An ageing workforce alongside ageing IT systems is a looming problem for the insurance industry. We must act now, says Tim Crossley.
The UK Life and Pensions industry faces an Intellectual Property (IP) brain drain as many of its insurance company ‘lifers’ – back-office and middle-management employees who have been in the industry for 20-30 years – approach retirement. These employees are the backbone of the company and can be found in underwriting, claims and IT functions. Often they represent a handful of people who have had direct experience or knowledge of a rare case or unusual set of circumstances.
The problem is mirrored in the Independent Financial Adviser community. As pointed out by David Heeney of Pacific Life Re at the recent Protection Review Conference, a large proportion of IFAs are over the age of 55. Given that the vast majority of advice businesses have less than ten employees, we can not be too surprised that there has been little focus on, or investment in, succession planning. So IFAs are going to be relying more and more on the experience of the providers, who in turn are going to have less and less average years on the job. All this is happening with a backdrop of increasing service expectation from the consumer. Better service is expected quicker with less tolerance of error and more focus on reduced cost.
The ‘permafrost’ of middle management in the UK Life industry is finally beginning to melt – and providers, BPO providers and IFAs alike need to find an answer to this problem. Our research shows that UK insurers are going to lose nearly half of their total employee time in service in the next ten years. There is massive IP value locked up in the collective minds of these employees – and loss of that IP will create a huge hole in the knowledge base and skills of the industry.
The 81,000 50-59 year olds, (out of 324,000 total people employed in the UK’s insurance sector, ABI, 2006), represent 25% of the total skill base in the sector. They have spent, on average, 30 years with their current employer. And as a result, these people account for half of the total number of years served in the UK insurance sector.
The Heartbeat of a Life Office
Although they are often perceived as a barrier to change, these employees have learnt over time how to work effectively with multiple paper based procedures, counter intuitive IT systems and complex embedded business rules to accurately deliver the customer outcome needed, whatever the circumstances. As such, they often form the heartbeat of a life office. The UK Life and Pensions industry must find a way of capturing the detailed nature of these employees’ skills, knowledge and best practices and replicate them through a standardised system before their expertise is lost to the industry forever.
Let us look at the challenges and opportunities in more detail, first from a systems perspective and then from a business perspective.
On the systems side, there has been a long term approach of building systems specifically to support new product developments, creating silos of business and IT expertise. This specialisation has been magnified by acquisitions where subsequent cost cutting has often driven out hidden talent. As a result, we now have a situation where companies have tens if not hundreds of 20-30-year-old systems, but you can count on the fingers of one hand the number of IT people who really understand the impact of change to each of these systems.
Whisper it quietly, but I have come across situations where there is no confidence whatsoever that a system will be able to be restarted if it falls over. The option to rehire back the retired employee who knows what to do at highly inflated consulting rates is rapidly disappearing. This is taking place today in an industry that describes risk management as its core competence.
This specialist systems knowledge is not generic expertise that you can replace with outsourcing or off shoring. These initiatives have their place but smart and keen as he is, you cannot expect a 25-year-old graduate from one of the top technical universities to have an interest in learning about obsolete software programs that have been withdrawn from sale before he left school! How does that help his long term job prospects?
Silos of Business Expertise
The silos of business expertise are an even greater problem. The barriers between sales and service teams have been re-inforced by the historical approach of end to end product lifecycle management, and, only now are insurers looking to understand the broader client-centric picture that spans several products. There is no doubt that the rewards are great if these barriers to working more effectively and in a more client-centric manner can be removed. At one level, the ability for a claims handler to manage different types of product claims increases business efficiency and operational productivity. For an individual worker, release from the monotony of Maturities and Surrenders, day in day out, is surely a prize worth fighting for?
From a client perspective, expectations will be set by ‘joined up’ government when it eventually arrives in the UK. It is coming soon. Just as in many countries now the birth of a child automatically triggers actions by several agencies without the parent needing to intervene, it should be possible for an insurer to proactively take all the steps necessary to terminate cover, refund premiums and pay claims without the need for the bereaved to make more than a single phone call or write more than one letter. Having to resolve these kinds of issues is something that we could all do without and sadly often creates a great deal of stress or takes a lot of time and money if handled by professional Executors. It is surprising that there is apparently so little interest in a ‘joined up’ approach between the Life and General Insurance businesses of UK companies given the opportunities that would arise for differentiation through service as well as price where appropriate, not to mention cross selling and retention benefits. The axiom that it is five times easier to sell to an existing customer has never been truer, and we are all aware of the multi-year profitability gap that insurers face when policies are ‘churned’ well in advance of their anticipated longevity.
The UK Life and Pensions industry needs to take action now. Doing nothing is not an option if the opportunities for growth over the next decade are to be capitalised upon. Where to start? Everyone will have their own priorities and challenges, but here is a five point plan for consideration and discussion:
- Ask HR to work out your own IP brain drain quotient.
- Perform an independent risk assessment of systems and business skills gaps.
- Use technology to consolidate the silos with the most closely related functions.
- Automate manual work or allocate to lower skilled staff where possible.
- Implement a Single View of Customer.
While these activities are worth completing in isolation, when performed together they should substantially reduce the impact of the IP brain drain on the UK Life and Pensions industry and provide a solid foundation for sustainable long term market growth.
Tim Crossley is sales manager at Fineos
