Are contractors the best cover for insurance companies during COVID-19?

How can insurance companies thrive in a year marred by insecurity and uncertainty?

This once-in-a-century event has caught governments and organisations unprepared, and continues to push us into uncharted territory. The impact on the global economy has been profound: experts predict that the global economy will shrink by 3%, and Australia will enter its first recession since 1991, disrupting nearly 30 years of continuous growth.

Businesses are doing their best to adapt to these challenging times, either by reducing headcount or scaling down operations. Insurance organisations have been at the forefront of Australia’s recent environmental disasters, and coronavirus is no exception.

Although the insurance industry has fared better than many industries, such as airlines, the ongoing pandemic hasn’t left them entirely unscathed. According to a recent IBISWorld report updated in June:

Overall, revenue for insurance companies is projected to decline in 2020, due to ‘lower returns in equities, fixed interest investments and indirect investments’.

Outside of COVID-19, the insurance industry has contended with greater regulatory scrutiny off the back of the financial services royal commission, and sustained competition for talent.

The insurance industry has had fairly traditional views on emerging forms of work – whether you call them contractors, non-employees, freelancers or gig workers. But the industry must embrace these forms of work if they want to adapt and survive the unprecedented times ahead.

Below, we outline some of the biggest challenges facing insurance companies and how appropriate engagement and use of contractors is proving to be a winning strategy.

The race for skilled talent

The insurance industry is one of the most talent-starved sectors in business today. Even without the pressing stress of an ongoing pandemic, the industry has had ongoing issues attracting new talent.

 

Several causes have resulted in companies struggling to get talent in the door.

Coupled with advancements in technology, digital transformation and new product lines, insurers have never more urgently needed to critically assess their ability to attract and retain the right talent.

According to Property Casualty 360, the answer to the talent crisis for insurers might be sitting right under their noses, in the form of the gig economy:  ‘Some insurers are still surprised to learn they can find consultant-level expertise on a temporary basis…They are drawn to the flexible lifestyle and diversity of projects unique to contract work.’

Despite insurers making several insurance products that target the gig economy, few have made contingent workers part of their talent strategy. This missed opportunity has prevented many organisations from realising the many benefits of contingent workers, such as:

Some forward-thinking companies are starting to catch on – over the next 12 months, 13% of insurance companies are looking at expanding their use of contingent workers.

To assist our insurance clients with their talent needs, CXC has recently implemented our new talent community, Workforce Exchange (WEX) – powered by LiveHire. WEX gives our clients access to our talent pool of proven, pre-qualified workers with previous CXC history and full compliance adherence.

Demand for cost-cutting

Dramatic changes in the life insurance sector have highlighted the dramatic upheavals across the wider insurance industry.

In recent years, CBA, NAB and ANZ have ditched their financial businesses, leaving just Westpac still involved in wealth management and insurance.

Why?

A combination of intense competition from industry super funds (which have outperformed retail funds by 1.9%) and severe problems with profitability (with the industry losing $1.8 billion over the last year).

The end result is that the remaining players in the market are intensely fixated on profitability and cost-reduction.

Top Life companies

 

 

 

 

 

 

Insurers are now looking for ways to reduce their operating costs and, in particular, maximising the value of each worker in the business. They’re asking questions such as:

Which role types should we invest in?

When acquiring new businesses, how should we restructure headcount?

Should we engage them as employees or contractors?

For 62% of large companies, the primary aim of engaging with contingent workers is to control labour costs. Engaging with qualified workers on flexible arrangements is especially valuable when needing to scale up or scale down operations.

Although COVID-19 has resulted in many insurers downsizing their operations, others still are jumping at opportunities for growth.

As we’ve discussed previously, CXC has partnered with a major Australian health insurer to rapidly scale up their operations, onboarding over 1,000 call centre contractors for a COVID-19 hotline. CXC was able to facilitate the dramatic changes to their workforce, compliantly and cost-effectively.

Increased regulatory scrutiny

The Financial Services Royal Commission was far more wide-reaching than just looking into shady banking practices. Insurers were also in the spotlight, with 15 recommendations specific to the way they do business.

These primarily included recommendations on commissions, cold calling, claims handling and advice. In addition to upturning the big banks’ questionable practices regarding life insurance, it changed the way all insurers sell, distribute and operationalise insurance products.

As part of this disruption, financial services organisations are looking into changing the culture and behaviour of their workforce at a holistic level. But how do you do that, when 20-30% of your organisation is non-permanent, and being introduced to the organisation through a distributed supply chain?

Our Director of Corporate Solutions, Paul Chiswick, has previously discussed the royal commission, and the major issues facing insurance organisations. As Paul said:

If we look at some of the big banks, they may have anything from 20 to 60 different third-party suppliers providing non-permanent workers to their organisation. How can an organisation align the changes they want to implement around culture, behaviour and the new way of working when they don’t really have total influence over that workforce?

Even though insurers are primarily concerned with the immediate issues arising from the commission and potential fines, corporate governance and visibility for their contingent workforce will be a significant focus when identifying behavioural issues.

As insurers feel the economic ramifications of COVID-19 over the next few years, we’ll start to see more of these external and internal pressures. Not all insurance companies will jump at the chance to incorporate contingent workers into their talent strategy, but those that do will have a better chance of weathering the storms ahead.

As one of the world’s leading providers of contingent worker management solutions, CXC is well positioned to optimise all elements of your contingent workforce strategy. With operations in more than 50 countries across five continents and decades of experience, we can assist with every aspect of your program.

If you would like to find out more about how we can help please contact us here.

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