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Insider in Full: Wage inflation shows us the insurance talent pipeline is broken

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Topics: Strategy Topical Trends

Since our exploration of wage inflation in the London market in February, the war for talent has continued to rage, driving increasing concerns from senior management that the salary arms race is unsustainable...

As detailed two months ago, staff costs rocketed over 2021 in both broking and underwriting, thanks to market-specific factors including the hardening market, the broking “supercycle” and start-ups looking to hire top talent.

This is against a context of rising staff costs more broadly, as several industries feel the impact of demographic and macroeconomic factors made worse by the pandemic.

CEOs are now swapping horror stories of being forced to pay salary increases of 40%-50% for new hires. They are also having to shift their remuneration models to more front-loaded arrangements in which new staff can demand sign-on bonuses on top of long-term performance-related rewards, further increasing the upfront cash-burn on a new recruit who has not yet brought in business.

At the same time, firms must put their hands in their pockets to retain staff who have had their heads turned by a compelling offer from a rival firm.

All of this comes at a time when the market is desperate to reduce its infamously high expense ratio, as it battles to remain competitive on the global stage.

The current surge in talent demand, however, is not only the product of current market forces, but symptomatic of a deeper and older problem – the London market’s notorious difficulty in building its talent pipeline.

When defence fails, offence is the only option

Firms participating in the ongoing talent war have limited options when it comes to defending themselves against rival businesses touting more money and perks.

First, they can make better offers to their own staff through higher pay awards and compelling benefits packages. Second, they can attempt to weaken the impetus for rivals to poach their staff by making it more difficult for former employees to pry their old business away with them. The threat of legal action is one (expensive and often ugly) route; better institutionalisation of business – moving client relationships out of the hands of single practitioners – is another, particularly in broking.

"The London market has long had a recruitment problem"

In reality, all of these are short-term and only partial fixes to what is a long-term issue.

The London market has long had a recruitment problem. Many participants “fell in” to a role in the market or came to it via a family or friend connection.

In fact, some participants enjoy that the market is a well-kept, quaint and lucrative secret.

Insurance is by no stretch a “destination career” in the way that, say, banking or law are, and as a result, it does not have the steady annual supply of new graduates or school-leavers that those other professions do.

This matters less outside of a major growth drive, but when every business is desperate to expand into a hardening market, that lack of pipeline becomes a serious issue – and firms are forced to compete to hire the same people, or lose out.

Part of the market’s issue is its scale. According to the London Market Group (LMG) 2020 report, around 47,000 people work in the market, a highly specialised and localised segment, whereas the largest banks or financial services firms employ easily five times that number.

This means that those businesses can individually afford to run massive recruitment campaigns and fill up their graduate programmes with thousands of young hopefuls each year.

London market businesses can neither individually afford that kind of recruitment operation – although some have implemented partnerships with schools and higher/further education institutions on a small scale – nor do they have anywhere near as many opportunities to offer.

But if the market wants to be less at the mercy of wage inflation, it has little choice but to take collective action to solve that problem. After all, if it cannot control demand for talent, it can take steps to increase the supply – which is particularly urgent in the context of the sector’s ageing population.

This is not without its complexities, the natural competitiveness of market participants being the major obstacle.

"But if the market wants to be less at the mercy of wage inflation, it has little choice but to take collective action to solve that problem"

But all companies are faced with the same pressure to continue increasing pay at a time when customers want better value products and expenses must be slashed – and all could benefit from growing the pool of talent.

The LMG, for one, is already working to improve the talent supply through its efforts to create a recognisable brand for the sector, having so far launched a website on careers in the industry and begun an advertising campaign within universities and on social media.

At the same time, it is important to recognise that the talent pool issue is not just about increasing the number of bodies; it’s also about securing the right skillsets.

If London wants to uphold its reputation as an innovative hub, it must bring in the skills companies will need to place and underwrite new risks, such as those connected to intangible assets, in a world that is increasingly digitised.

And if it is to transform itself into a slick and fully digitised trading hub for the long-term, then it also needs to recruit from outside of EC3.

When firms’ recruitment strategies are limited to hiring from rivals, they are limiting their chances to recruit candidates with the skills they need to trade in those emerging risks.

The LMG’s work and the efforts of individual companies are just the start of the journey. It is difficult to see how wholesale change can happen without some form of pooling recruitment resources across the sector to that end.

Either London businesses must overcome their aversion to working together to collectively broaden the scale and skillset of talent pool, or they must accept that tit-for-tat hiring (and the cost that comes with it) as par for the course.

And with that, the possibility of increasing irrelevance is on the horizon.


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