Leadership Development Blog

Subscribe to our blog...it's simple!

Why Succession Planning is Vital to the Insurance Industry

Posted by Rick Lepsinger March 21, 2019

OnpointSuccessionPlanning_InsuranceIndustry 2

The insurance industry is racing headlong toward two demographic challenges in the coming years. First, there are some indications that more millennials will finally become homeowners in the next few years. This generation has delayed homeownership for much longer than previous generations for a variety of reasons, leaving them less likely to need many of the insurance products and services associated with buying a home and starting a family. If millennials do enter the housing market in large numbers, insurance companies will surely see demand increase.

But while this trend creates exciting business opportunities for the insurance industry, it also highlights another demographic challenge. With some 400,000 employees expected to retire within the next few years and the average age of agents at 59 years old, the insurance industry is on the brink of a huge change in the composition of its workforce. In order to avoid a gap in leadership talent as long standing employees step down from their positions, insurance companies need to put a heavy emphasis on their succession planning process.

Why High-Potential Talent Matters

The first step in planning for succession is putting an effective strategy in place to identify high-potential employees who possess the skills necessary for leadership success. Multi-faceted approaches to assessment are critical because simply promoting high-performing candidates doesn’t necessarily translate into good leadership results. While performance certainly matters, a candidate’s existing job responsibilities may have very little in common with the challenges they will face in a leadership position.

Only about one-in-seven employees can be characterized as high-potential leaders. These candidates not only possess the competencies needed for leadership success, but they also demonstrate a willingness to lead and are consistently engaged as employees. Too often, organizations without strong assessment systems in place overlook these candidates or fail to provide them with a roadmap to future success, causing them to leave the company in search of better opportunities. In fact, as many as 27 percent of such employees are at “high risk” for leaving.

Without quality candidates in a company’s succession pipeline, it can be difficult to fill positions as they become available, forcing companies to turn to candidates who may not be the right fit in terms of skills or culture. The cost of these poor hires is significant. Zappos CEO Tony Hsieh once estimated that the company’s bad hires cost it over $100 million. Studies have shown that the cost to replace an employee can run from 20 percent of the annual salary for mid-range positions and more than 200 percent for executive positions. These staggering costs make the importance of succession planning readily apparent.

Succession Planning in the Insurance Industry

While only about 4 percent of surveyed millennials express interest in working in the insurance industry, those who are already working for insurance companies see a bright future for themselves. About three-quarters of them have been in the industry for more than three years and 70 percent indicate that they wish to continue doing so as long as possible. This small but engaged group of younger employees will likely be stepping into leadership roles in the near future, so insurance companies need to go to great lengths to prepare them for these positions.

After identifying high-potential employees with a variety of assessment strategies, insurance companies need to leverage their existing resources to develop their future leaders. Mentorships and leadership coaching should be among the top priorities when planning for succession. More than half of insurance industry employees are over the age of 45. Even if many of them are not in leadership positions, these people possess a tremendous amount of institutional knowledge that they can pass along to aspiring leaders. As the industry goes through a great deal of technological change in the coming years, potential leaders should familiarize themselves with many different departments and functions within the company to help them understand how different aspects of the organization interact. As new technology is implemented and cross-functional teams become more common, this new generation of leaders will be prepared to handle these challenges.

By preparing high-potential candidates now, insurance companies can avoid prolonged talent gaps as their existing leaders transition into retirement. Rather than scrambling to replace these experienced professionals, they can turn to their succession pipeline, which should be fully stocked with high-potential leaders who have been learning from the very people they’re being called upon to replace.

As the insurance industry considers how to face the challenge of increasing demand for services while also undergoing a generational turnover in its workforce, the companies with the foresight to establish strong succession planning will be in a much better position to achieve success. By identifying high-potential candidates early and providing the development, mentoring, and coaching they need to step into leadership roles, these companies can ensure a smooth transition and continue to deliver quality, innovative services to their customers.


Topics: succession planning

Leave a Comment