Emerging workforce and skill set shortages challenge insurers

Demographic shifts, notably ageing workforces, are exerting pressure on labour markets. At the same time, the rapid evolution of AI, digitalisation and automation is transforming job profiles and skill requirements at an unprecedented pace. The result could be rising claims in casualty and L&H lines of business, among others.

Ageing populations and technological advancements are aggravating already existing skills shortages in many critical services.¹ One example is in health and long-term care (LTC) services, where qualified nursing staff and doctors are in short supply. As populations age, health and demand for LTC services will rise.² This coincides with an imminent retirement wave of medical doctors. For example, in the US, 31.5% of medical doctors are aged 65 years and above. According to data from the WHO, similar patterns hold true for other countries with high insurance penetration.³ Retiring doctors reduce the number of trained and practicing doctors, leaving behind shortage of experience and skill sets. ⁴

Increasing staff shortages can be self-perpetuating as those still at work are required to work longer hours and shoulder greater workloads and responsibilities. This is recent experience in the UK’s National Health Service (NHS), where fewer staff had to meet the exceptional demand during the COVID-19 pandemic. The NHS also faces the issue of chronic underfunding⁵. Alongside professionals leaving the NHS, either due to retirement or because work conditions and pay are better in other sectors/other countries, there has been an increase in absences due to illness, and also in the incidence of mental health problems among the staff left behind. These absences in turn are associated with a higher likelihood of staff leaving the NHS altogether.⁶

L&H and casualty: The lines of business most impacted by staff shortages are medical and liability. In healthcare, a shortage of doctors can lead to worse mortality and health outcomes for patients, for example due to delayed cancer diagnosis and treatment, or reduced capacity of a healthcare system to cope with a crisis like a pandemic.^7,8,9 Similarly, nurse-to-patient ratios have been found to correlate with patient outcomes in terms of mortality, re-admissions and length of hospital stay.¹⁰ Such circumstances of skill shortage can lead to more claims in L&H, and also in professional and employer liability insurance business. And those workers leaving their jobs on account of sickness, burnout and mental health problems could file claims for workers’ compensation and disability insurance.

Rapid developments in AI, digitalisation and automation can alleviate some skills shortages. However, they come with their own set of problems. AI tools for healthcare and tele-health solutions could cause unforeseen gaps in diagnosis and care and lead to novel liability disputes.¹¹ Automation could result in gaps in controlling, oversight and an increased attack surface vulnerable to cybercrime. It could also introduce gaps and flaws in training data for automation, and the subsequent validation of this data, leading to system underperformance and governance issues.

The workforce transformation also affects high hazard industries such as chemical, oil and gas, nuclear, or metal & mining. These already face critical skill shortage, and the prospect of additional pressure from the upcoming retirement of the skilled baby boomer generation. Filling vacancies with inexperienced workers could increase the risk of accidents ¹² leading to professional and employer liability, and potentially also (expensive) claims in property insurance.

Insurance operations: Technological advances are changing job profiles and skillset needs, including in insurance business. While IT professionals are in short supply, in some sectors machines can replace humans in certain roles. Prospects of automation may already be a significant factor for people not to choose a profession as it reduces expected job stability. For example, autonomous driving is becoming more widespread, with increasing rollout in the US and China. A breakthrough in this technology could lead to drastic shifts in the HGV driver market, for instance, the latter a critical link in modern supply chains. Similar dynamics are at play in other professions such as accounting, which is experiencing a critical shortage.¹³ In insurance, should entry-level positions of claims adjusters or underwriters be automated to reduce costs, this could lead to a lack of people with sufficient job-specific work experience in the future, in turn increasing operational errors and raising costs for insurers themselves.