What's behind insurance layoffs? –AM Best digs into key factors

Analysts note AI has opened more job roles than it has taken

What's behind insurance layoffs? –AM Best digs into key factors

Insurance News

By Jonalyn Cueto

Artificial intelligence (AI) has been a topic of discussion following recent news of batches of layoffs in the insurance industry. Many insurance giants have announced significant job cuts as part of cost-cutting measures.

In a commentary, AM Best noted AI will eventually reshape the occupations in the industry but also emphasized that while AI has increased productivity for insurers it is not the main cause of recent layoffs.

AM Best said it’s too early to say that AI is the reason behind the recent job losses in some insurance companies, describing this time to be the “nascent stage.”

Data from the US Bureau of Labor Statistics revealed the hiring rate in the insurance industry and related fields has slowed to an estimated 1,100 positions in October. This was down compared to September numbers, showing around 3,900 people were hired, as well as July numbers, showing 8,300 workers were hired by insurers and related companies.

Changes in the business cycle

“The recent layoffs would more likely fall into the cyclical, rather than the structural, category,” according to the AM Best analysts.

Cyclical unemployment means the fluctuations in employment are driven by the business cycle, whereas structural unemployment is due to the trimming down of positions following systemic changes or the adoption of technology.

Among the most affected by the current layoffs were personal lines writers, the analysts said. Loss cost inflation, reinsurance capacity and pricing, and rising climate risk are some of the factors that pressure carriers’ loss ratios and underwriting margins. Personal lines insurance also tends to be less complex, and so more receptive to automation.

Meanwhile, commercial lines require a manual underwriting process. Underwriting is time- and resource-intensive, and so a quote can take weeks to be completed and provided to most high-value accounts. AI has offered an opportunity to automate some underwriting processes, such as reviewing and analyzing customer demographics and preferences, so that human attention can be dedicated to the most complex tasks and final decision-making.

“The proliferation of AI has led to new job creation, as demand for specialized skills grows,” the analysts noted.

AI has a number of potential applications, including creating marketing content, providing customer service, and analyzing legal documents.

“Although the overall impact of generative AI on employment remains uncertain, it will likely change the way society works, as current employees learn to leverage the power of this developing technology,” the analysts said.

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