The Capacity Problem Hiding Behind the Talent Shortage

From a people problem to a capacity constraint

Once the problem is understood as a loss of capability rather than a shortage of bodies, its consequences look different. An empty desk is not a neutral state that costs a salary in lost productivity until it is filled. It is an active drain on the business.

Every unfilled specialist role redistributes its work onto colleagues who are already at capacity. Those colleagues absorb overtime, defer their own development, and edge closer to the burnout that drives the next resignation. Service levels slip. Turnaround times lengthen. The client experience degrades in ways that are difficult to measure until a renewal is lost. Recruitment fees mount, and hiring windows for specialist roles often stretch over several months, meaning each vacancy can compound before it closes.

This is why workforce pressure has stopped being a matter for the human resources function alone and has become a question of operational resilience. As one industry analysis of the Gallagher Bassett findings put it, the combination of harder-to-fill roles and rising claims complexity means workforce pressure is now a direct driver of cost, not just a people issue. When capacity cannot meet demand, the business is constrained in what it can underwrite, service, and grow. The talent shortage has become a ceiling on the business itself.

The instinctive responses, and their limits

Faced with this, the market is responding in ways that are sensible but insufficient on their own.

The first response is to pay more. Yet the research shows UK insurers increasingly favour investment in training and development over simply raising wages, with around sixty per cent now adopting a grow your own approach. This is a wise long-term instinct. It is also slow, and it does nothing for the capacity gap that exists today. Growing your own expertise takes years the business may not have.

The second response is to invest in technology, and artificial intelligence in particular, in the hope that automation will close the gap. Seventy-three per cent of UK insurers now use generative AI in claims resolution. But the evidence does not support the idea that AI removes the need for skilled people. AI changes the nature of the work. It does not remove the need for human judgment, and in claims, where a decision carries real consequence for a real policyholder, the principle that a human remains accountable for the outcome is not negotiable. AI takes tasks. It does not take the expertise that decides which tasks matter.

Both responses are correct. Neither, on its own, addresses the immediate reality that the work needs to be done now, by people who are qualified to do it, and there are not enough of them within reach.

The question worth asking

If the problem is structural, the answer must be structural too. And the most useful shift a leadership team can make is to stop asking a question about hiring and start asking a question about workforce design.

The instinctive question is: how do we fill these roles from the local market? The more productive question is: where, in the world, does the capability we need actually exist, and how do we build a workforce that can reach it?

This is not wordplay. It changes the decision a leadership team has to make. A business that limits its talent search to its own city or country is fishing in a single, shrinking pond, in direct competition with every other firm fishing in the same one. A business that designs its workforce to draw on capability wherever it exists is operating from a fundamentally larger pool, and is building capacity ahead of demand rather than scrambling to react when a gap appears.

This is the logic that has led a growing number of insurers, brokers, and managing general agents in Australia, the United States, and increasingly the United Kingdom to build what is best described as parallel capability: skilled teams, operating to the firm’s own standards and under the firm’s own governance, based in a different geography. It is worth being precise about what this is and is not, because the distinction is the whole point.

The better model is not simply to move work elsewhere, but to build dedicated teams that operate within the firm’s own processes, standards, and governance.

Traditional outsourcing hands work to a third party and accepts their way of doing it. Parallel capability is different. The team follows the firm’s procedures, sits within its governance framework, is held to its performance standards, and becomes an extension of the business rather than a vendor to it. Done well, this expands capacity without compromising quality or control. Done poorly, treated as a cost-cutting exercise rather than a capability strategy, it does the opposite, and the market has seen enough examples of both to know the difference.

What this asks of leadership

Recognising the workforce problem as structural does not, by itself, solve it. But it changes what a leadership team does next. Four practical steps follow from it.

Audit where capability loss hurts most. Not every vacant role carries the same risk. Rank the gaps by the cost to the business when the expertise is missing, not merely by how urgently the seat needs filling. The roles that quietly carry the most institutional knowledge are the ones to protect first.

Diversify where capability comes from. A single talent source is a single point of failure. The most resilient firms are matching the source to the need: local hiring for the senior, client-facing, and regulated roles where proximity matters, and a wider geographic pool for the specialist and operational capacity that does not depend on a postcode.

Fix the bottleneck after the hire, not before it. The research is clear that ramp-up time is where stretched teams lose the most ground. Structured onboarding, proper documentation, and a deliberate transfer of knowledge shorten the time to productivity dramatically. The constraint is rarely finding a capable person. It is getting them to full contribution before the pressure forces a shortcut.

Plan the workforce on a rolling horizon. Reactive hiring is the most expensive habit in the market. The firms that will hold their advantage are building a workforce forecast that looks three to six months ahead, so that capacity is built before the gap opens, not after.

The decade ahead

The talent shortage is not a cycle that will pass if firms wait it out. It is a structural shift in the supply of insurance expertise, driven by demographics, by the declining appeal of the sector to new entrants, and by the rising complexity of the work itself. Waiting is not a strategy. The firms that treat this as a temporary hiring difficulty will spend the next decade reacting to it. The firms that treat it as a permanent change in how a workforce must be designed will build the capacity to outperform while their competitors are still posting vacancies and hoping.

The London Market has always distinguished itself by the depth of expertise it commands. Protecting and extending that expertise, in an era when it is harder than ever to recruit and easier than ever to lose, is now among the defining leadership tasks of the market. The question is not whether to act. It is whether to design the workforce deliberately, or to let the shortage design it for you.