The U.S. insurance industry is at a crossroads, with an aging agent workforce (nearly 60 percent of agents are over the age 45, according to recent Deloitte figures) and a diminishing pipeline of younger replacements. The changing market landscape complicates this threat by requiring new perspectives and skills. As workforce and marketplace demographics shift, leaders across this industry must develop an understanding of the largest emerging workforce: Generation Y.
The world's working population is shifting dramatically, with low birth rates, changing family structures, increasing demographic and gender diversity, changing immigration trends and an aging workforce. According to UN data (see Table 1), the world population is aging and there will be a shortage of 10 million workers in the U.S. leadership pipeline by 2015. This labor shortfall will only deepen with the impending retirement of older workers.
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Insurance companies and agencies in particular are likely to face critical talent deficiencies in the next few years. The demand for insurance sales agents is estimated to increase from 436,000 to 492,000 by 2016, requiring 200,000 new hires assuming a 33 percent attrition rate. Attrition rates are actually much higher. According to the Life Insurance and Market Research Assn., the 4-year retention rate for agents was only 13 percent in 2004; more recently, only one in six agents remains with the average insurance company after 4 years, according to an October 2008 Deloitte study.
Meanwhile, demographics are shifting toward a more diverse workforce (see Table 2). When looking at the insurance industry we find concerning trends: the average age for life insurance agents is 47, and although proportions of women and minority populations in the workforce are increasing, insurance agents still remain a homogeneous group (i.e., white males). From 2000 to 2020, minorities and immigrants are projected to account for 85 percent of the growth in the workforce, especially at the younger end. In the changing global market landscape, insurance companies must develop strategies for replenishing and growing the workforce by recruiting, engaging, and motivating new, diverse talent.
As more and more Baby Boomers reach retirement age, organizations risk losing critical skills and experience. Our research indicates that today's talent shortages are most pronounced in roles that are critical to delivering on business strategy, including a 14 percent deficit in insurance account management roles. To further aggravate the situation, the overall pool of insurance talent is diminishing and the cost of identifying, recruiting and training an agent is already $100,000 to $200,000. Competition for new insurance sales agents will likely be aggravated in the future by an increasing overlap in expertise between insurers, banks and investment management firms.
The four generations represented in the workforce have different attitudes and expectations about their jobs and careers. Research shows that Baby Boomers emphasize work as an anchor in their lives. Gen Xers enjoy work, but are more concerned about work/life balance, and Gen Yers, because of their deep reliance on technology, believe they can work flexibly anytime, anyplace--and that they should be evaluated on work product, not on how, when or where they got it done. In the coming years, the success of the insurance industry will depend on how organizations leverage these unique generational characteristics.
Challenge and opportunity
According to the September 2009 Deloitte Special Report on Talent Retention (see Table 3), nearly half of survey respondents are considering leaving their jobs as the economy improves--and by a wide margin, Gen X and Gen Y respondents have the highest turnover intentions. More than one-fifth (41 percent) of Gen X respondents have been or are currently job hunting, while 50 percent of Gen Yers surveyed plan to look within 12 months. Unless insurance companies take action now, they are likely to see most of their future leaders leave. Meanwhile, proactive companies can scoop up the best talent entering the market.
As an emerging workforce with dramatically different expectations from previous generations, Gen Y presents both an opportunity and a challenge for the insurance industry. Although Gen Yers have been portrayed negatively, recent Deloitte research on those already in the workforce finds they are a hidden powerhouse of employee potential.
Our research indicates that Gen Yers are future oriented and opportunity driven. They are optimistic, but they are also highly restless. Raised in an era of rapid technological change, Gen Yers expect opportunities for rapid advancement and more responsibilities at a younger age. Although they expect competitive pay, Gen Yers value meaningful development opportunities and welcome the chance to partner with older, more experienced colleagues. Gen Y is a diverse and inclusive generation that has been taught to collaborate and work in teams--critical skills in a highly specialized, global economy. By combining the tech savvy, fresh insight and entrepreneurial mindset of Gen Y with the experience and perspective of the older generations, insurance agencies can foster adaptation and innovation to meet business priorities.
Meanwhile, Gen Y is projected to become the wealthiest generation ever, boasting an annual income of up to $200 billion and an expected inheritance of more than $17.8 trillion, according to a recent article in Credit Union magazine. Additionally, at approximately 75 million, the population of Gen Yers is the largest after Baby Boomers. This fact is significant, because it signals their growing importance not just as employees, but also as customers.
As Gen Yers experience new life events, the timing is ripe for insurers and independent agents to reach out to them. Gen Yers tend to view insurance as confusing, expensive and unnecessary. Insurers and agents have an immediate opportunity to educate Gen Y on the risk and the value of financial protection, and to sell products that meet its evolving needs. Meanwhile, Gen Y employees are full of insight on how best to reach their peers. Although Gen Y currently represents only 10 percent of the U.S. labor force, the generation's economic influence as consumers and employees will continue to grow as more individuals graduate school and enter the labor force. As this happens, an age-diverse workforce will become critical.
Gen Y represents the future workforce for the insurance industry, but these workers' expectations are at odds with traditional insurance practices. Meanwhile, many young professionals view the insurance industry as unattractive and boring, with limited growth potential. Additionally, the lack of age and ethnic diversity in the insurance industry makes it increasingly difficult to attract a diverse workforce needed to expand into diverse customer segments. The insurance industry must take action to attract and retain new, diverse talent.
What to do?
How insurance employers respond to Gen Y will determine whether they can tap this hidden powerhouse of employee potential--or lose Gen Y to their competition.
The wants and values of the incoming workforce generation reflect a talent marketplace which demands flexibility, balance, respect and accessibility. Traditional insurance organizations are not set up to recognize and harness this restless talent pool, so to effectively recruit and retain Gen Yers, insurance organizations must reevaluate their talent strategies.
Over the next year, Gen Y anticipates that new opportunities in the market will motivate them to change employers. Gen Y respondents to the survey leave primarily because of concerns around job security.
Beyond additional compensation and bonuses, Gen Y respondents value non-financial incentives, including: job advancement opportunities, clear expectations, flexible work arrangements and strong leadership (see Table 4). Employers must redesign talent strategies and performance management and rewards systems to encourage the rapid development of Gen Y talent. Finally, employers need to create new incentives for seasoned workers to act as mentors to young professionals. Insurance companies that are able to deliver on these expectations will be better prepared to retain and grow their Gen Y employees and recruit top talent away from their competitors.
To recruit and retain Gen Y talent, organizations also need to create a 21st century workplace. This requires connecting employees and employers in an evolving and interactive social network, embracing social media. Social networking can enhance relationships, increase employee productivity and efficiency, and foster creativity, innovation and collaboration. As such, the workplace of the future depends upon technologies that encourage peer collaboration, such as wikis, blogs, and other online collaboration technology. To win the race for Gen Y talent, the insurance industry must act now to transform its organizations and build the workplace of tomorrow, today.
Among the many challenges facing the insurance industry in the current global economic environment, recruiting and retaining the best workers of Gen Y is vital to supporting current and future growth. Firms can engage Gen Y employees by enlisting them to develop new insurance solutions for their consumer peers.
In this changing market environment, the energy, insight and high-tech know-how of Gen Yers will be essential. To engage Gen Y, employers need to better understand their expectations of long-term career development, a variety of experiences, a sense of purpose and meaning in their work, open social networks and work/life balance. By focusing on these elements, firms can generate capability, commitment and alignment among Gen Y. Current leadership's role will be to enable and support the ideas and initiative of this new powerhouse generation as they prepare to become the next leaders of the insurance industry.
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