The insurance industry is no stranger to cyclical fluctuations. We’ve seen periods of rapid growth, followed by periods of consolidation; a natural ebb and flow driven by market forces. Currently, the industry is bracing itself for a potential ‘soft market. This shift raises a critical question: how will this downturn impact insurance transformation spending, and will this have an impact on talent acquisition in the sector?
The Venquis marketing team sat down with Jack Lord, Client Solutions Consultant specialising in the UK insurance market, to talk through the potential impact of a soft market on insurance transformation spending.
The potential impact on insurance transformation spending
A soft market, often characterised by lower premiums due to increased competition and excess capacity, can squeeze profit margins. This pressure naturally leads to a reduction in overall budgets, with companies scrutinising expenditures and large-scale projects. In this instance, insurance transformation spending, can become targets for cost reduction. Jack explains:
The pressure to demonstrate a clear and rapid return on investment intensifies in a soft market situation. Discretionary spending, including technology upgrades and insurance transformation programmes could be put on hold. Without a compelling business case or a clear path to profitability, it’s likely these types of things could come under scrutiny.
These projects encompass everything from core system modernisation and digital platform development to data analytics infrastructure and customer experience enhancements – all of which are crucial for long-term competitiveness. However, in the face of immediate financial pressures, long-term vision can often be overshadowed by short-term necessities. However, this could lead to smaller, more focused projects with demonstrable short-term benefits, as emphasis shifts towards operational efficiency.
Insurance transformation spending could, instead, be focused on projects that streamline processes, reduce costs and improve productivity. Investment in things like automation, claims processing optimisation and customer service enhancements are likely to remain a focus.
Drivers of insurance transformation spending
Understanding the drivers of insurance transformation spending is key to predicting its trajectory during a soft market. Companies invest in transformation to achieve business objectives, and operational efficiency is paramount.
Things like process automation and streamlining workflows to reduce manual intervention is where a lot of insurance transformation spending is focused,” says Jack. “The need to adapt in an industry that is shifting rapidly due to things like regulatory changes and leveraging data for better risk assessment and personalised offerings fuels the drive for transformation – and this can’t stop in a soft market.
However, when a soft market starts to take hold, the prioritisation of these objectives can shift, impacting overall insurance transformation spending. While the need for efficiency and improved customer experience remains constant, the appetite for large, capital-intensive projects may wane. Instead, companies may opt for a more phased approach that focuses on smaller, more manageable initiatives that deliver quick wins and demonstrable ROI.
This approach means insurance transformation spending doesn’t have to stop,” says Jack. “It’s simply a recalibration of priorities – and a more cautious approach to investment!
What impact will a soft market have on talent acquisition?
This shift in insurance transformation spending could have a direct impact on how companies approach acquiring and retaining top talent. During periods of robust growth and substantial investment in transformation, the demand for specialised skills surges. Data scientists, software engineers, cybersecurity experts and project managers with experience in insurance technologies become highly sought-after. This creates a competitive talent market, with insurers vying for the best and brightest.
However, a soft market can temper this demand. With potentially fewer large-scale projects on the horizon, the immediate need for certain specialised skills may decrease.
This can lead to a downturn in hiring,” says Jack. “Particularly for roles associated with large-scale transformation initiatives. Clients may become more selective in their hiring, but we certainly don’t expect it to halt entirely. We’re likely to see a shift in focus to essential roles, while prioritisation on internal mobility and upskilling programs become more apparent.
Naturally, a shift in hiring dynamics means a slower hiring market. Which is why we have a robust recruitment strategy in place to support our insurance clients during slower market periods. As a strategic partner to the UK insurance industry for over a decade, we are best positioned to help insurance companies optimise their talent strategies, without having to abandon them altogether.
Another impact a soft market can have on the market is talent retention. Companies must retain their key talent to ensure they’re well-positioned for eventual market rebound.
Losing experienced employees – especially those with specialised skills in areas like digital and change transformation – can create significant disadvantages when the market recovers,” says Jack. “Part of our responsibilities as a strategic partner to the insurance industry is to also develop robust retention strategies that go beyond competitive compensation and benefits packages and give critical employees the tools they need to thrive in slower market conditions.
We also spend time with our clients to focus on internal mobility and upskilling initiatives. By working closely with our clients – and knowing their employees very well (after all, we placed them!) – we’re able to identify employees with transferable skills and provide them with the necessary training and development.
This allows our clients to fill critical roles internally, reducing the need for external hiring,” says Jack. “This helps clients control costs, but also demonstrates a commitment to employee development, which naturally boosts morale and improves retention rates.
The impact of a soft market on insurance transformation spending is multifaceted. It not only affects investment decisions, but also talent acquisition and retention. While the pace of large-scale projects may slow down, the need for innovation and adaption remains constant. Companies that can prioritise their investments and strategically manage their talent will be in the best position to thrive when the market rebounds.
For more information on the UK insurance market, or to discuss your insurance transformation projects in more detail, reach out to Jack today.
Looking to start a change transformation project outside of insurance? Get in touch today.
