How can insurance become the industry of choice for the best talent?
If ESG (environmental, social, and corporate governance) is not on an insurer’s radar yet, it should be! The insurance industry continues to experience a shortage of talent and faces tough competition from other sectors when trying to attract younger generations.
With Millennials and Generation Z set to make up most of the workforce over the next decade, could a company’s clear commitment to effective governance and its social and environmental impact be the way to attract and engage future talent?
After all, younger generations seek environmentally and socially conscious companies where their work matters and has purpose, something the insurance industry (and the financial services sector more broadly) often struggles with.
In addition, the industry has been generally disjointed in its approach to managing ESG risks and adopting a more sustainable business model, despite an increased focus on ESG. Therefore, without embracing authentic ESG strategies, insurance could struggle to attract, retain, and promote future leaders.
What is ESG?
ESG applies to the non-financial, sustainable and ethical performance of a company or business. It originated from the pressure created by investors, whereby their investment decisions could be influenced by a company’s approach to ESG. However, it is now as much about recruitment and how attractive a company is to potential customers.
The three elements of ESG are as follows:
Environmental – the environmental approach of a business and its effect on the planet. Examples include climate change, greenhouse gas emission, waste and pollution;
Social – the social criteria considers how a company values and treats people and focuses on health and safety, diversity and inclusion, working conditions and local communities, among other factors;
Governance – this area focuses on how a company polices itself in relation to board structure and diversity, bribery and corruption, executive compensation, and risk management.
“It would be prudent for insurance companies to take ESG seriously if they wish to continue attracting and engaging top talent.”
ESG is gaining traction
The results of a 2020 survey, conducted by OnePoll on behalf of NAVEX Global, of 1250 senior leaders with a dedicated corporate commitment to ESG, found that:
- 81% reported that their company had a formal ESG programme, but only 50% said their company performed very effectively in the environmental approach;
- Only 39% believed their company were very effective at meeting their governance goals, and just 37% believed their company were very effective at meeting their social issues, and;
- Furthermore, 63% said that their company would increase their spend on ESG in 2021.
It would be prudent for insurance companies to take ESG seriously if they wish to continue attracting and engaging top talent. Market awareness surrounding ESG is gathering pace, and taking an ‘ostrich’ approach to ESG will not just result in a loss of market share, as investors withhold capital, but will leave the sector even more vulnerable to external disruption as insurers will not have the talent and resources to compete.
Insurance and talent attraction
The insurance industry struggles from a skills shortage and the continuing challenge of attracting talent, according to an article from Insurance Jobs.
Like many other areas of financial services, the industry needs to work hard to attract and retain talent and understand and deliver what younger generations are looking for in a company.
In insurance, there is a growing demand for talent with the technical skills for functions including underwriting, actuarial and data analytics. Yet, analysis from McKinsey & Company shows that only 28% of UK insurance companies possess the analytics and digital skills they require compared to 56% of global technology companies in the UK.
Furthermore, a 2019 KPMG study found that 65% of individuals outside of financial services would not consider a job in the financial services sector mainly because it is perceived as a ‘boring’ sector to work in.
But if the insurance industry can change this perception and align its values to those of the Millennial cohort, then talent attraction will become much easier.
The Millennial and Gen Z talent pool
It’s estimated that Millennials and Gen Z will make up 72% of the global workforce by 2029 (compared to 52% in 2019), according to a Marsh McLennan study, so offering what they’re passionate about counts!
Millennials and Gen Z are said to be be more focused on social and environmental issues and to place more importance on them than previous generations.
“(ESG is about) reframing your business purpose around being socially and environmentally responsible.”
ALEX HINDSON, CRO, ARGO GROUP
These younger generations rate concern for the environment, corruption and world poverty as some of the world’s top issues, according to a Chatham House survey.
According to Alex Hindson, CRO at Argo Group, ESG isn’t about ticking boxes. Instead, he says, it’s about: “Reframing your business purpose around being socially and environmentally responsible. Those that tick boxes will be caught out, and employees are best placed to see through the rhetoric from the inside-outside.”
Insurance companies must therefore consider ESG factors as they resonate profoundly with their current and future workforce. A company’s mission and values will need to resonate with an employee’s belief system; a ‘job for life’, salary, bonuses, title, token benefits are just no longer enough.
The baby boomer risk
As a sector with an ageing workforce, insurers will see a wave of baby boomer retirements, many of whom may have been in the industry for a large proportion of their careers. All baby boomers will be aged 65 or over by 2030, so while this makes space for a new generation of workers, if the industry doesn’t embrace change, such as a meaningful commitment to ESG, then the war for talent will only intensify.
The failure to attract the right talent has regularly appeared as a key risk on Willis Towers Watson’s ‘Dangerous Risks’ survey, and it reinforces the risk that retiring baby boomers will take with them decades of crucial and institutionalised knowledge and experience.
ESG and sustainable practices are not yet embedded within insurance companies as standard, but positive examples of ESG in insurance do exist. They highlight movement in the right direction and are challenging industry traditions regarding social, environmental and governance approaches and should hopefully lead to innovation and lasting change, making the industry more appealing to successive generations.
- Finding solutions to the protection gap and ensuring underprivileged communities can secure cost-effective insurance cover.
- Refusing to underwrite fossil fuels, as evidenced by the Adani Carmichael Coal project losing support in the marketplace.
- The development of ClimateWise – a network of insurance organisations addressing the industry’s response to climate change.
- Sustainable underwriting – practices that create solutions to support the transition to a low carbon economy and/or integrating sustainability factors into risk selection and pricing.
Next steps for business leaders
To be competitive in the war for talent, leaders should link ESG to company purpose and ensure the business model is sustainable (i.e., not dependant on industries that will disappear with transition, such as petrol-driven cars) and develop products and solutions that support this transition.
ESG should not be an afterthought and will undoubtedly play a significant role in attracting and engaging industry talent, as companies don’t want to be left behind by their competitors.
Leaders must view their employees and potential employees as internal stakeholders affected by ESG performance and determine how peers are approaching ESG. Now is the time to consider implementing a formal ESG programme if there isn’t one in place.
“Leaders must view their employees and potential employees as internal stakeholders affected by ESG performance and determine how peers are approaching ESG.”
Business leaders and HR departments should work together to consider the impact of baby boomer retirement and review (or initiate) succession plans before it’s too late.
As ESG appears to be a priority for Millennials and younger generations, it’s important to embrace it now and make it a part of the company culture. Over time, employees will live and breathe a company culture that is inclusive of ESG rather than indifferent.
Finally, ensure the HR team and hiring managers work closely with executive search firms who understand the insurance market and the associated talent challenges to look beyond traditional hires and be more adventurous in their selection.
As businesses approach a post-COVID 19 workplace change, there is one thing that seems apparent; they must consider their social impact, as economic recovery will be no excuse for poor governance or ignorance of environmental and social issues.
Diversity, specifically diversity of perspective, is key to ensuring an organisation’s employees and leadership represent the communities in which they operate.
Insurance companies must remain resilient while also embracing ESG factors to win the war for talent and ensure that future talent values align with company values.
Perhaps then insurance will be a step closer to an industry of choice for the best talent and move to the forefront of public consciousness as more social and environmentally conscious places to work.