Insurance Senioritis: The Cost of the Insurance Industry’s Mass Retirement Wave

With around half of the entire insurance industry aging out of the workforce now and in the next few years, we’re exploring the financial impacts this mass retirement could have on insurance carriers–and what they can do to offset those costs. 

The Great Retirement

Not to be outdone by The Great Resignation, a massive generation of workers are hitting retirement age, leaving the workforce, and creating a compounding problem for companies seeking talent. 

We talk a lot about the pickle the insurance industry finds itself in, with a large portion of experienced workers leaving the insurance industry, and a lack of fresh talent coming in to replace them. This “talent crisis” is usually spoken about in terms of the insurance carriers and agencies that will be short-staffed and what they can do to become more competitive at attracting replacement talent. 

But there’s another angle we haven’t yet explored. And this one has the potential cost insurance carriers well beyond the inability to attract and retain new employees. 

A 2021 report states: “According to the U.S. Bureau of Labor Statistics (BLS), the number of insurance professionals aged 55 and older has increased 74 percent in the last ten years, leading the BLS to estimate that over the next 15 years, 50 percent of the current insurance workforce will retire, leaving more than 400,000 open positions unfilled.”

That’s a lot of retirees. 

Talent crisis aside, we’ve begun to see examples of soon-to-be-retiring insurance agents becoming less diligent than they ought to be as they eye their exit to retirement. Without naming names, we can recount a firsthand experience of an agent who made a $150,000 mistake and had to file an E&O claim weeks before he was set to retire. This agent didn’t have any good reason to stress over the error, or the large hit to his E&O policy, because he wouldn’t be facing a possible non-renewal or premium hike after closing his agency’s doors. Many agency owners do have a reason to stay vigilant up to their last day, since they have their sights set on selling their agency as part of their exit plan. Insurance carrier employees, on the other hand, may have less at stake if they’re simply retiring from an administrative or operational role. 

We’re not saying every one of the hundreds of thousands of insurance employees nearing retirement is getting more lax on the job. But the massive boom of retirement-aged workers does coincide with a fall in overall employee engagement across the U.S. As people become less engaged, they’re more likely to make mistakes that cost companies money. Like highschool seniors in the final weeks before graduation, many of these soon-to-be retirees may be less motivated to cross every t and dot every i. And that can spell financial costs for carriers in three main ways. 

Carrier costs from retiring insurance agents

Increased E&O costs 

The first area where insurance carriers face potential costs is from a large number of seasoned producers leaving the workforce. At the exact same time as premium revenue is at risk (as the highest performing producers retire, who will take over their books of business, and will they move policies to new carriers?), this outgoing class of agents are more likely to be OK cutting corners since they won’t face consequences after retirement. 

Like our example above, if an agent is so close to retirement that they’re dreaming about the golf course instead of making sure each and every policy is perfectly buttoned up, they can end up filing E&O claims that carriers will then have to pay. Insurance carriers who provide E&O insurance are accustomed to paying claims, but are they prepared for a bump in the frequency of claims, as what may have once been a one-off “oopsie” from a retiring producer is multiplied by hundreds of thousands of retiring agents? 

Appointment fees for retired producers 

If you’re an insurance carrier and you’re paying appointment fees for thousands of producers across multiple states and territories, you might be spending more than you need to be. As producers retire, are you certain you’re getting real-time updates, and aren’t accidentally renewing appointments for producers who are no longer active? 

We get it: It’s a lot to keep track of hundreds (or thousands) of agents selling your products in ten, twenty, or fifty states. As these producers begin to quickly leave the workforce, it becomes even more important to have a reliable process in place to only appoint the ones you need to. Hint: Just-in-Time appointments could be a great solution. As is a real-time, two-way sync with NIPR. Just saying…

Carrier costs from retiring claims processing staff 

Processing insurance claims is one of the most important duties of an insurance carrier. A lot goes into it, including human expertise and judgment. As claims processing staff get close to retirement, and likely become less engaged with their work, it’s possible that mistakes and oversights may increase. 

Insurance companies are contractually bound to pay out claims according to the provisions of the policies held by the insured. But there can be room for human judgment, and therefore human error. As we’ve mentioned, a retiring workforce can be a disengaged workforce, which is shown to lead to greater levels of errors. In the case of paying insurance claims, an error could be the difference between paying a large claim or not. Those are dollars that directly affect the insurance carrier’s bottom line, so you want to make sure you’re paying out only as much as you should be. 

Aside from mistakes made by disengaged employees, the increased workload placed on the remaining claims processing staff when some workers retire and cannot be immediately replaced also opens up the risk of expensive errors or oversights.  

Carrier costs from retiring compliance staff 

Another key function of an insurance carrier is to ensure all downstream distribution channel partners are working within the confines of applicable laws and regulations. Insurance carriers often have large compliance teams overseeing the status of the agencies and individual producers who sell each one of their lines of business. 

As these employees get closer to retirement, it could become more likely for them to miss red flags they would normally see. Particularly if an insurance carrier is managing compliance with a combination of spreadsheets and outdated, disparate computer systems, keeping on top of compliance is challenging on a good day. It becomes even more difficult when you either lose a large portion of your staff and can’t replace them (or can’t train their replacements quickly enough), or if many of the long-time employees start to get disengaged as their retirement date approaches. 

How carriers can prevent these costs before they happen 

If you’re feeling the squeeze of retiring agents, producers, or insurance carrier employees, along with the struggle to find and train their replacements, we’ve got good news. You may not be able to prevent some of the costs associated with The Great Retirement entirely, but insurance carriers do have ways to significantly decrease operational costs to offset some of the other costs that might pop up.  

Modern technology can help. Specifically, a digital licensing and compliance management solution like AgentSync. 

AgentSync can:

• Help prevent paying for retired or inactive producers without the hassle of managing them on paper. Our real-time, two-way NIPR sync allows you to quickly view the status of agents you’ve previously appointed or would like to appoint. 
• Reduce the manual labor needed to manage producer licensing and compliance, and allow new staff to get up to speed more quickly than trying to learn complicated processes invented decades ago by your now-retired staff.
• Automate your Just-in-Time (JIT) appointment process so you can wait until a producer has sold one of your policies before investing in their appointment fee. 
• Reduce E&O risks as well as compliance risks because state rules, including changes to them, are baked into the system. 

As The Great Retirement continues, we predict some costs will rise for insurance carriers, and the industry as a whole. The time is now to mitigate those costs by getting control over what you can, namely, streamlining operations and automating processes that will save human effort and money. See how AgentSync can help you do just that.