Introduction
Willis Towers Watson studies and our work with clients in the insurance industry have found that, while there is some variation among product lines, insurers generally are not as immediately affected by COVID-19 as many other industries, and their reward program reactions are not as pronounced as in the broader market; however, contingency planning and return-to-work priorities are as high for insurers as for all organizations, and market valuations (for publicly traded insurers) are down significantly in 2020. In addition, pockets of companies within the insurance industry are experiencing some of the broader, immediate people and reward-related trends of the past two months (e.g., payroll cost containment).
Willis Towers Watson’s every-other-week pulse surveys have shown some consistencies between insurers and the broader market with respect to the impact of COVID-19 and also pointed to some differences (please see Executive Pay Memo: How are insurers managing compensation and benefits as COVID-19 spreads?, April 9, 2020 and How insurers are handling cost management and pay considerations during COVID-19, April 27, 2020 for more information). Our most recent pulse survey, conducted in the last week of April, covered the status of reward plans in the context of the ongoing return-to-work phase of the COVID-19 pandemic. This survey included over 500 companies, with about 50 from the insurance industry. Highlighted findings are detailed below for the insurance industry compared with the general industry.
Insurance industry outlook
In the general industry, compared with prior pulse surveys, companies have generally maintained expectations about COVID-19’s detrimental impact to their businesses within the next year. Among insurance firms, optimism has risen for the near-term time frame, with only 4% of respondents expecting a large negative impact over the next six months. Consistent with prior surveys, a significant majority of insurers indicate that the extent of the long-term impact (after two or more years) is still unclear.
One important note is that publicly traded insurers have not been immune to the significant stock market volatility and decreases of the past three months. While year-to-date total shareholder return for the overall S&P 1500 is negative 12% and the financial sector is down 31%, the S&P 1500 insurance industry subgroup is also down by 27%.
| Forecast | General industry | Trend vs prior survey | Insurance industry | Trend vs prior survey |
|---|---|---|---|---|
| Large negative impact over next 6 months | 36% | – 1% | 4% | – 8% |
| Large negative impact over next 12 months | 15% | – 2% | 4% | – 1% |
HR priorities
In the near term, a growing number of employers will begin focusing on the assessment/adjustment of reward program design, developing retention strategies for critical talent and rebalancing their Total Reward spend.
Workforce strategy and policies
Within the next three to six months, nearly all companies in both the general and insurance industries are prioritizing return-to-work policies and strategies. A majority, even more pronounced in the insurance industry, are focused on reviewing work processes and related technology.
| HR Priorities | General industry (% High priority) | Insurance industry (% High priority) |
|---|---|---|
| Return to work strategy e.g., who returns, how quickly | 76% | 87% |
| Implementation of workplace policies to enable employees to return to work safely | 78% | 87% |
| Adjustments to how work gets done including new ways of working and leveraging technology | 52% | 57% |
Reward programs
General industry and insurance industry companies differ regarding the prioritization of reward programs. General industry respondents have recognized a greater need to consider Total Rewards spending than their peers in the insurance industry, where short-term cash concerns are not as high.
| Response | General industry (% High priority) | Insurance industry (% High priority) |
|---|---|---|
| Rewards cost management strategies | 52% | 30% |
| Rebalancing total rewards spend | 43% | 28% |
Executive and director pay programs
In both the general and insurance industries, our surveys show that the majority of employers have not taken actions on adjustments to executive compensation, incentive design, severance policies or non-employee director compensation. Insurers are, however, planning for discussions about the use of discretion at year-end and for plan design modifications in the next fiscal year.
Governance and disclosures
About 25% of all employers are monitoring COVID-19-specific guidance from major investors and proxy advisors, while about 15% of publicly traded insurers have the same focus. Publicly traded insurers are slightly less focused on engaging with their shareholders to discuss COVID-19 issues.
| Shareholder engagement including discussions on COVID-19 impact on executive compensation | General industry | Insurance industry |
|---|---|---|
| Action taken | 8% | 4% |
| Planning or considering action | 34% | 22% |
| Neither planning or considering action | 23% | 17% |
| Not sure | 36% | 57% |
Director compensation
While a small handful of general industry firms have or are planning to shift director compensation from cash to equity, insurers have refrained from taking action in regard to adjusting director pay.
| Delivering more or all of director pay in the form of equity (rather than cash) | General industry | Insurance industry |
|---|---|---|
| Action taken | 3% | 0% |
| Planning or considering action | 10% | 0% |
| Neither planning or considering action | 54% | 80% |
| Not sure | 32% | 20% |
Executive compensation
As of late April, most employers (either insurers or general industry) were not planning or considering adjusting their severance policies and/or making retention awards for executives.
Broad-based salaried reward program priorities
While insurance industry companies are affected by the current business environment and future uncertainty, the magnitude of the impact has not led to drastic rollbacks in pay programs.
Merit increases and salary adjustments
Nearly 90% of employers in the insurance industry have delivered 2020 broad-based salaried workforce merit increases as planned/budgeted. In general industry, about 60% of employers have done the same. While status quo is the norm for insurers, about 30% of general industry companies are taking specific actions with respect to 2020 merit increases, and 25% are changing their normal practices around salary structures.
| Actions taken/planned | General industry | Insurance industry |
|---|---|---|
| Delivering 2020 merit increases as planned/budgeted | 61% | 87% |
| Eliminating/canceling/delaying planned 2020 merit increases | 32% | 3% |
| Freezing/delaying/reducing 2020 salary structures and adjustments | 27% | 11% |
Incentives
Firms are generally not yet taking actions with respect to long-term incentives; however, there is a focus toward planning for midyear adjustments to short-term incentives to reflect current work conditions and the business outlook. This is particularly true for the insurance industry.
| Short-term Incentives: Readjustments to work and individual performance goals | General industry | Insurance industry |
|---|---|---|
| Action taken | 4% | 2% |
| Planning or considering action | 46% | 62% |
| Neither planning nor considering action | 32% | 20% |
| Not sure | 19% | 16% |
Conclusion
Insurers are largely faring better than their general industry peers in terms of annual operating performance and the immediate impact of COVID-19. There are fewer immediate actions and reactions on the part of insurers. Insurance industry pay programs are mostly being managed as planned, while this is not as true among general industry peers; however, market valuations have hit insurers as hard as the rest of the market, and the impact of COVID-19 might be felt more over the long term. Willis Towers Watson sees the potential for impact to future long-term incentive awards if the lower market valuations are persistent; furthermore, the wait-and-see approach taken by many insurance companies may shift as the economy moves into the return-to-work phase. We will continue to monitor these developments and implications for our clients, and expect to gain additional insights into market trends in the coming months.
