Many industries face similar challenges in talent retention, workforce shifts, and workplace strategy. But taking a zoomed-in view into one specific industry can help designers find the pulse of each specific issue.
In December 2018, HOK released a research report titled, “The New Insurance Workplace: An investigation of the forces reshaping the insurance industry and how workplace design can position companies for success.”
We’ve known for some time that the insurance industry now operates in tumultuous conditions. Drastic legal, political and social change has created a work climate of imbalance and uncertainty – one requiring a nimble, flexible outlook from insurance companies. We found the information in the HOK report to be valuable and applicable to the workplace design of many other industries, and we’ll share much of it here at officeinsight.
In addition to HOK’s Workplace leadership team and its global delivery network partners, HOK worked with insurance company contributors, including CRE and facilities leaders from AIG, Goosehead, Horizon Healthcare, Horizon Blue Cross Blue Shield of New Jersey, Liberty Mutual and MetLife. Research techniques included a global survey of insurance services firms, followed by a series of interviews with decision makers from several leading companies.
“Insurance companies are well-versed in dealing with regulatory and economic pressures. In the early 2000s, then New York Attorney General Eliot Spitzer accused some of the industry’s largest companies of rigging bids for insurance contracts and steering business to insurers who paid special “contingent commissions.” Several large settlements followed and the industry was forced to reassess how it was operating. Shortly after that the companies also were affected by the global financial crisis of 2007–2008. While the insurance sector was not as severely impacted as financial institutions, their operations and business landscape were forever altered. One industry giant with about $1 trillion in assets before the crisis lost $99.2 billion in 2008. To keep the company from failing, the Federal Reserve Bank of New York provided an $85 billion loan.”
“As insurance companies redefined their operational models in the wake of this crisis, they also reduced the amount of space they occupied and focused on trimming costs. But as these organizations also sought new ways to increase revenue, their primary expense remained human capital – followed by owned real estate.”
The HOK report identified seven threats and challenges to the insurance industry:
CHANGING ECONOMICS
“With the rise of the sharing economy and the reduction of disposable income due to wage stagnation, increased costs and larger debt burdens, Millennials have less buying power than people from previous generations. Many are putting off purchasing homes and cars, which decreases loan activity and the need for insurance.
Over the past decade there has been a split in the insurance industry. Many of the larger, established companies continue to follow a traditional producer-driven business model. But a new generation of insurance companies are leveraging technology to empower customers with websites and apps that give them easy access to information. Whether it’s Progressive’s “Name Your Price” online tool, Esurance’s “Surprisingly Painless” campaign or Geico’s “15 minutes could save you 15% or more on car insurance” slogan, there is an effort to demystify and disrupt the status quo of the insurance industry.
Larger, established insurance companies can be slow to adapt to fluctuations in the business environment. Many of these companies have created more agile subsidiaries that help them reach new markets and younger consumers.
The insurance industry also has been suffering from the significant increase in natural disasters. 2017 was its costliest year in history, mainly due to natural catastrophes. Hurricane Harvey, Irma and Maria, along with two earthquakes in Mexico, cost the insurance industry approximately $95bn. For many carriers this resulted in smaller profit margins, rate increases and decisions to opt out of providing coverage in high-risk areas.”
GEOPOLITICAL FACTORS
“Insurance companies continue to face challenges as they go through the final phases of post-financial crisis reforms. Adding to the uncertainty are the impact of the impending withdrawal of the U.K. from the European Union in 2019 and the effect of the Trump administration on world affairs. Looming signs of a potential real estate price bubble, elevated levels of consumer indebtedness, and sluggish economic growth and low interest rates in parts of Europe and the U.S. are adding to the uncertainty.
But 2017 also saw economic growth with China, Europe and Japan all outperforming expectations. Though its economy has slowed of late, the long-term outlook for India remains positive.
Many analysts are concerned about the rise of nationalism and growing geopolitical tensions, even amid positive sentiments. At the same time, increased M&A activity has extended the footprint and reach of many insurance companies into new regions – bringing fresh challenges and opportunities.”
REGULATIONS
“Insurance companies are acutely aware of the applicable laws and regulations that pertain to their risk and compliance programs, even as they monitor changes on the horizon. But companies don’t have the luxury of waiting to see how things will shake out – they need to plan based on existing guidance. The increasing pressure of new regulations and compliance requirements is driving a need to be more efficient and effective.”
PAPER-BASED LEGACY
“The insurance industry has always relied heavily on paper, in part for litigious reasons. Though there are new electronic solutions for replacing paper, legacy processes and technology systems have made it difficult for some insurance companies to rethink their old ways and fully embrace the digital era. For these companies the primary catalyst of change has been necessity, such as a move to a new office space. But as they move from paper-based to cloud-based digital systems, they will need to look and act more like tech companies and streamline all their processes.”
TALENT WAR
“With knowledge workers driving today’s economy, people are the chief currency of business. The average age of insurance agents in the U.S is 59, and many of those can be expected to retire within the next several years. With not enough people entering the workforce to replace those who are leaving, a labor shortage looms. But retiring workers might hold the key to helping to fill the talent gap. Many people would be willing to cut back on hours without fully retiring. If employers can be flexible and use more part-time employees who otherwise might retire, they can fill their staffing needs while slowing the brain drain that would be caused by losing so many of their knowledge workers in short order.
The workforce is shifting. But the war for talent has not hit the insurance sector as hard as other sectors. Until recently, the processes and skillsets needed by many established insurance companies, who employed older and more tenured people, had not changed significantly. But for companies that rely heavily on technology to reach their customers, the average age of employees is trending down as they target tech-savvy college graduates. This will continue to change as insurance companies embrace technology and develop more in common with fintech companies.
In the years ahead advances in automation and artificial intelligence will force companies to replace, retrain or upskill their 40-, 50- and 60-year-olds to take on new responsibilities. They will increasingly be competing for the same talent that tech and fintech sectors are pursuing. The search for more tech-literate employees is driving down the age of the average employee in the insurance industry, which is changing the way these companies approach the workplace.
Today’s employees expect a life as well as a living. Given a choice, they’ll opt for the former – even over compensation and benefits. Flexible work as a differentiator in choosing an employer grew three times faster than salary and bonuses between 2011 and 2016.
Many graduates once drawn to compensation and prestige now are more interested in quality of life, the ability to innovate and opportunities with potential for significant growth.
The insurance sector also has a perception problem. Being seen as an industry that relies on old systems and that is still suffering from lingering effects of the 2008 financial crisis has made it harder for these companies to attract and retain the best people.”
DISRUPTIVE TECHNOLOGY
“Actuaries have always been a key part of the insurance business. In recent years advances in technology and new sources of data have transformed these analytics. The insurance sector is embracing innovative types of analysis and data mining to improve their processes and create new products.
Access to big data brings challenges and opportunities. The Internet of Things can furnish more detailed information about our habits, both good and bad. As more data is collected and analysis becomes increasingly precise, insurers will be able to work much more efficiently. Analytical tasks such as determining insurance premiums are increasingly being performed by machines. Big data and advanced analytics could reduce premium costs and provide highly customized, better products for consumers.
But as third-party data sources exponentially increase the amount and accuracy of data, this could negatively alter the fundamental underpinning of the industry: the concept of shared risk. Issues related to data accuracy and ownership are also a concern. To address some of these fears, the National Association of Insurance Commissioners (NAIC) has created a Big Data Working Group that will recommend new guidelines and regulations.
The European Union’s General Data Protection Regulation (GDPR) recently came into law to give individuals more control over their personal data and establish a clear regulatory environment for companies operating in the EU.
As advances in automation and artificial intelligence continue, the ability to more accurately make predictions will significantly improve, again altering a foundation of the insurance industry, the unknown. ‘Chatbots,’ computer programs that use artificial intelligence to mimic conversations, are already assisting insurance customers.
Some companies are acquiring smaller, tech-savvy firms that can accelerate their adoption of new technology and expand their expertise. But folding these startups into their organizations and corporate cultures can be challenging. To help the acquired team feel comfortable and better integrate them into the enterprise, insurance companies must provide flexible workplace environments that encourage collaboration. Providing flexible work environments with no assigned seating or Activity-Based Workplaces (ABW) also can help insurance companies compete with tech companies and coworking environments.”
DATA SECURITY
“The migration toward digital channels is ramping up the number of cyberattacks on insurance companies, which hold a tremendous amount of personal consumer information but are relatively inexperienced at protecting this data. But these companies and government agencies are focused on strengthening their cybersecurity risk management programs and reporting. In recent years new legislation and regulations have significantly augmented cybersecurity.”
With all of the aforementioned threats and challenges come a bridge of opportunities, including to:
>Improve employee engagement
>Advance the customer experience
>Embrace wellness initiatives that incentivize fitness, health and nutrition
>Move from paper to cloud
>Create new efficiencies
How do these strategies play out in the workplace? The HOK research report identifies the following key elements of a successful, contemporary insurance industry workspace:
>Amenities, including: food and beverage service, tech bars, retail shops, wellness rooms, fitness facilities (indoors and outdoors), banking options, concierge, medical clinics, auditoriums and conference centers, gardening areas, prayer rooms, communal or coworking space.
>Balance of mobility and collaboration
>Reworked call and contact centers
>Activity-Based Workplaces (ABW)
>Neighborhood-based Choice Environments (NCE)
>Space as a service
HOK included a note about the future at the report’s end:
“New regulations, emerging technologies and geopolitical shifts will continue to reshape the insurance sector. The gig economy, advancements in artificial intelligence and entries into emerging markets may result in more insurance jobs being shifted to back-office functions or simply being outsourced. And in a world where data is increasingly becoming king, insurance companies will look to leverage this information to anticipate needs and risks to stay competitive.”
“All this means the pace of change across the industry is accelerating at the same time that profit margins are getting thinner. This will require insurance companies to focus on embracing new methodologies and be willing to adapt for what lies ahead. To remain competitive in this rapidly changing business landscape, insurers need to:
>Stay nimble and be able to pivot to market conditions.
>Leverage technology to expedite access to information.
>Break down internal silos to be more responsive to customer needs.
>Leverage space as a strategic asset and the physical embodiment of company culture and values.
>Use workplace design to engage and empower employees and improve their well-being.
>Create a sense of place and community and a “we” mentality that unites employees.”
“To help them adapt to organizational changes and adopt new work processes in new types of space, insurance companies will need to help employees accept change as the new norm.”
To read the full HOK report, which includes detailed information on the opportunities and strategies mentioned above, as well as case studies, key benchmarks and additional survey results, head to hok.com.