategy requires the same intensity as core business strategy.
  2. Upskilling and rescaling are as important as – if not more important than – attracting new talent.
  3. It will become particularly critical to assimilate new skills and profiles, into the existing structure.
  4. Updating the talent mix presents opportunities to promote increased – and much needed – diversity (Exhibit 5).
  5. Insurance companies should seek to offer dynamic, vibrant work environments where workers want to base themselves.

 

These last two points are particularly critical, because they hinge on making change to culture and mindset. These tend to be the largest obstacles for insurers to overcome when attempting to transform their businesses and ones they ignore at their peril.

In summary, the report says that high quality staff have always been the beating heart of the insurance industry. However, successful companies in the future will not be those that have integrated technology to develop deep understanding of risk and their customers from big data and artificial intelligence alone. It is those that manage the most precious – and scarce – of essential resources they will need to succeed in this new world. And that’s the people that make up the business.

This is because you can have all the technology you want, but increasingly it has become apparent that insurance in the digital age still needs a human face in order to satisfy the needs of the market.

For more, see the full report.

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