Adapting to a changing workforce

The search for talent, already difficult, is growing more complicated. A holistic approach is essential to tackling the layered and interconnected risks.

Those risks can be grouped into several broad, overlapping categories: transience; globalization and demographics.

Talent is not always where it’s needed and often cannot or will not move. Workforce shortages and surpluses could squander as much as $10 trillion of global gross domestic product, according to a new report by Boston Consulting Group. Acquisition and retention of human capital is the top risk of all cited by brokers and risk managers in Asia-Pacific surveyed last year by StrategicRISK.

Companies entering new territories may find a complex web of employer regulations, taxes and social responsibility issues. Benefits, salaries and training are ways for employers to woo talent but their hands may be tied by local laws. Companies may be surprised to find the benefits employees value in one country aren’t the same as those prized in another location.

Evolving demographics are changing attitudes about work as well. Many older employees want to continue to work, but demand flexibility from employers.

Younger workers value purpose; a study by Intelligence Group found 64% of Millennials—people age 18-29—would rather make $40,000 a year at a job they love than $100,000 at a job they find boring.

Attitudes about loyalty are also in flux: a Pew Research Center survey found that 66% of Millennials thought it was very or somewhat likely they would switch careers, versus 47% of the population overall. And 58% had already switched careers, despite having fewer years in work than older respondents.

Strategies to adopt

Companies can navigate the risks of a changing workforce with a two-pronged strategy: getting a deep, up-to-the-minute understanding of the risks and taking a holistic approach to risk management, including insurance.

In order to gain a thorough understanding of risk, Zurich Insurance Group monitors 88 individual country risks through its Risk Room. The risks include such human capital issues as the difficulty companies face when employing workers in areas such as education and training; brain drain; attracting and retaining talent; pay related to productivity as opposed to labor laws or other policies; how well the working-age population is utilized; rule of law; property rights and social mobility.

Redundancy costs are one risk for companies entering new territories. “Companies that know they’ll have to pay high redundancy costs in certain countries are less likely to hire or staff up, because if they have to downsize later there will be a big financial impact,” says Daniel Radulovic, Proposition Manager at Zurich’s Risk Room.

Switzerland, Finland and Singapore are best at unlocking the economic potential of their people, according to the World Economic Forum’s Human Capital Index, unveiled last October. Thirteen of the top 20 countries, out of 122 ranked, were in Europe.

However, with the recent instability related to the financial crisis, a large number of talented people have been forced to leave some European countries to find work.

“In Europe, it’s easy to move from one country to another to look for jobs,” Mr. Radulovic says. The brain drain in countries hard-hit by the crisis has “exacerbated the situation because there is a lack of highly trained, highly competitive people that could help economic recovery.”

Meanwhile, many emerging markets have recognized the importance of human capital for economic growth. “You need to look over time at which countries are improving and making moves in the right direction,” Mr. Radulovic says. “You can see which countries already are starting to make progress.”

Industry benchmarks as a key tool

Management consultancies, insurers and other companies serving a large number of global corporations have broad knowledge of industry trends and can help organizations understand how their benefits and workplaces compare with those of competitors.

“The pattern of benefits and claims being filed helps us give organizations good recommendations,” says Paolo Marini, Global Head of Customer Management at Zurich Insurance Group’s Global Life segment. That includes having a safe work environment, support for healthy lifestyle choices such as diet and exercise, or flexible schedules.

“These things sometimes come at a great cost to the company but the benefit is very hard to measure,” Mr. Marini says. “Yet they’re very important to have in your toolbox to make sure you attract and motivate and maintain the type of workforce you want. Sometimes the interests of the employer and employee are aligned.”

Aligned interests and employee motivation can be as important as salary in winning the war for talent. People want to work for the companies they consider to be good employers.

“The real differentiator when we talk about large corporations is image and reputation. Reputation is made on these things: being a nice, safe place to work. Big differentials in salaries are hard to get unless you’re talking about a specific project or location,” Mr. Marini says. “I see so many people wanting to work for high-profile companies because of their image, even if the remuneration or benefits aren’t as generous as others.”

Importance of holistic risk approach

It’s possible to offer the kinds of benefits and workplaces that attract top talent and that address the interconnected risks without hurting the bottom line. A holistic approach to risk that combines workforce risks with other business risks can help organizations lower costs. Organizations may find they can actually offer more benefits to employees without raising costs—a win-win for employer and worker.

That is because life and workplace risks can provide valuable diversification from other categories of insurable risk “because they are generally unrelated,” Mr. Marini says. This diversification can free up risk capital, delivering a significant cost saving.

Corporations can decide which risks should be retained by self-insuring or externalized by buying a policy with an outside insurer. Many large corporations have a captive insurer, which is a subsidiary created to insure its parent company—a way companies can self-insure.

Unlike floods and fires, life risks can be modeled with some degree of accuracy because they typically involve large numbers of people. “That’s why they’re so good for offsetting much more unpredictable risks related to property or liability,” Mr. Marini says. “It makes a lot of sense for the risk profile of a captive to combine life risks and general business risks.”

Regulators have recognized the benefits of this strategy. Under Solvency II, which harmonizes insurance regulation within the European Union, captives that combine life and non-life risks will be required to hold less capital than those that don’t look at risk holistically. However, it’s still a new trend, Mr. Marini says.

A big benefit of looking holistically at life and non-life risks is that an analysis of claims can highlight problem areas. For example, a rash of claims for back pain at a site might signal that ergonomic practices aren’t being followed or that workers need better desk chairs.

A hard look at claims helps companies spot other policies that might need adjustment. One multinational corporation noticed a surge of claims by employees who had given birth in the U.S.—a very costly place—rather than in their home country or the country where they were working. A loophole in the corporate policy let them time their travel so they could get U.S. citizenship for their babies by delivering in the U.S. The company then modified its travel policy.

“I can see more of this in the future, when we will have risk engineers analyzing the nature of certain claims,” Mr. Marini says. “This claims data needs to be viewed in the broader context of the business’s operations and those of its domestic and global competitors. It is only by viewing this information holistically that can we ask the right questions to generate appropriate insights.”

The takeaways:

Good employers attract the best talent.

A holistic approach to business and people risks can benefit companies and their workers.

Analyzing claims can help companies understand how to make improvements.