It is always interesting to consider just how different the beachfront looks between low tide and high. Rocky bottoms and treacherous submerged objects can emerge when the tide rolls out, and these serious issues can warrant major course correction to avoid getting hurt. Or worse.
Tides uncovering hidden dangers is analogous to insurance carriers and their IT organizations as they grapple with a range of headwinds which were in play long before the pandemic hit. The arrival of COVID-19 puts these challenges into sharper relief.
From Omens to Tempests
One headwind predating 2020 Q1 was financial. For many organizations, investment income was once able to offset shortfalls in expense management and loss experience across lines of business. That certainly doesn’t describe the environment carriers have been operating in for several years, and the interest rate declines of 2019-20 created more focus and concern.
For some lines of business, expense covering capabilities of newer products as a percentage of premium has also been in decline. As product mixes within a given portfolio shift, this margin squeeze has also been top of mind for many organizations.
Refitting Between Risks
A more insidious, systemic issue confronting many insurers is found in the management of human capital. Aging in distribution systems has been recognized as an issue for years, with the average age of an agent now about 60. While 60 itself is not old, as an average that remains a stunning number. As Baby Boomers (i.e., the cohort born between 1946-64) march forward in time, productive capacity is an issue carriers will need to get in front of, with a range of potential solutions.
But insurers’ challenges are more pervasive than that. Mission-critical functions face similar demographic cliffs, including both claims and underwriting, where some organizations have surprisingly high average ages in their incumbent staff. With knowledge and experience firmly ensconced in the very same group we now know to be most severely impacted by COVID-19, a longstanding undercurrent is now visible in a different context. Much like rocks revealed by a receding tide, the pandemic’s arrival has framed a new risk in high relief.
Trimming Too Much Sail
An insurer I spoke with recently shared an illustrative example. Trimming overhead costs over a period of years had made the organization more efficient. When the last person in a key area retired, the organization realized that no one actually knew how some functions, or the underlying technology, worked. This revelation came just prior to the arrival of regulatory auditors. Failing to address a knowable issue created a high-risk series of challenges at the worst possible time.
The pandemic is a terrible thing; it has cost lives and created widespread economic damage that may take years to recover from. If the pace has slowed, giving insurers a bit of breathing room to address human capital and knowledge management issues, it could be a modest silver lining. Succession planning, knowledge transfer programs, cross-training efforts, transformational reviews of current “business-as-usual” operations, and looking for new efficiencies are all proactive actions carriers can take now. As we plan for a new New Normal, this should be a priority.
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