Survival of The Techest

• TBA - Writer
• July 2017
• 

Matt Junge had a choice.

Accounting or insurance. Embrace a life of financial record keeping or a "breadth of opportunities" many do not even realize is there.

Junge chose the future.

His business is hurricanes. Earthquakes. Floods. It's underwriting. Actuarial work. Client engagement. The senior treaty underwriter for Swiss Re uses big data. Advanced cat models. Interpersonal skills.

"This is what the future is. This absolutely is the job of the future," said the Chicago-based Junge, 31, who graduated from Drake University with a degree in accounting and finance, but chose insurance over other offers despite never intending to go into the field.

"In the nine years I've been here, I've already seen my role evolve," he continued. "The underwriting role is not what most people might think. It really is multifaceted. We are expected to know the analytical side. We are expected to be client facing. We're expected to use underwriting judgment. You have to bring it all together."

Junge is the personification of the industry's future. Despite his traditional-sounding job title, he employs data, analytics and technology--not poring over tables under an accountant's lamp--to assess risk, forecast future outcomes and serve customers.

The insurance industry faces a looming talent crisis fueled by the mass retirement of the baby boomer generation--but that is just one aspect of a greater shift. Rapidly evolving technology, automation, innovation and the impact of big data are redefining its workforce.

This cultural shift has brought about a talent gap of another sort: a shortage of professionals with expertise in advanced technology and data. The technology revolution and emerging distribution channels are transforming not only how insurers operate, but the skill sets they require. They will create a new spectrum of positions to meet those demands as well as force traditional insurance occupations to evolve.

The industry does not merely have to find talent. It has to attract the right talent to leverage technology and manage the convergence of risk, data, analytics and engineering that will be the foundation of the new age of insurance.

"The person of the future is going to be higher skilled. They will understand the business and data," said Barb Murray, a director in PwC's financial services sector. "Everybody has to be comfortable with data and technology and be capable of assessing how to interpret and leverage technology and data.

"Their roles are going to expand beyond the traditional 'I'm an underwriter' or 'I'm a claims person.' They will become more dynamic and broader based. They're going to have a lot responsibility, ensuring customer satisfaction, predicting trends, directing future business opportunities."

The future--and for many, the present--is big data, telematics, internet of things devices and mobile solutions. It is artificial intelligence and automation. It is direct sales through digital channels and an emphasis on customer engagement more than product.

Carriers, brokers and agencies need professionals to leverage those tools. That means hiring data scientists. Behavioral economists. Statisticians. Telematics and automation engineers. Business intelligence analysts. Cloud data modelers. Software engineers.

Meanwhile, underwriters, claims adjusters and examiners, sales representatives and independent agents and brokers will have to adapt, reshaped by actionable data, analytics and innovation. Those traditional occupations will address more high-value responsibilities, not repetitive administrative and processing duties.

Actuaries and statisticians remain in demand. And in the short term, traditional claims handlers, underwriters, customer service representatives and sales professionals are needed due to the mass retirement of baby boomers.

But in the long view, future professionals will need to understand both underwriting and artificial intelligence, claims and data analytics.

Insurers will have to compete with tech companies such as Google, Amazon and Facebook as much as Wall Street and other branches of finance for these professionals in what has been branded as the "War for Talent." It adds another layer to an already daunting challenge for insurers, who find themselves chasing dynamic talent while the industry carries a reputation that it is boring and old-fashioned.

Actuarial, analytics and technology positions are the most difficult to fill, according to the Insurance Labor Market Study, conducted in the first quarter by Jacobson Group and Ward Group.

"We have this sea change in some ways in how we think about data and analytics," said Rob McIsaac, a senior vice president of research and consulting for Novarica. "Every one of those functional areas is going to be highly, highly impacted by the use of better, more intelligent technology and by access to data."

Professionals who do not evolve--and the companies that do not effectively recruit, develop and retain skilled talent--could find themselves phased out. Meanwhile, demand will decrease for positions responsible for less complicated tasks such as underwriters, claims handlers, payment processors, administrative support and operations staff and eventually even IT workers. Some will vanish, replaced by technology, automation and outsourcing.

"In the very short-term you're going to have a lot of change in staffing," Murray said of the looming talent gap. "Organizations need to think about what they want this change to look like 10 years out and 30 years out, and how they're going to build it.

"Every function is going to be impacted."

New Skills, New Jobs

The world has changed.

Data will be woven into nearly every occupation, to be applied and analyzed as a daily part of business. Critical thinking and qualitative judgment will be common requirements.

Large legacy carriers have an advantage, able to invest in talent initiatives and to acquire insurtech startups to obtain skilled workers. However, smaller companies and independent agencies face significant hurdles.

"Most of the talent that we're looking for now is top talent," said Joyce Dunn, vice president and managing director at The Jacobson Group. "Talent that can be challenged and has a tremendous intellectual curiosity, that can handle complex problems, that can help with strategies into the future.

"Insurance isn't necessarily the 'place to be' any longer for the more routine jobs. Most of the folks the industry is looking for today would have no interest in routine roles."

More than 60% of insurance CEOs are exploring the benefits of humans and machines working together, according to PwC. Nearly half are considering the impact of artificial intelligence on future skills needs.

However, in its 2016 Top Issues annual report, PwC declared "automation cannot replace the qualitative judgment that is necessary for effective underwriting," especially in the often complex realm of commercial lines.

"You're still going to need somebody who understands the business and will ensure that systems are functioning," Murray said. In fact, Valen Analytics research shows that human experience and judgment paired with analytics reaps the best results. It is superior to human judgment alone or analytics alone, according to Kirstin Marr, the company's chief marketing officer.

"Companies are not going to swing that pendulum so far from human judgment," she said. "Intuitively, especially in underwriting, it's the intellectual property and the differentiation of an insurance company at the end of the day."

Technology will not mean the end of human judgment in insurance decisions. Instead, it will create jobs for those who understand the industry and how it works as well as the technology and data powering it.

Although insurers have always recruited talent with STEM backgrounds, it is the "T"--technology--aspect that "is becoming way, way more emphasized," said Keith Wolfe, president of U.S. property/casualty, regional and national, for Swiss Re. "It's not even just technology, but science--data scientists and even behavioral economists. We have roles that we are finding extremely powerful in our organization to our clients' benefit that are now blossoming into teams of people that we are hiring that didn't exist, at least in our industry, as little as two years ago."

Other leading companies that have created data scientist positions include Mass Mutual and MetLife, McIsaac said.

"There is a fundamental difference between the historic actuarial world and this new world of data science," he said. "For data scientists, it's about having a much, much broader sweep of the landscape. And it's about data that nobody's really thought about before and playing with that data.

"It's looking at not just causation but also correlation."

To find those skilled workers requires a culture shift in how insurers recruit talent, according to Monica Ningen, head of property underwriting in the U.S. and Canada for Swiss Re.

Investment in insurtech is one route. The industry's investment in it more than tripled from $800 million in 2014 to more than $2.6 billion in 2015, according to Accenture. Aviva, Axa and XL Catlin have been especially active.

"The struggle is very real for the industry," said Marr, describing its recruitment of tech talent. "Technology-based jobs in insurance are some of the hottest jobs around right now, with all the investment coming in. There's opportunity to actually make a difference in a long-standing industry that needs to reinvent itself for the next decade or two."

Digital and Customer Revolution

The equation has changed.

Insurance can no longer be just about the product. It has to focus on the customer and the buying experience, especially in the digital space.

That means studying how insurers interact with their clients and how they market their products. It means investigating the thought process and impulses behind those purchases. And it means upgrading websites, smartphone apps and other interaction and direct engagement platforms with customers.

These new areas of focus will create positions not traditionally found in the insurance industry: behavioral economists, digital marketing experts, data scientists and cloud data modelers.

Behavioral economists turn the psychology of how people make decisions and "translate that into trying to influence essentially the data and the information that they're digesting to make the decision," Wolfe said.

Swiss Re has discovered that slight changes in the diction and phrasing used in marketing materials and by call centers can influence purchasing habits.

"We're finding that we're significantly impacting take-up rates on certain products," Wolfe said. "It's literally about what and how it's said versus the content being materially different from a technical standpoint. Products are still the same. We're just really talking to people in a different way or influencing the way they react to that stimulus.

"It's quite fascinating to see how impactful statistically this has been for growth and retention rates in certain product areas."

Insurers need to learn customer engagement lessons from other industries, even companies such as Amazon, and apply them. The industry has been "a little bit behind some of those other markets," according to Ningen.

"A lot of people are recognizing that the way in which people buy insurance is really important to the success going forward," she said. "That is what really matters here, especially as we see the world change around us, and the data that is available is far more beneficial to people.

"Older generations have been more tolerant of buying an insurance policy whether it fits their needs or not. Millennials say, 'Well, do I really need it?'"

The digital user interface is another opportunity to improve customer engagement.

The more carriers upgrade their mobile apps and websites and the better they become in conveying product information, the more premium they will earn as customers' preference for online shopping grows, according to Murray.

"You don't hear companies talking a lot about how they're going to transform the front end, marketing or acquisition. But that certainly is going to experience a seismic shift over the next 10 years," Marr said. "People who understand online marketing, user interface and how to engage and create a digital experience for their customers, I see that being a big job growth area for quite some time. And that requires more data scientists and people who can perform data-driven, analytics-driven functions.

"Look at a company like Esurance or Geico," Marr continued. "That requires really sophisticated customer segmentation and online marketing. Insurance companies need people who understand how to look at behavioral data, look at what people are doing online and get much more granular and sophisticated about how they segment customers, what they can predict about their behavior and how to get them to convert."

Evolution

The transformation already has begun.

It will not just create new insurance positions, but force the evolution of traditional functions. The industry's legacy roles--actuary, underwriter, claims adjuster and examiner, sales rep--are evolving just as the companies they work for undergo their own metamorphoses.

It means marrying traditional duties with data and technology. It means providing more analysis. It means interdepartmental collaboration, not isolated silos.

"The jobs may have titles similar to what we have today, but they are going to be fundamentally different," McIsaac said. "We're always going to have producers. There just will be far fewer of them, and they'll be equipped with far better technology. The technology will take care of the easy stuff. It will take care of all of the simple, labor-intensive activities, and in many cases, turn that into self-service, so customers can do them on their own.

"Their jobs will be fundamentally different, but they still will be high-value jobs. And they probably will be compensated better than they are today."

Managing technology and analyzing data will become a part of nearly every industry job. Junge's role has evolved like many other positions.

Swiss Re employs actuaries and data scientists, "but a lot of the work that they are doing, the rest of us--the generalists, the underwriters--we are also starting to take on," Junge said.

Underwriters and actuaries will "radically change" if they haven't already, Ningen said.

"If you look at the work that underwriters and actuaries did 10 years ago, [today] they have much better data than they did," she continued. "They have much better data analytics tools. This might be a faster evolution in terms of changing what they do and how they do it. But you're still going to need somebody to set those price curves."

An Oxford University study ranked underwriting as the fourth most at-risk occupation--among 702 careers across various industries--to be replaced by automation. Underwriters and claims adjusters already face job loss in personal lines, as policies become more commoditized, Dunn said.

Carriers are using drones to document auto and home damage or asking customers to email their own images rather than dispatch claims adjusters.

Sensors--aka "black boxes"--in cars and trucks track speed and acceleration patterns, quantifying possible exposure without the need for an underwriter. The same goes for homes, as internet of things devices already monitor smoke detectors, thermostats and security, supplying an increasing deluge of data that quantifies risk.

Companies also now employ rules-based engines and straight-through processing, with set goals as to how much of their business is underwritten through black box rules and rates versus underwriters, according to Dunn. Only complex situations flow to an experienced underwriter who makes "exception-type decisions." And the role will continue to change as artificial intelligence assumes a larger role in assessing risk.

"The underwriter 15 years from now will likely look different than what they look like today," Dunn said. "Those jobs already have changed dramatically. Other than a referral underwriter, many companies don't even have a selection of risk besides their black box rules engine. Underwriting is done by a product manager, who is looking at the business more on a portfolio basis than individual risk. While there may be less underwriters, their role is going to be much more complex and fulfilling, particularly for those looking for a challenge."

However, future underwriters will be indispensable. Marr envisions them "skewing a bit more toward the analyst side of things."

Dunn sees them continuing to play an integral role in commercial lines, where unique and customized coverage requires an underwriter to study data too unique for a rules engine.

Actuaries already have experienced their own evolution over the past 25 years. It has made them more valuable.

They take an active role in setting strategy and providing "their interpretation and leadership within the organization," Dunn said. It is an occupation that "is only going to become more critical" and "in high demand," Marr said.

"What will be interesting is how actuarial science evolves into more predictive and prescriptive analytics," Marr continued. "There will be more ways for actuaries to grow and develop their own careers beyond just the traditional actuarial fields. They'll get to start partnering with software development firms and people building front-end digital experiences."

Claims handlers also face "a shift in the historical way of doing business," according to Murray. Their function will be transformed by wearables and other advancements.

"That claims person is going to be a broader-based, higher level professional who understands how to interpret data, identify potential trends and red flags," she said. "They won't be an actuarial/analytical person, but they're going to understand the data more so than the people in the workforce now.

"They may be taking on more risk management-type function and assessment practices."

As carriers replace their technology stacks with more advanced, streamlined technology, IT workers and compliance experts likely will be reduced.

In the meantime, there could be "a huge increase in not only the IT-type people but data management people who are going to make sure all that data flows and that the logic functions correctly," Murray said.

She also anticipates evolving regulation as technology changes, requiring compliance personnel.

For Junge and the skilled young insurance workers like him, "it means opportunity."

"It's really important for me and people in my role to realize that their job is definitely going to evolve," he said. "It won't be the same position that it has been in the past.

"One bit of advice I got from a person who is now retired said, 'I changed jobs every time I got bored. And I haven't gotten bored here.' That has absolutely remained true for me here. The focus on development and making me a better underwriter but also a client-facing person and better leader is really why I've been happy here."

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The Value of Personal Touch

The rain poured down as they stared at the pile of ash.

The hunting cabin had been built with the owner's own hands and the help of family and friends. Now it was all gone.

It had burned to the ground. Only the wood stove remained standing.

The group mourned the loss while an adjuster examined the ruins. But they weren't alone. Their insurance agent, Ashley Fitzsimmons, was right there with them that morning, offering coffee and support--even if there was nothing else she could do.

"I took them coffee, and I just stood there with them," said Fitzsimmons, 28, who is based in Forest City, Pa. "They were upset. I didn't even say a word. I just went up there, and stood there with them in the pouring rain.

"To this day two years later, they come to the office and thank me. But I wasn't doing that to ensure we keep their policy. I would want someone to do that for me."

Some experts question the future of independents like Fitzsimmons Insurance Agency. Many of their owners are aging--often without successors in the wings or young talent. The industry is rapidly evolving with automation, telematics and internet of things devices changing how products are bought and sold. And carriers' direct-to-consumer channels threaten to eliminate the need for personal lines independent agents.

But others envision the personalized touch of the independent agent to be more valuable than ever in an increasingly impersonal world, where digital platforms and artificial intelligence will be responsible for the bulk of customer interaction.

"As much as technology might take over, I think independent agents are going to be OK. No matter what, customer service--if you're good at it--will always be valued," said Fitzsimmons, who is heavily involved in the Insurance Careers Movement. "That's where the independent agent is going to become more important. The customer is going to get upset, and they're going to call us to fix everything."

There are about 38,000 independent agencies in the United States, according to the Independent Insurance Agents and Brokers of America's 2016 Agency Universe Study. That number has remained stable since 2004. About 75% of those agencies saw increases in revenue between 2014 and 2015.

Allstate recently said that up to 70% of consumers seek local advice and assistance before buying a policy. The company was seeking to add hundreds of agents in April in seven heartland states after seeking an expansion of more than 1,000 workers in the Mid-Atlantic region.

However, the average age of principal owners with a stake of 20% or more in an independent agency is 55. Those 66 or older account for 17% of owners.

Agency Network Exchange CEO John Tiene warned in April that the unprecedented workforce gap in the next decade will make it harder for independent agencies to attract new talent and ultimately remain in business. Many do not have succession plans in place.

Experts who believe the days of independent agents are numbered point to their difficulty attracting young talent and the public's increasing appetite for digital experiences.

"How many millennials want to buy from an independent agent? How many of them actually buy from an agent? I think the answer is going to be a dismally small number," said Keith Wolfe, president of U.S. property and casualty, regional and national, for Swiss Re, referring to personal lines products.

Fitzsimmons will take over her family's agency when the time comes. She is the fourth generation to work there. Her father, Jim, and uncle, Brian, run the business. The firm sells auto, home, business and life products.

But many "independent agents are running out of options," Wolfe said.

"A single–owner, independent insurance agent who may have less than 10 employees and no real good succession plan or potential successor, they don't have a lot of options other than to sell," Wolfe added. "And when they sell, it generally gets bought by a bigger organization, and there's just consolidation. That trend is not new and it will continue.

"You're going to struggle really deeply to keep up with what larger organizations are going to be able to do to address these talent issues," he continued.

Fitzsimmons acknowledges that many agencies do not have succession plans or millennial-age employees. Most of her friends in the industry are also children of independent agents who followed into the family business.

"It's going to be hard for some agencies to continue because they don't have a perpetuation plan," she said.

Fitzsimmons already has seen the business change. One carrier in particular has become resistant to sending claims adjusters to assess auto damage. It has upset some of her clients, including millennial-age customers, she said. They are being forced to take their own photos and then try to convince the carrier that the damage is more extensive than an image could capture.

But those clients then come to her seeking help. That is exactly why some experts are not convinced that independents will become extinct, even as carriers such as Geico and Progressive have commoditized much of the personal lines sector with direct-to-consumer products.

Yes, there will be "shifting" in the market, as the younger generation prefers online transactions, according to Joyce Dunn, vice president and managing director at The Jacobson Group. "However, the individualized touch that an agent provides is something I foresee will continue into the future," she said.

Kirstin Marr, Valen Analytics' chief marketing officer, thinks the survival of the independent agencies is up to the agents themselves. Will they evolve?

"Insurance is still a complicated product to buy and interact with when you have a claim," she said. "But the nature of that relationship has to become more modern and more digital. The agents that really want to build that sort of business can find themselves being very relevant to the consumer."

By Jeff Roberts, senior associate editor: jeff.roberts@ambest.com