Following episode five of #TIATalks, where innovation, agility, and leadership in the insurance industry took center stage, Mitesh Lakha continues the conversation with his article, “Human Capital Risk: The Latent Risk to Strategy – Practical Insights.” Building on the podcast’s themes, Mitesh delves into the critical role of human capital in sustaining growth, profitability, and resilience in a rapidly evolving industry. From skills mismatches to succession planning, he provides actionable strategies to address human capital risks as a core element of organizational strategy – ensuring that businesses remain competitive in an increasingly complex landscape.
Human capital risk: the latent risk to strategy – practical insights
Market supply-side volatility, regulatory changes, and technological disruption makes for a complex risk landscape in the South African insurance industry. In an industry where businesses are fundamentally reliant on expertise, trust, and relationships; failing to effectively address human capital risk can undermine growth, profitability, and ultimately… the sustainability of the industry.
Understanding human capital risk
A framework to understanding the ‘lay of the land’ within an organisation includes getting an understanding of talent shortages, skills mismatches, employee turnover, leadership gaps, key person risk and workforce (dis)engagement. This would include being able to quantitatively and qualitatively quantify these ‘exposures’ as well as having risk indicators in place, respectively. One may argue that these risks are particularly pronounced in the insurance industry where there is a reliance on specialised skills and regulatory-informed skills in certain business areas.
South Africa’s socioeconomic dynamics, including a skills gap exacerbated by historical inequalities, an aging workforce in critical roles, as well as competition for talent from other industries / countries further amplifies this. The talent equation is further complicated by evolving technical resources required from the rise of fintech / insurtech and well as skills required from emerging risks such as cyber risks.
Human capital risk strategies
The following strategies can provide a roadmap in identifying, understanding, managing and mitigating such risks:
Investing in cross-skilling, re-skilling and up-skilling; enhancing and ensuring more robust succession planning; fostering employee engagement; a genuine commitment to meaningful transformation – as a strategic imperative; as well as adapting to hybrid work models.
The way forward
Scrambling for a transfer of knowledge in an employees notice period is wishful thinking. Succession planning and business continuity planning needs to be executed on a pro-active basis, with deliberate and intentional steps. Human Capital Risk needs to be elevated on risk registers and be seen for what it truly is – a risk to strategy / strategic risk. Diluting it to anything less than this is at the peril of the business. The organisations that will succeed in this regard are those that classify people as their competitive advantage, juxtaposed to their product, processes or systems. A Chinese proverb states – the best time to plant a tree was 20 years ago, the second best time is now – the same can be said for the governance and risk management required around human capital risk. Boards and Exco’s must champion a people-centric strategy that aligns its workforce (as a strategic asset) with broader business objectives.
Food for thought
In the absence of value, price wins the deal, and in the absence of price, relationships seal the deal. There are three thoughts that emanate from this conjecture:
1. Business resilience and value needs to outtrump the names and faces i.e. are the values, mission and purpose of the organisation strong enough that regardless of the faces on the company website, the value of the product / service outlives the latter?
2. The same amount of time that gets spent on identifying and quantifying concentration risks within an organisation, needs to be spent on identifying key person risks and de-risking this.
3. The industry’s competitiveness and resilience comes into question if there is a belief that a business development resource that leaves one organisation for another is then able to take the goodwill of brokers / suppliers along with them.
The increasing trend in the retention of retired leaders / specialists / Key Individuals as consultants and contractors’ signals that there may be room for improvement in business continuity, planning and succession, as well as knowledge transfer, at least more naturally and organically within the core operations of an organisation. In the absence of this, the industry is exposed to the risk of becoming a haven for silver foxes.