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Insider in Full: Talent war 2.0: Wage inflation shifts down the payscales

Recruiters are split on how far a cooling economy will impact the trajectory of wage inflation in the specialty insurance sector, with some sources pointing to particular pressure on costs for base- and mid-level pay employees...

Last year, Insurance Insider reported that the war for talent was raging in the London market, as carriers and brokers looked to hire to take advantage of a hardening market.

Industry recruiters have expressed conflicting views on how the trend has evolved, with some suggesting that competition remains high, while others point to a different pace.

One source noted that they have seen a cooling of wage inflation in the US market, and they believe the UK is set to follow.

Several also suggested that most of the wage inflation now underway tends to tilt towards base- and mid-pay employees, rather than the top earners.

Data from the Office for National Statistics backs up the view of a tapering-off, as wages across the broader economy narrowed the gap between rising financial and insurance sector wages in the most recent annual data available.

Even so, wages are higher and growing faster in the financial sector than the economy as a whole since the start of 2020.

 In the 12 months to October 2021, average weekly earnings (excluding bonuses) in the financial & insurance sector increased by 6.7% compared to the 3.7% growth across the whole economy in the same period.

But finance/insurance wage growth eased back to 4.9% in the following 12 months to October 2022, when the whole economy saw 6.5% growth in the same period.

Meanwhile, across the major brokers the cost of staff has varied, adding little clarity to the future outlook for wage costs. Whilst WTW and Aon saw a reduction as a proportion of revenues in 2022, AJ Gallagher saw a one percentage point increase, and the outcome was flat at Marsh & McLennan.

Extension to base- and mid- pay

When one thinks of the war for talent, often the talent in question is the higher paid employees – and last year as competition for talent heated up, steep wage escalation was apparent.

Last year, for example, sources told of an underwriter offered a pay increase from £90,000 to £200,000 to move to a large broker, eventually remaining at the existing employer for a salary of around £170,000.

However, as the year progressed, it seemed that sources have seen wage inflation, or indeed subsidies in current pay for employees on base to mid-level pay to help their staff in a time of financial hardship as inflation and energy costs rise.

In September, Lloyd’s awarded a £2,500 one-off payment to all staff on less than £75,000 and offered to backdate April 2023 increases to January, for example.

Meanwhile, Aviva gave £1,000 one-off payments to salaried employees being paid up to £35,000 a year, regional news sources reported, and Hastings offered staff paid under £45,000 a year immediate 5% pay rises and a £500 bonus.

In July, the Financial Times reported that Lloyd’s of London insurer Beazley offered help with the rising cost of living by giving a one-off gross payment of £3,000 for those earning up to £50,000.

High living costs have inflated baseline expectations of employees.

One recruiter told Insurance Insider that there used to be a perception that a £100,000 salary was considered a ‘good’ salary in the city. Now, they said, a salary breaching £100,000 is considered normal and can be obtained just a few years out of graduation.

“If a graduate is not hitting those numbers, there’s a problem,” they added.

The talent shortage

Challenging economic conditions are leading to more layoffs both within and outside the insurance sector, making it more likely for employees to consider moves cautiously.

For example, Reuters reported that Goldman Sachs is preparing to cut as many as 3,000 jobs, around 6.5% of its workforce, after Morgan Stanley’s layoffs of 1,600 employees in December.

Within the sector, InsurTech companies have been most prominent in this respect in the US, with Root laying off 20% of its staff in January 2022, followed by Cover.

But Richard Griffiths, Meridian Human Capital’s managing director told Insurance Insider that the industry is still experiencing an ongoing “genuine war” for employees due to both macro-economic conditions such as inflation, as well as sector-specific issues.

Another source explained that the hardening market is forcing brokers and underwriters to “just get on with it”, so despite increasing wage pressure, their hiring plans have not seen much change.

One challenging condition impacting the insurance sector is that of the aging workforce.

Insurance is not a “destination career” like, say banking or law are, meaning it does not have the steady annual supply of new graduates or school-leavers that those other professions do.

London Market Group (LMG) CEO Caroline Wagstaff said as last year’s London Market Conference that each year, the London market hires around 15,000 young people, but that there are still more 50-year-olds in the London market than 30-year-olds.

“If you’re not talking about it at your leadership events, you are sleepwalking into disaster,” she added.

Wagstaff is currently spearheading a campaign to make specialty insurance a “destination career”.

Likewise, Griffiths also noted that “swathes of baby boomers aged 58-65 are retiring on full pension funds, with good bonuses and expensive houses”.

The pandemic has also brought forward retirement dates for many employees and recruiters have said that the marketplace hasn’t hired enough people to fill all the gaps.

The ageing workforce means that firms are likely to face the eventual loss of senior level expertise as the top executives retire without replacements, and a significant skills deficit.

According to Griffiths, this has left many firms in the sector struggling to find talented employees, driving up the cost of valuable experienced talent, and creating an onward domino effect.

Companies need to market every aspect of what they can offer

Richard Griffiths, Managing Director, Meridian Human Capital

The more employees that are plucked from this finite market, the more companies are forced to join the bidding for talent, offering more compensation to new employees to hire experienced talent from a competitor firm, which is then also pulled into the hiring vortex – an employment catch-22 of sorts.

Griffiths said this problem is made worse by the number of new firms that have sprung up in the last few years and that are growing phenomenally, such as Lockton Re, BMS and Howden Group. These firms add significantly to the demand for employees, despite the continued lack of supply.

No one can confidently assert a timeline for the cooling of wage inflation, or indeed the best way to deal with the complex economic environment that has sent wage costs soaring.

Griffiths suggested, though, that employers will reach the point that they can’t continue to add to their ever-increasing wage costs. In order to resolve the issue, he said “money has to stop being the driver. Companies need to market every aspect of what they can offer,” he said.

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