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The Insurance Industry's Talent Gap and Where We Go From Here

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There is concern among insurers and related firms in the United States and abroad that there will be a shortage of skilled insurance professionals in the next few years as current workers retire. Though there have been discussions among insurers,
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  Risk Management and Insurance Review  C  Risk Management and Insurance Review , 2012, Vol. 15, No. 1, 107-116DOI: 10.1111/j.1540-6296.2011.01212.x T HE  I NSURANCE  I NDUSTRY  ’ S  T  ALENT  G  AP AND  W  HERE  W  E  G O  F ROM  H ERE Cassandra R. ColeKathleen A. McCullough  A BSTRACT There is concern among insurers and related firms in the United States andabroadthattherewillbeashortageofskilledinsuranceprofessionalsinthenextfewyearsascurrentworkersretire.Thoughtherehavebeendiscussionsamonginsurers, organizations, and academics as to how to address this issue, untilrecently, each group has been primarily working in isolation. The InsuranceEducation & Career Summit, which took place in September 2011, broughttogether110individualsacrossthesegroupsforthepurposeofcreatingaunifiedstrategytobothattractandretainskilledworkerstotheinsuranceindustryandworktocreatethenextgenerationofinsuranceexecutives.Thisarticleprovidesa brief background on the talent gap issue. We also discuss its potential impacton the insurance industry. Finally, we summarize the main obstacles identified by Summit participants to both attracting and retaining skilled workers as wellas the strategies developed to overcome these obstacles. I NTRODUCTION As the Baby Boomer generation begins to retire, it is estimated that there will be alack of talented individuals with the needed knowledge and skills to fill the void. Inan environment where firms are potentially competing for highly skilled workers, theimportance of being able to retain quality employees also is a concern. The lack of employees available to fill the impending demand of firms has been termed the “talentgap.”Whileestimatesofthesizeofthetalentgapvary,ithasbeenidentifiedasanareaof concern across a wide variety of industries including education, utilities, and financialinstitutions, such as accounting, banking, and insurance firms.The talent gap issue also stretches beyond the United States into other developed anddeveloping nations; however, the cause of the talent gap varies. In developed countries,the talent gap is being driven primarily by the aging workforce and the impending CassandraR.ColeisanAssociateProfessoratCollegeofBusiness,RBA525,FloridaStateUniver-sity; phone: 850-644-9283; fax: 850-644-4077; e-mail: ccole@cob.fsu.edu. Kathleen A. McCulloughis an Associate Professor and State Farm Insurance Professor of Risk Management/Insurance,College of Business, RBB 150, Florida State University; phone: 850-644-8358; fax: 850-644-4077;e-mail: kmccullough@cob.fsu.edu. This article was subject to double-blind peer review. 107  108 R ISK  M ANAGEMENT AND  I NSURANCE  R EVIEW retirement of the Baby Boomer generation. For developing nations, the talent gap isdriven largely by the growth of businesses and the increasing needs of these businessesfor skilled managers (Appel, 2007). Whatever the cause, problems in recruiting and re-taining qualified employees can lead to major operational problems for firms includingthreats to the continued success and growth of the firm, higher turnover rates, and in-creasedtrainingcosts.Forexample,a2006surveyofprofessionalservicesorganizationsfoundthat75percentoftherespondentsindicated“lostrevenueandpoorcustomersat-isfaction ratings as the greatest potential risk resulting from inefficient talent inventorymanagement” (SAP Community Network, 2008). 1 The remainder of the article is organized as follows. First, we discuss the talent gapissue from a broad perspective. Next, we consider specifically the insurance industrytalent gap and its potential impact on the future of the industry. Then, we focus onthe Insurance Education & Career Summit and summarize the main obstacles to bothattracting and retaining skilled workers to the insurance industry identified by Summitparticipants as well as the strategy developed to overcome these obstacles. Finally, weconclude. T  ALENT  G  AP Broad Overview In the United States, the talent gap is driven primarily by the aging workforce and theimpendingretirementofBabyBoomers.Inthenextfewyearsasthemorethan75million babyboomersbegintoretire,itisestimatedthatonlyapproximately50millionAmericanworkers (ages 27–41) will be available to fill these vacancies in the workforce (Dalton,2004). The talent supply chain crisis has been exacerbated by the economic downturn,increased globalization, regulatory compliance, the U.S. education system, and priorstrategic decisions by employers. For example, during the economic downturn, manyemployers turned to layoffs in an effort to cut costs. In 2009, layoffs peaked with morethan 28,000 mass layoff events involving approximately 2.81 million claimants (Bureauof Labor Statistics, 2011). This can create two problems for firms. One is damage tothe firm’s reputation (Cottrill, 2010), and the second is a lack of staff available to meetcompanies’ needs. As the economy recovers, these firms will be competing with a hostof other companies to recruit the talented employees required to continue to operateandgrowthebusinesses.Also,asfirmscontinuetogrowandoperatemoregloballyandregulatory compliance becomes increasingly complex, the need for more highly skilledemployees will rise (Thomson, 2009; Cottrill, 2010). These include not just “hard” skills but “soft” skills as well, such as the ability to solve problems. While these skills may be found in new graduates, additional sources for highly skilled workers include otherfirms as well as recruiting companies (e.g., Cottrill, 2010).Some experts also are suggesting that the U.S. education system is contributing to thetalent gap. From 2000 to 2010, there has been little growth in the percentage of 25- to 1 Some states have conducted specific studies to identify the talent gap problems within thestate and pose some solutions. One such study in Florida notes that remedial training costs anaverage of $459 per worker, or in excess of $3.5 billion per year (The Florida Council of 100,2010).  I NSURANCE  I NDUSTRY ’ S  T ALENT  G AP  109 44-year-oldswithabachelor’sdegree. 2 Inaddition,whileastudentmayhaveabachelor’sor advanced degree, it may not be in the area or areas needed. For example, whileaccounting students are focusing more on auditing, the majority of these students willspend most of their careers in other areas (Thomson, 2009).Theconcernisnotonlywithrecruitingtalentedemployeesbutalsotrainingandretainingthese employees (SAP Community Network, 2008). The talent gap issue is impactinga broad number of fields and industries including education, utilities, and financialinstitutions.Forexample,boththebankingandaccountingindustriesarebracingfortheimpactofthetalentgap.Whilefirmsintheseindustriesareconcernedwiththenumberof new employees entering theworkforce, therealso isconsiderable concern regarding theavailabilityofqualifiedworkerstomoveintomanagementastheBabyBoomersbegintoretire(Dalton,2004;PutneyandSinkin,2009).Asaresult,itislikelythatsomeindustriesmay experience a shortage of entry-level employees while others suffer from a shortageof employees qualified to take on leadership roles within firms and finally others thatmay experience both. This may be further exacerbated for employers that have cut backor eliminated training programs, such as the banking industry (Dalton, 2004).One issue that often hinders industries in attracting top talent relates to the perceptionsof potential workers. This is exemplified in education where more than 50 percent of U.S. teachers will be eligible for retirement in the next 10 years and the turnover rateamong teachers is estimated at 14 percent (Auguste et al., 2010). Auguste et al. (2010)found that misconceptions regarding careers in teaching held by top students may becontributing to the talent gap. One major issue relates to compensation as they find thatstudents underestimate teaching salaries. Further, students voiced concerns that good job performance will not be rewarded, that pay is not related to the skills and effortrequired for the job, and that they may not be able to support their families if theypursue careers in teaching. 3 Forutilities,thetalentgapissuemaybemorepressingduetotheissuesidentifiedinotherfieldsorindustriesbutalso“becauseofinsufficientenrollmentinfeederprograms,largenumbersofretirement-eligibleemployees,thinranksatmiddle-managementlevels,andthe growing demand for new generation and for infrastructure replacement” (Serna,2008). There also may be problems with retention. Younger workers are generally moremobile and may want to consider other opportunities creating higher turnover ratesthan their older counterparts. Also, turnover can be impacted by geographic locationandemployeesatisfactionsosomeutilitiesorbusinessfunctionswithintheutilitiesmay be more severely impacted by turnover than others (Serna, 2008). 2 Based on U.S. Census reports, the percentage of 25- to 34-year-olds with a bachelor’s degreeincreasedbyjust1.3percentfrom2000to2010whilethepercentageof35to44yearoldsroseby3.5 percent. The extent of the talent gap may be worse for some states in comparison to others.Forexample,arecentreportonFloridaindicatesthatonlyhalfofthestudentsobtainingdegreesin the “science and math fields identified with the global innovation economy choose to stay inthe state more than eight years” (Florida Council of 100, 2010). 3 These concerns are not completely unfounded. The average salary for U.S. teachers (as a per-centageofGDP)hasdeclinedapproximately2percentperyearsince1970andtheUnitedStatesranked20thoutof29countriesintermsofstartingsalaries(asapercentageofGDP)forprimaryschool teachers (Auguste et al., 2010).  110 R ISK  M ANAGEMENT AND  I NSURANCE  R EVIEW Possible Solutions While identifying the problem is the necessary first step, the next step is to determinehow to deal with the talent gap problem. There seems to be a disconnect within com-panies as to how integrated managing the talent gap problem should be within overall business strategies. For example, while 78 percent of management in professional ser-vices indicated they had an existing process for managing “critical talent,” 80 percentindicated that there was no “integration of human capital management, business de-velopment, and resource management” (SAP Community Network, 2008). In addition,there is a lack of management involvement in dealing with the talent gap issue faced byfirms (Ingham, 2006).Lessons can be drawn from a variety of industries that have become better recruiters of therighttalentandhavemanagedtoreduceturnover.Forexample,Augusteetal.(2010)notethattheU.S.educationsystemcouldtakelessonsfromothernationswithrespectto best practices in terms of recruitment, training, and compensation to develop strategiesthatcouldbeeffectiveinincreasingthequalityofU.S.teachersaswellasfilltheimpend-ingtalentgap.TheauthorsfindthattheUnitedStatescurrentlyonlyrecruits23percentof teachersfromthe“topthird + ”ofstudents.ThisisincontrasttoSingapore,Finland,andSouthKorea,whichrecruit100percentofnewteachersfromthe“‘topthird + students.” 4 Also,theUnitedKingdomwasabletotaketeachingfromthe92ndmostdesirablejobtothemostdesirablejobinjust4yearswithastrongrecruitmentcampaignaimedatchang-ing the perception of teaching (Training and Development Agency for Schools, 2011).Changingindustryperceptionwithcampaignsforbettertalenthasnotjustbeenconfinedto teaching. In 2001, faced with a significant talent gap, the U.S. accounting industrylaunched a campaign to attract better talent. The American Institute of Certified PublicAccountants (AICPA) created a website titled “Start Here Go Places” to highlight theexcitement of accounting careers to 12- to 20-year-olds. The site had millions of visits inits first year and after 6 years, still has over a half a million registered users. The AICPAalso funded scholarships, internships, job shadowing, and research programs. Coupledwith adjusting training and certifications to better meet industry needs, the number of college graduates with bachelor’s degrees in accounting grew by 26 percent in 8 years.CPA firms also saw an increase in new hires out of schools of 83 percent (AICPA, 2008).The Florida Council of 100 defines 10 principles that can be used to address talent gapissuesinanyfieldorindustry.Theystartwithidentifyingworkforceneeds,establishinghigh-performance standards and accountability measures, rewarding superior perfor-mance,andmakingdata-drivendecisions(TheFloridaCouncilof100,2010).Developingrealistic projections of potential talent gaps starts with determining baseline staffing (orthe employees needed to continue to operate at current levels) and then incorporatingother factors such as retirements, length of training required for new employees, aswell as projections in growth based on future changes in product demand (Serna, 2008).Otherexpertssuggestthatmanagersneedtoconsiderwaystoaddresstheneeds/wants 4 The survey identifies the “top third + ” as the top third of graduates that are then subjected toadditional screening to determine whether they possess the skills thought to be associated withsuccessful teachers.  I NSURANCE  I NDUSTRY ’ S  T ALENT  G AP  111 of the next generation in terms of work–life arrangements as these may be substantiallydifferent from that of the Baby Boomers (Howell, 2000; Dalton, 2004). The Insurance Industry Talent Gap ArecentreportbyMcKinsey&Company(2010)discussedthesignificanttalentgapfac-ingtheinsuranceindustry.Asnotedearlier,therehasbeenalargegrowthinthenumberof workers 55 and older. However, in the insurance industry, this growth is nearly30 percent greater than the economy as a whole, resulting in potentially greater expo-suretothetalentgap(McKinsey&Company,2010).Theproblemofnothavingqualifiedindividuals in key management and underwriting roles can be detrimental to insurersgiven that poor management and underwriting decisions can lead to as much as a40 percent drop in industry value (McKinsey & Company, 2008).The report identified three challenges faced by the property and casualty insurance in-dustry in bridging this gap including poor reputation, a limited understanding amonghigh school and college students of the industry’s career opportunities, and a limitedpool of trained talent. A 2008 survey of industry reputation placed the insurance indus-try in the bottom quartile of all industries (McKinsey & Company, 2010). This industryperception also was consistent across the 11 major carriers included in the study. Addi-tionally,ina2008surveyofMillenneals, 5 65percentreportedthattheyfelttheinsuranceindustry had a poor public image and 53 percent indicated that the industry was notinnovative (KRC Research, 2008). Similarly, a ranking of most desirable companies towork for after graduation did not list any insurance firms (Universum, 2011).Part of the problem has been tied to low levels of awareness of insurance careers atan early age. When coupled with its poor reputation, the insurance industry has hada difficult time creating interest in insurance careers among the nation’s high schoolstudents.Ina2007study,Cory,Kerr,andToddfoundthatinsuranceagentswererankedlow in categories such as intelligence, emotional stability, enthusiasm, boldness, andwillingness to experiment. Relatedly, surveys of RMI students at the college level notethat almost half of the students credit their first course in RMI or actuarial science asincreasing their desire to major in the area (McKinsey & Company, 2010). The challengeis that these types of courses are often not required as part of the core requirements in business schools. For those programs where the courses are required or even offered,students may not take the courses until they are well into their current course of studyand do not want to delay graduation by changing their majors or doubling-majoring byadding RMI.There are a variety of strong risk management and insurance programs educating stu-dents for careers in the industry; however, the number of students in these programs isnot sufficient to fill industry needs. Specifically, while the placement rate for RMI pro-grams is nearly 100 percent, these graduates are only filling 10 to 15 percent of positionopenings. As a result, the industry has to turn to college graduates with noninsurance backgrounds, which can place increased training demands on companies. While thesegraduates may have the soft skills required to have a successful insurance career, theretention rates for noninsurance majors can be lower. 5 While there is some variation depending on the resource, Millennials are commonly defined asthose persons born between 1980 and 2000.

MEPC.187(59)

Jan 26, 2019
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