In 2019, Insurance Agencies will face evolving staffing challenges, which will force them to change how they operate. A tight labor market, an aging workforce, and the changing cultural values of early-career professionals will motivate agencies to revise core aspects of their staffing strategies. To successfully adapt to these changing market conditions, agencies must identify new and more-efficient methods for finding, training, and retaining professional workers.

Employee Turnover – A Growing Concern

The Insurance industry in 2019 continues to experience rapid turnover in its workforce. According to The Jacobson Group’s 2018 Talent Trends Guide, for instance, “The insurance industry is increasingly struggling to fill […] job vacancies. These openings highlight a widening gap of experienced talent being driven by the mass exodus of tenured, skilled professionals…”

 

Contemporaneous studies reported that the average age of insurance agents in the U.S.A. was 59 in 2016 and that up to 25% of the industry’s workforce planned retirement by 2018. This departure of highly-trained, highly-skilled professionals indicates a growing need for new talent. The aging of the workforce indicates that this trend is likely to continue and possibly intensify in the immediate future.

Labor Market Challenges

In 2018 and into 2019, the unemployment rate remains near 4%, an extremely low number that represents “Full Employment” from a statistical perspective. According to the the U.S. Bureau of Labor Statistics, December 2018 marked an unprecedented 99th consecutive month of job growth. With very low unemployment and an economy in a continuous growth mode for over 8 years, overall demand for desirable workers is at a historic high.

 

For insurance agencies, this tight labor market comes at an inopportune time. As older workers leave the industry, they create a void that needs to be filled by young, talented professionals making a start in the industry. Yet the supply of high-value workers lags behind demand, and competition to attract that talent is at an all-time high.

Evolving Workforce Expectations

A wide variety of business and industry experts have written about the changing workplace dynamics brought on by the arrival of the millennial generation in the professional workforce. Some pundits malign millennial workers for their impatience and high expectations, while others praise them for their education, inclusiveness, and technical savvy. As with most things, the truth lies somewhere in between, and individual experiences will vary.

 

But for insurance agencies, there are a few truths that seemingly can’t be avoided.

 

1. The Millennial generation represents the primary workforce available to fill their urgent (and growing) need for workers.
2. The expectations that come with this workforce will differ greatly from the expectations of the older workers they will replace.
3. This workforce arrives with no relevant experience in the industry and will need to be trained “from scratch” on all things insurance-related.
4. This workforce arrives with a high expectation for workplace satisfaction and a high cultural tolerance for workplace mobility.

 

Clearly, Insurance agencies will have to adapt their cultures and practices to successfully integrate this greatly-changed workforce into their existing operations.

High Turnover – The “New Normal”

Add up these trends and you’ll find a recipe for a “new normal” of high turnover across the industry. And this trend is further exacerbated by another challenge: the greater workplace mobility that a tight labor market imposes. With high competition for talent, workers have more job opportunities available to them. This further increases job turnover, as early career professionals pursue available opportunities to advance their careers.

The High Cost of Workforce Churn

But what is the impact of this rise in turnover? In general, workplace turnover is an expensive proposition, and the insurance industry is no exception. In fact, there are reasons to believe the costs of workforce churn will be higher for insurance agencies than for many industries.

In general:

In a recent report, The Center for American Progress, an independent nonpartisan educational institute attributes “Significant Business Costs to Replacing Employees”. How significant? The report claims the median cost of replacing an existing employee adds up to 21% of the employee’s annual salary. To put it another way the cost of turnover for a typical American employee is the equivalent of about 2.5 months of their salary.

 

The costs of turnover are high when replacing any employee, and they are correlated to the employee’s level of compensation. Replacing professional workers, with their relatively higher salaries, leads to higher turnover costs for their employers.

In Professional Jobs:

For many professional roles, specific education is an important prerequisite to a new hire’s competency to perform. Highly-educated prospects are both harder to find and harder to attract than the average worker, making their hiring more difficult and more expensive.

 

Many professional jobs also require specialty training beyond formal education. This can range from simple on-the-job training to specific legal and regulatory requirements and even professional certifications. The requirement for extensive training to reach competency further increases the costs to train replacements for professional jobs.

For Insurance Agents:

For insurance agents, factors of education and especially training can significantly increase the cost of replacement. In 2019, the insurance industry faces a variety of factors that make it a perfect example for the growing cost of replacement.

 

As Deloitte’s 2019 Insurance Industry Outlook puts it,  “Integration of cutting-edge technology should help insurers attract younger, more tech-savvy workers into the industry. However, this new workforce will likely demand an exceptional physical and digital workspace, as well as an appealing experience that puts employees at the center, helps them feel engaged, and keeps them in the fold.”

 

The report continues to claim that “While recruitment of new blood is important, insurers should also pay closer attention to retraining and retaining Baby Boomers, who typically have irreplaceable institutional knowledge and industry experience.”

 

Clearly, industry analysts believe that the replacement of staff at insurance agencies is a costly endeavor that should be avoided, but just how expensive is it?

 

One 2016 report estimated the average annual salary of an insurance agency Customer Service Rep at just under $50,000. Using the 21% cost average provided by the Center for American Progress, the statistical average cost to replace an employee would be $10,500, but there are reasons to believe that turnover will have additional expense for insurance agencies due to the difficulty of training and the widespread lack of formal training programs.

Training

The threat of widespread turnover and the inherent cost of training new employees both indicate that agencies can realize a significant strategic advantage by out-competing the rest of the market while hiring, training and retaining employees.

 

One key to success will be in adopting effective training programs that help them onboard new talent to fill their growing staffing needs. Effective training will provide the skills new employees need to perform their jobs, will increase the speed at which new employees achieve competence, and may even offset some employee turnover by providing new hires with a greater sense that employers are investing in their development and are contributing to their long term success. But of course there are challenges.

Size Challenges

Most insurance agencies are very small businesses. In their 2014 Agency Universe Study (AUS), a cooperative study for the Independent Insurance Agents & Brokers of America (IIABA), Future One estimated that the average insurance agency employed only 5.1 people. Firms of this size simply can’t afford the overhead of dedicated training personnel and don’t have formalized or systematic training programs in place.

Lack of Training Programs

Indeed the 2014 AUS goes on to show that less than half of agencies provide new producers with formal training on insurance concepts and coverages, while only 41% train on carrier-specific product knowledge, and 29% provide No Formal Training At All!

Formal Training Options

There are third-party organizations that provide systematic training for insurance agents. The National Alliance for Insurance Education & Research, for example, provides excellent training programs for insurance coverages and regulations. Yet these programs do little to prepare prospective agents for the day to day responsibilities of the role, which is typically left up to on the job training.

The Training Reality  

Many agencies report that the time to train a new employee from novice to complete competency is actually 18-24 months. What’s more, this training is done on the job, taking time and energy away from their trained staff, who are asked to share institutional knowledge about the job, the industry, and best practices.

 

With unprecedented high turnover among early career professionals, this means that many new agents leave their first employers before they’ve even been fully trained. The agencies that invested in hiring and training them might never even realize the full benefit of their potential and end up starting the training process anew with a new replacement after a year or two.

Conclusions:

Two important challenges face insurance agencies in 2019:

1. Aging professionals with important knowledge are leaving the industry and creating a talent vacuum.
2. The likeliest candidates for filling this void are young ‘Millennial’ professionals who:

1. 1. Arrive with no relevant industry experience.
   2. Have a generational need for workplace experiences that are appealing, engaging and inclusive.
   3. Are less likely than predecessors to stay in these roles for long periods of time.

 

These combined factors are leading to a new normal of very high staffing “turn and churn” of the professional workers within insurance agencies. The key to overcoming these financial and operational challenges will be enabling improvements in how normal firms are able to decrease training costs and increase training speed as they train and onboard new talent..

Cited References:

http://www.independentagent.com/Resources/Research/SiteAssets/AgencyUniverseStudy/agency-universe/2014%20AUS%20Full%20ReportSTATESMarked.pdf

https://www2.deloitte.com/us/en/pages/financial-services/articles/insurance-industry-outlook.html

https://jacobsononline.com/uploadfiles/2018talenttrendsguide.pdf