It may sound dramatic but it seems the World Economic Forum had a point when branding the practical impact of digital innovation as an industrial revolution of our time. In a recent survey carried out globally of 500 C level executives, over 90% stated that their organisations' workforces will need to change substantially as smart technologies become more widely used. It was also expected that 20% of jobs would be 'repurposed' by 2020 and 54% of respondents went so far as to say they would be prepared to work for a robo boss.
Plainly, technological changes result in changes to businesses' demand for skills or the ability to control or execute processes. Moreover, technology creates the potential that these skills or abilities will cease to be supplied by individuals, since technology can provide both the control and execution of processes.
The global insurance industry is experiencing severe pressures on income and sustainable profitability. These pressures primarily derive from high and growing levels of competition: in the supply of new and continuing capital for risk-carrying, which results in greater choice for purchasers of insurance products; and in terms of distribution models, with competition between intermediaries looking to service the exercise of purchasers' choice – and between intermediaries and risk-carriers looking to deal direct with purchasers.
The competitiveness of the insurance industry has not yet resulted in structural employment changes. Indeed, it appears that insurance internationally has seen job retention and steady growth, at least since 2008. For instance, statistics from the Insurance Information Institute, referring to data from the US Labor Dept, show that about 1.5m people are employed by risk-carriers, with another million by intermediaries and others.
According to data from the Association of British Insurers, the UK insurance industry employs about 300,000 people – with about 100,000 employed by insurers and 200,000 employed by intermediaries, claims administrators and other support services.
Relatively speaking, insurance relies on high staff levels, especially for the core business model functions of underwriting and claims. Also, at least in the London Market, it is still common to see many individuals carrying large amounts of physical paperwork. In part this is a necessary result of complex insurance claims taking years, if not decades, to resolve. Another factor is an overall market failure or refusal to embrace comprehensively the potential of digital operating systems. To an extent, this failure or refusal stems from an emphasis of business being conducted 'face to face' within a culture of personal relationships.
The industry's pressures on profitability are exacerbated by its reliance on significant personnel numbers, and the inevitable costs, difficulties and risks associated with personnel. There have been hints in recent media articles as to the effects of technology in increasing competition (see the 'Mirror' 23.11.16 as to the redundancies at Kwik-Fit Insurance Services: "insiders claim business has suffered from customers switching to buying insurance online"). However, an explicit link between InsurTech and redundancies was made at the start of the year with the announcement by Fukoku Mutual Life Insurance in Japan of 30 claims verification jobs being replaced by AI systems (read more)."
The coming challenge for the insurance industry is how its traditional acceptance of being well-manned, and the emphasis in specialist markets of business being personally negotiated, copes with the economic forces of change unleashed by distributed ledgers / 'blockchain', artificial intelligence ("AI"), robots and other technology.
Large scale redundancies
Unlike the financial services sector, the insurance industry has not historically been exposed to significant events that have led to mass redundancies. This is new territory. With that comes the risk of exposure to legal and reputational damage if the infrastructures and expertise are not in place to handle these procedures.
The legal requirements in a mass redundancy situation are prescriptive and sometimes onerous. A failure by an employer to correctly carry out a collective redundancy consultation can lead to a significant financial exposure, which includes up to 90 days gross pay per employee. Given the heavy reliance on personnel in the sector, this would undoubtedly have a material impact on the bottom line of insurers and in the most serious cases the solvency of the business could be impacted.
The skills of workers and the roles they carry out will continue to evolve in response to technology being more widely used. The pace of that change is likely to increase dramatically over the course of the next decade and the upcoming generation of workers will most likely be carrying out roles that don't even exist yet. We certainly expect to see employee focus and recruitment shifting to the management and development of technology as opposed to the carrying out of processes.
Thought will need to be given to the way in which a business buys in these new skills. For example, employing coders and tech expertise in house may mean you have a bespoke (albeit expensive) technological infrastructure to exactly fit the needs of the business. However, as the pace of technological advancements is expected to increase in the future, this approach might leave you with insufficient budget and flexibility to deal with future change.
The combination of fast paced change, new skills and a generational push towards freelance and portfolio style careers will lead to agile and flexible working becoming the norm. This will lead to employers needing to become familiar with alternative resourcing to the traditional employment model. Atypical contracts, consultancy agreements and other forms of flexible contracts will be more widely used, with a greater number of services also being subject to offshoring.
Whilst agile resourcing in this way can create a flexible and responsive workforce, employers will need to address the challenges that it also brings with it. Maintaining service levels, continuity, employee development and morale are all factors to be considered before such changes are implemented.
The practical realities of an agile and flexible workforce will mean that workers will need to be able to access business information remotely. With the likelihood that every role in the future will involve some form of digital component, insurers will need the agility to adapt quickly in a rapidly changing environment.
Business planning now in order to be prepared for these changes will be time well spent.
Changing patterns of employment, reporting lines and other human resource management in the insurance industry will raise questions as to the effectiveness of changing systems and controls. Senior management will be forced to confront potential disruption perhaps never previously experienced. The increased use of a more flexible workforce will put greater emphasis on the security of IT systems, and in particular the protection and control of customer data, which has become the lifeblood of effective product distribution.
Whilst a robo boss, or robo workforce, might currently feel like a remote prospect in a sector with a very traditional approach to human resourcing, technology is already having a substantial impact on workforces. The existing and anticipated effects range from job cuts as a result of employees roles being replaced by automated systems to fundamental changes taking place to the type of roles insurers will need to recruit to and the way in which those new recruits will be engaged.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.