Insurance Industry Facing Massive Talent Shortage

The “Great Resignation” turned the job landscape into an employee’s market. But the talent shortage is especially acute in the insurance industry.

In fact, it’s pretty much at a crisis point.

Insurance industry unemployment is at 1.5%, said Brad Whatley, managing director of The Jacobson Group, compared to the national 3.6% unemployment rate for all industries. Whatley hosted a session during the annual 2022 Life Insurance Conference.

There are two familiar employment issues the industry is wrestling with: retention and recruitment.

Retention is hugely important. The cost to replace an employee is estimated at one-half to two times the salary that employee made, Whatley said.

“So, if you’re paying somebody $100,000 in salary, that’s $50,000 to $200,000 it’s going to cost you to replace them,” he added.

Effective recruiting is the next hurdle. Nearly two out of three life/health insurers plan to add staff in 2022, Whatley noted. The question is, where will those additional employees come from?

Then there’s the age of insurance agents. While millennial and Generation Z workers make up the majority of the entire workforce, the insurance industry trends older, Whatley noted.
“Insurance, it is no secret, is one of the most aged workforces in the industry,” he said.

The median age of the insurance industry employees is 45, compared to 42.2 for the overall U.S. workforce. However, “where that number gets a bit skewed is the insurance industry is much more dominated by the boomer section than any other industry out there,” Whatley explained.

In fact, one-quarter of the insurance workforce is 55 or older.

Retirements And Quits

The COVID-19 pandemic did not help the insurance industry personnel problem. Studies show that older workers are more likely to just retire early rather than press on through adversity, such as job loss or a pandemic interruption.

Data from the past two years proves that to be true, as insurance workforce retirements rose dramatically. In 2021, the financial services sector recorded the highest average monthly retirements in more than a decade.

However, the pandemic only exacerbated a problem that began long before. At least since 2011, the financial services industry has seen an increasing level of “quits.” It is an alarming trend, Whatley noted.

When the job market is weak, it is up to employers to adapt, Whatley said, and insurers are doing plenty of adapting. For starters, the pandemic-inspired work flexibility is likely to become a permanent perk for insurance employees. Nearly nine out of 10 carriers plan to offer a “hybrid approach,” that is, the ability to work from home and/or office, in the future, Whatley reported.

Insurers are open-minded about allowing employees to work some set day hours, and perhaps deferring a couple hours to the evening, he added.

“Thirty-nine percent of carriers do plan to offer flexible hours, which is something that I think is up dramatically from years past,” he said.

Keep Engaging

Likewise, thoughtful retention plans can be extremely effective at limiting employee turnover and boosting bottom-line performance, Whatley explained. Components of an effective retention plan include communication, exposure, compensation, intellectual stimulation, professional challenges and career path projection, he said.

Engagement is a major theme across several of those categories. It is an investment that pays off handsomely for employers. Teams with “low engagement” are seeing turnover rates 18% to 43% higher than highly engaged teams, Whatley said.

Identifying “high potentials” is just as important as the focus on high performers, he explained. Both are crucial strategies for maintaining the consistency of a business.

“What we’ve found is that’s just as important as maintaining those high performers in your organization,” Whatley said of the high potentials. “You want to keep the people like that so when you have that next wave of retirements, you’re keeping that full intellectual ability in your organization. That could be your next wave of leaders.”

Showdown Looms On DOL Rules

A showdown is coming with the Department of Labor over ongoing efforts to regulate the sale of insurance products into retirement accounts.

No one is quite sure when the next skirmish will take place — or whether it will be a battle at all. What is known is the DOL intends to publish a new definition of “fiduciary” at some point, likely sooner rather than later.

Like everyone else in the industry, Jason Berkowitz, chief legal and regulatory affairs officer for Insured Retirement Institute, awaits the new fiduciary interpretation.

“Our view is that more rulemaking is not needed,” said Berkowitz. “Our view is that we have the five-part test that’s been in place for 45 years, and we know how it works. We know how it applies. We have other transaction exemptions that we think are functioning the way they’re intended. We have Reg BI and the NAIC model. We think this is a framework that should be given some time to function in the marketplace.”

What happens next is anybody’s guess, but a fiduciary-only rule is certain to be followed by another round of lawsuits from industry lobbying groups. Two lawsuits were filed already challenging the Trump administration’s investment advice rule, which took effect in February.

The new rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the “five-part test” from 1975 to determine what constitutes investment advice.

Industry lobbyists are generally unsatisfied with the rule, and Berkowitz explained why. For starters, the exemption “is not particularly workable in the context of independent producers because it requires a fiduciary financial institution,” he said.

“For independent producers, there’s typically not a financial institution that is eligible and willing to serve in that function. Insurance companies are not generally going to be comfortable supervising producers who can recommend products offered by other companies, and these independent producers are typically not affiliated with broker/dealers, or banks.”

Shortly after the investment advice rule package took effect, the Federation of Americans for Consumer Choice and the American Securities Association filed separate lawsuits asking courts to block the rule.

IRI is “ready and waiting to engage,” Berkowitz said, while keeping in mind the federal appeals court decision that overturned a 2016 fiduciary standard put forth by President Obama’s DOL.

“We want to make sure that as the definition of fiduciary may continue to evolve, that it does so in a manner that is consistent and compatible with the Fifth Circuit ruling in the case that overturned the 2016 rule,” Berkowitz said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.