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Inside in Full: Talent drought drives wage inflation across the P&C industry

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Topics: Strategy Topical Trends

Some estimates suggest job changers are demanding up to 20% higher wages as companies scramble to fill new jobs and patch understaffed teams...

A desperate need for talent in the P&C industry is shifting the power dynamics for workers and job seekers, sending wage demands through the roof and forcing companies to rethink the perks and policies they use to lure new staff and keep their existing people.

Rising wage costs got a good deal of attention during the recent round of earnings calls, when brokers like Marsh McLennan, Aon and WTW said the major effect they were seeing from inflation was in the form of increasing compensation. But even during those conversations, the impact of skyrocketing salary demands was not made clear.

“Wages are rising faster than rate,” said Andrew Grim, national casualty practice leader at Brown & Riding, with just a touch of sarcasm. In fact, he said, as rates start to plateau, wages are rising “astronomically higher".

Particularly on the broking side, some of the disruption and inflation was set off by the impact of the abortive Aon-Willis deal, and to a much lesser degree the Marsh McLennan-JLT deal. These gave a major spur to smaller brokers looking to hire aggressively to drive growth based on the one-time opportunity.

One recruiter put wage inflation as high as 20% for senior staff moving between companies, a leap that also reflects a dearth of mid-career talent as companies seek to increase headcount in the hardening market.

That drought can be attributed partially to cutbacks in talent development in the 1990s and early 2000s, when technology and productivity advances appeared to reduce the need for entry level positions. That produced a gap of experienced workers among Gen Xers and older Millennials, or those aged between 40 and 55.

The gulf worsened as the pandemic accelerated baby boomer retirements and the wider “Great Resignation” that saw 4.3 million Americans quit their jobs in December alone emerged.

Compounding the issue, start-ups and InsurTechs offering equity options and dreams of IPO riches peeled an untold number of experienced staffers away from their prior employers.

Brown & Riding’s Grim said the consequence is that a new gulf is forming – between what companies expect to pay and what workers are demanding. He’s seen people with just one or two years in the industry asking for salaries of $100,000 to $150,000 in mid-sized cities. “That is just way above market,” he said.

One top insurer characterized this as the “hottest talent market in years", and told Inside P&C that individuals with just three or four years in the business can now command salaries upwards of $200,000 by moving firms, up from around $120,000 pre-pandemic.

Bonus guarantees that project three and – in extremely isolated instances – five years out are also on the table as insurers compete not only with each other, but with banks and other financial industry competitors in the tight labor market. Compensation at the five biggest investment banks soared 13% last year, according to The Wall Street Journal.

Pete Miller, president and CEO of the Institutes Risk & Insurance Knowledge Group, put annual wage inflation at 3%-4% across the industry. But that figure doesn’t capture the big asks from anyone with even just a few years in the business, sources said.

“There’s some pretty big numbers being thrown around right now,” said one practice leader for a major broker. “It’s always difficult to benchmark it, but we are seeing some rather startling increases and demands in compensation.”

Steven Lewis, a recruiter with Criterion Executive Search, said the trend began in early 2021. “A year ago, they were asking for significantly more and they were getting it,” he said. “And I have not seen a significant change in the last year.”

"Nobody’s going to make a move unless there’s a significant increase in their pay and flexibility,” Lewis said.

Another factor that will come up even for those who are not looking to switch jobs as the spring cycle of salary negotiations gears up is economic inflation. With the Consumer Price Index running at 7.5%, the rising cost of living will most certainly be a factor, with companies obliged to push cost of living increases higher than in the recent past.

 

Staffing up to handle growth

Compounding the problem is that insurers, brokers and others need to fill a growing number of jobs, not simply replace those who retire or exit for greener pastures.

A full 79% of P&C companies plan to increase staff this year, according to the recent Insurance Labor Market Study by The Jacobson Group and Aon’s Ward Plc.

The need is driven mainly by expected business expansion amid the hard market, though 52% of companies said they also want to fill understaffed areas. Just 24% of the positions they hope to fill are entry level.

Should the industry follow through on its plans, P&C companies will see employment figures rise by about 2.6% overall, with commercial lines firms growing 4.5% and personal lines growing 2%, the Jacobson/Aon study projected.

But given that the unemployment rate in finance and insurance was just 1.7% in January, according to the Bureau of Labor Statistics – well below the 4% nationwide – companies face a daunting task staffing up as much as they would like.

  

 

And it’s a task that will loom for years. Sean Kevelighan, CEO of the Insurance Information Institute, cited estimates that project the industry will create 400,000 to 500,000 new jobs in coming years, with 2.9 million working in the industry now.

“Insurance does have an uphill trajectory to climb,” he said.

For one underwriter who spoke with Inside P&C, the climate meant he was able to negotiate a new position where he is guaranteed the ability to work remotely, enabling him to move to a less expensive location even as he got a significant salary hike.

“I think that a lot of people are moving not only for more money, but for the lifestyle preferences as well,” the underwriter said, echoing the explanations for the broader trend of job changing across the country.

“If you’re making everybody come to the office five days a week, but the carrier across the street is allowing everyone to work from home, people will go for that.”

Indeed, sources report that some staff have moved purely for flexibility.

The industry appears to have gotten that message. Fully 89% of companies plan to offer more flexible work options, with the majority aiming for a hybrid of working some days at the office and some from home.

The Jacobson/Aon study found that 45% of companies will offer full-time remote options – Allstate notably sold its suburban Chicago campus in November, citing employee choices about working from home – while 36% will offer occasional work-from-home abilities.

Only 4% of companies are not offering more flexible work options from pre-pandemic.

“It’s really hard to argue that it’s not going to work,” Miller observed, noting the success the industry had with the sudden shift to remote work when the pandemic started. “Companies are going to have to be more flexible.”

  

 

Perks can be a differentiator

Miller noted that most people don’t leave a job for higher wages alone. "It forces companies to really be intentional,” he said.

Beyond salaries and flexibility about work locations and hours, he said educational benefits like tuition reimbursement and training programs, along with improved employee assistance programs (EAP) can boost recruitment and make a dent in attrition.

With that in mind, some companies are exploring other perks that can make a difference in recruitment and retention.

“It’s how you adapt and how you rise to the occasion that’s going to make or break your efforts,” agreed James Jiloty, director of team resources at Brown & Brown Insurance. He said making the effort to “get good at teammate retention” is the most effective solution.

As an example, he pointed to Brown & Brown’s education assistance program, which offers not only tuition reimbursement and a scholarship program for employees’ children, but also student loan repayment. For employees with at least one year with the company, he said, Brown & Brown will pick up $125 student loan payments each month for three years.

“It’s something we jumped on board with early, before the rest of the market,” Jiloty said. “It is certainly something we bring to the front of the conversation when we’re out recruiting.”

Another speed bump to hiring is the fact that so many people have changed jobs in recent years, “essentially taking them off the market”, said Greg Jacobson, CEO of recruiting firm The Jacobson Group, who conducted the study with Aon’s Ward.

“It’s really kind of stunning,” Jacobson said. “What we’re finding is, there’s not as many people who are open to opportunities as there were a year ago. And there’s more opportunities than there were a year ago.”

“We are having to devote many more resources for every search that we’re working on,” he added, “because we’re having to call twice as many people as we have in the past.”

 

Inside P&C provides unparalleled market intelligence on the entire US P&C market – from small commercial and personal lines right through to reinsurance and Bermuda. Redeem your complimentary 14-day trial for more premium content from Inside P&C. 

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