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Article | Executive Pay Matters

How insurers are handling cost management and pay considerations during COVID-19

Executive Compensation
COVID 19 Coronavirus

By Michael Siu , Eric Macksoud and Chris Rogers | April 27, 2020

Recent findings indicate that insurers are taking a more strategic and deliberate approach to COVID-19 people issues.

Introduction

Willis Towers Watson’s pulse surveys and ongoing client discussions indicate that insurers are continuing to employ a measured response to the COVID-19 pandemic, though circumstances are constantly evolving, both throughout the industry and within individual companies.

During the first two weeks of April, Willis Towers Watson conducted two separate COVID-19 insurance pulse surveys: the first on incentive plan changes resulting from the virus, and the second as an update to our previous pulse survey on cost management and pay considerations, which was summarized in our most recent insurance article. Seventy-eight prominent insurers responded to the first survey, and 43 responded to the second survey; the findings are detailed below for the insurance industry compared with general industry.

Insurance industry outlook

Fewer insurers anticipate a large short-term negative impact to their business compared with general industry respondents, so a “wait and see” approach to compensation and benefits is still largely in effect for the insurance industry with many planning to take more strategic and deliberate actions for expense control. However, 65% of insurers indicate the extent of the long-term impact is still unclear.

Forecast General Industry Insurance Industry
Large negative impact over next 6 months 37% 12%
Large negative impact over next 12 months 17% 5%

Insurance industry incentive plans

Insurance company management has signaled to compensation committees the need to apply discretion to modify targets or to make design changes subject to a more definitive timeline for understanding the COVID-19 impact. In many cases, discussions about potential responses have already begun, but it is far too early to discern the direction of those conversations, and very few have come to definitive decisions. Insurers that have already set incentive goals for the year and made annual equity grants in February or March are likely not to make any incentive program changes until 2021.

Annual incentive

More than half of insurers do not plan to make any changes to their annual incentive plans, and they intend to let any adverse effects on the business carry through to incentive payouts at the end of the year.

Response General Industry Insurance Industry
Annual incentive plan impacted by COVID-19 43% 38%
No design changes, though recognize significant business impact due to COVID-19, and intend to fully reflect impact in funding and outcomes 42% 51%
No projected impact 16% 11%

While insurance companies have generally not made design changes to their plans, some have determined how to adjust goals for 2020 cycles. A few have delayed goal setting, while some are planning or considering to adjust previously approved goals (68%) or widen performance ranges (56%); three-quarters are planning or considering to maintain approved goals with the intent to apply discretion at year-end.

Long-term incentive

Similarly, very few insurers have made design changes.

Response General Industry Insurance Industry
Long-term incentive plan design impacted by COVID-19 15% 12%
No design changes, though recognize significant business impact due to COVID-19, but are projected to maintain prior goals and metrics 54% 68%
No projected impact 31% 21%

Workforce reductions


Furloughs

As of April 6, no surveyed insurers have implemented mandatory furloughs, and only 12% are considering taking this action. By contrast 16% of general industry companies have implemented furloughs and 28% are planning or considering action.

Status General Industry Insurance Industry
Action taken 16% 0%
Planning or considering action 28% 12%
Neither planning nor considering action 44% 79%
Not sure 11% 9%

Leaves of absence, both voluntary and involuntary, are far less prevalent at insurers than in general industry.

From our discussions with clients, many insurers have not considered furloughs or leaves as a potential course of action. Other insurers will consider furloughs only if the crisis extends beyond the end of 2020 and are contemplating other alternatives, such as part-time furloughs (i.e., one to two days per week) or temporary leaves of absence (i.e., less than six months). In most cases, furloughed and on-leave employees would remain benefit-eligible.

Layoffs

As noted in our previous blog, insurers have resisted layoffs and workforce reductions due to COVID-19, compared with general industry where layoffs are being rolled out. Below are statistics from the second half of March and first half of April to show the trends over the past month.

Status General Industry Insurance Industry
2nd half of March 1st half of April 2nd half of March 1st half of April
Action taken 7% 13% 0% 0%
Planning or considering action 37% 35% 19% 22%
Neither planning nor considering action 40% 40% 68% 71%
Not sure 16% 11% 13% 7%

Hiring freezes

Both insurance and general industry saw significant increases in hiring freezes/reductions, the most common response by companies to mounting pressures from the pandemic.

Status General Industry Insurance Industry
2nd half of March 1st half of April 2nd half of March 1st half of April
Action taken 42% 62% 18% 42%
Planning or considering action 28% 17% 37% 21%
Neither planning nor considering action 22% 17% 29% 30%
Not sure 9% 5% 16% 7%

In addition to hiring freezes, 26% of insurers rescinded offers or delayed start dates of new hires, though anecdotally, many insurers have indicated that they are committed to offering their summer internship programs.

Reskilling the workforce

Insurers tend to prefer workforce reallocation to workforce reduction and have increased training opportunities to help employees reskill to a greater degree than general industry. This may reflect a continuing trend to reskill the workforce that began before COVID-19 to allow for greater agility and efficiency to meet changing consumer expectations, including increasing the use of data analytics to support underwriting and fraud prevention.

Status   General       Industry Insurance Industry
Action taken 15% 23%
Planning or considering action 21% 39%
Neither planning nor considering action 50% 35%
Not sure 14% 2%

For example, insurers are shifting call center and claims workers to support different lines of business, as warranted by changing needs due to the pandemic. For property and casualty insurers, passenger auto and workers compensation are experiencing fewer claims as people are driving less, while others, such as cyber and business interruption, may experience rising activity. For the life and annuity sector, a shift in claims is expected in long-term care or life and disability insurance policies. How insurers use reskilling or upskilling as a response to the challenges posed by the pandemic remains to be seen.

Listening strategy

According to our most recent survey findings, insurers appear to be ahead of general industry in surveying employees. Forty percent of insurers have conducted employee surveys (up from 9% in mid-March) versus 14% of general industry respondents. Insurers (14%) also tend of use employee focus groups more than general industry companies (8%).

In addition, based on discussions with our clients, we know that senior management are hosting all-employee virtual meetings and more frequent calls with the management team to share experiences on how to best support employees working remotely. These calls reportedly foster a more productive dialogue between senior and middle management, which in turn translates to better managerial decision making and a more engaged employee experience.

Nearly every client we have spoken to has established its own dedicated COVID-19 intranet site to communicate information to its employees. This provides a single, centralized location for employees to gather information relevant to the crisis and ultimately helps reduce inbox clutter.

Conclusion

Based on survey results and discussions, we have observed that insurers tend to be more strategic and careful in their COVID-19 response than the general industry. This likely stems from insurers being afforded the time to carefully consider the impact of how to respond to people challenges, including actively listening to employees and deliberately identifying where reskilling or upskilling can have more profound impact on the workforce. We will continue to monitor and update our clients and advise each of them on how to optimize the employee experience during this extreme crisis as well as issues related to the industry emerging from the pandemic.

Authors

Director, Talent & Rewards (New York)

Associate, Talent & Rewards (New York)

Analyst, Executive Compensation (New York)

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