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Article | Executive Pay Memo North America

How are insurers managing compensation and benefits as COVID-19 spreads?

Executive Compensation
COVID 19 Coronavirus

By Steve Hinden , Bryan Ortwein , Max Fogle and Chris Rogers | April 9, 2020

Our recent survey, supported by client interviews, indicates that insurers are taking a measured approach to changing compensation and benefits as COVID-19 reshapes the work world.

The COVID-19 pandemic is still in its early stages in the United States, and events are extremely fluid, but so far insurance companies are not making significant changes to compensation and benefits, Willis Towers Watson discussions with insurance industry clients found. In fact, insurers are holding steady despite market headwinds that include legislation and lawsuits to determine business continuity liability, an indefinite and extended low-interest rate environment, and negative returns for their investment portfolios. Fortunately, most insurers started 2020 in a better capital position than prior to the recession in 2008-2009, and the long-term financial prognosis remains solid.

To understand how our insurance industry clients are thinking about their Total Rewards programs, Willis Towers Watson conducted a pulse survey, and received 69 responses from leading insurers, as summarized below.


A measured response

Insurance companies are largely taking a “wait and see” approach to how they manage compensation and benefits during the unfolding COVID-19 pandemic and related market stress, unlike certain industries facing significant and immediate revenue disruption such as airlines, travel and hospitality. This approach is understandable, given the uncertainty associated with the crisis, how long it may last, and how profound its effect on the economy and insurance industry may be.

The uncertainty is already apparent. Those in the insurance industry expecting a moderate to large negative impact over the next six to 12 months rose to 55% and 44% respectively in late March from 47% and 32% in mid-March.

We expect most insurers will feel compelled to adjust their HR programs at some point, once greater clarity on the crisis is available or as time renders existing incentive plan programs (especially those with performance conditions) increasingly unachievable.

Stay tuned—below are a few detailed findings from Willis Towers Watson’s pulse survey of insurance industry clients, taken in late March. We plan to keep this updated over time.

Hiring/Restructuring

Fifty-five percent of surveyed companies have taken, plan or are considering action in hiring/restructuring: 18% of responding organizations report freezing or reducing hiring; 9% plan on it; and 28% are considering it (Figure 1). This is significantly less than the full sample covering general industry, where 70% have taken or are planning or considering action, and of those, 42% have already frozen or reduced hiring.

The good news is that insurance companies have not yet laid off employees. However, a number of companies are planning layoffs (4%), or are considering action (15%). Again, this is significantly less than general industry, where 7% have already taken action, and another 37% are planning or considering layoffs.

Action Status General industry Insurance industry
Reduce/Freeze hiring Action taken 42% 18%
Planning action 10% 9%
Considering action 18% 28%
Layoffs Action taken 7% 0%
Planning action 9% 4%
Considering action 28% 15%

Figure 1. HR actions taken, planned or considered

Pay

Insurers are not yet reporting significant pay actions relative to other industries. Only 10% of insurers have, are planning to, or are considering reduced or delayed merit increases, compared to 34% for general industry (Figure 2).

Ten percent of insurers have, plan or are considering implementing a salary freeze, compared to 30% for general industry. Just 4% of insurers are considering salary reductions (none have implemented or planned such actions), compared to 16% of general industry (and another 5% of general industry have implemented or planned salary reductions).

Action Status General industry Insurance industry
Reduced/Delayed merit Action taken 12% 2%
Planning action 5% 2%
Considering action 17% 6%
Salary freeze Action taken 8% 1%
Planning action 3% 0%
Considering action 19% 0%
Salary reduction Action taken 2% 0%
Planning action 3% 0%
Considering action 16% 4%

Figure 2. Pay actions taken, planned or considered

Alternative Work Arrangements

Like pay, most insurance companies surveyed are not planning or considering alternative work arrangements at a reduced pay (e.g., shortened work week or extra PTO for 2021). Similarly, most surveyed insurance companies are not planning or considering voluntary/involuntary leaves of absence. While this is true for general industry, more companies outside of the insurance industry have been taking or considering such actions. As the crisis progresses, if revenue or cash flow become more of an issue, insurers might also make similar decisions.

Communications

Employers have stepped up communications around pay and benefits but have been slower to adjust their listening strategy.

Sixty-eight percent of the surveyed insurance companies have increased communication to employees about their benefits, and 25% have increased communication to employees about their pay. Even so, insurance companies slightly lag general industry, which is understandable given the more aggressive actions being taken in general industry noted above.

Pay Premium Considerations

Sixty-two percent of insurance companies are providing, planning or considering subsidies to manage costs associated with working remotely, compared to 39% of general industry (Figure 3). Additionally, 43% of insurance companies have implemented, or are planning or considering pay premiums for employees that must be physically present, roughly aligned with general industry. And 52% have provided, or are planning or considering additional compensation or retention awards for mission-critical/essential employees during the pandemic, more than the 42% for general industry.

Action Status General industry Insurance industry
Subsidies to manage remote work costs Action taken 16% 17%
Planning action 5% 10%
Considering action 18% 35%
Pay premiums for employees who must be present Action taken 8% 3%
Planning action 8% 12%
Considering action 23% 28%
Additional compensation for essential employees Action taken 8% 4%
Planning action 8% 7%
Considering action 26% 41%

Figure 3. Pay premium taken, planned or considered

The remaining sections identify specific areas of insurance: Property and Casualty (P&C) and Life and Annuity (L&A).

Hourly Pay

P&C insurers are the most likely to continue to pay hourly employees with confirmed cases of COVID-19. Of the 31 P&C companies surveyed, 84% confirmed that they will pay hourly employees that have confirmed cases of COVID-19. Seventy-nine percent of companies indicated that they would continue to pay hourly employees if their work location experiences a mandated closure.

L&A insurers responded similarly. Of the 27 L&A companies surveyed, 81% confirmed that they will pay hourly employees that have confirmed cases of COVID-19 (Figure 4). Eighty-one percent also confirmed that they would continue to pay hourly employees if their work location experiences a mandated closure. Both results outpaced general industry, which had 72% and 54% favorable responses to those questions.

Action General P&C L&A
Pay employees with confirmed COVID-19 case 72% 84% 81%
Pay employees who cannot work because of mandated closures 54% 79% 81%

Figure 4. Compensation for hourly pay employees

Remaining Home

Many individuals have been required to remain home involuntarily, but their work does not lend itself to work from home. In response, 61% of P&C companies plan to cover 100% of pay without drawing from paid time off (PTO), with just 13% providing either unpaid leave or requiring PTO to be exhausted. For L&A insurers, 33% plan to cover 100% without drawing from PTO, with only 4% providing unpaid leave. This compares with general industry results of 39% providing 100% of pay without drawing from PTO, and 30% providing either unpaid leave, or requiring PTO to be drawn.

Action General P&C L&A
Cover 100% of pay without exhausting PTO 39% 61% 33%
Unpaid leave or exhaust PTO 30% 13% 4%

Figure 5. Pay strategies for those who can’t work from home

Next steps

By and large, the insurance industry is taking a wait-and-see approach to COVID-19’s impact, as day-to-day business has not seen the operational and revenue impacts that other sectors (e.g., travel and leisure, and retail) have experienced already. Even so, insurers are beginning to take or consider actions in critical pay and rewards programs as they assess the impact on their employees who have already experienced significant professional and social disruption and stress. We expect to see more action as the crisis evolves, particularly as the scale and scope of the impact becomes clearer. Willis Towers Watson advises companies to use their reward strategy, philosophy and/or guiding principles as a foundation for considering actions that continue to foster the key messages delivered through these core human resources programs.

Authors

Senior Director, Executive Compensation (Stamford)

Senior Director, Executive Compensation (Brookfield)

Associate Director, Executive Compensation (New York)

Associate, Executive Compensation (New York)

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