Demographic Analysis of the P&C Insurance Industry in Canada

February 2018    |    13 minute read    |    By Margaret Parent

The Institute has been pleased to conduct demographic research, for the benefit of the industry, since 2007. We hope you are familiar with our previous reports that have provided valuable insight to the industry; please visit: www.insuranceinstitute.ca/research.

Significant changes have taken place in the general labour force in Canada, to date and are projected going forward. It is timely to replicate the demographic research study, to assess the changes that have taken place in the industry’s workforce in the past five to 10 years and that are anticipated going forward over the next five to 10 years.

The Institute is pleased to have contracted with the Conference Board of Canada for this 2017/18 demographic research, specifically to conduct four phases of data collection, to research changing workforce issues, and to benchmark the industry’s workforce compared to other sectors and Census Canada data. The Conference Board brings extensive experience working in our industry and tremendous knowledge about talent management issues. With their insight and the industry’s participation, we anticipate providing the industry with a wealth of valuable information to help the industry implement strategic talent management initiatives.

The four phases of the 2017 data collection have been completed – surveys of HR representatives, employees and executives, plus a census of the industry – between April and December 2017.

Analysis of the data is underway, including comparisons to the previous studies in 2007 and 2012.

As we wait for the 2017/18 reports to be published in September 2018, let’s revisit the 2007/08 Executive Brief and its ten key findings, a decade later:
1. Imbalances need balancing.
2. Incoming will not replace the outgoing.
3. Retirement projections will impact significantly.
4. Leadership void looms.
5. Key roles at risk.
6. Key sector at risk.
7. Targeted recruitment required.
8. Retention needs greater attention.
9. Re-invention rather than retirement may be a solution.
10. Systematic action required.

1. Imbalances need balancing.

Demographically speaking, if a population – like the industry’s, or an organization’s, workforce –is imbalanced in terms of age or gender, for example, it may need specific attention.

AGE

Not surprisingly, the age of the industry’s workforce – and its ability to attract youth (namely millennials) into the industry – has been a constant concern over the decade.

Preliminary findings from the 2017 demographic research census are demonstrating that a significant shift has taken place since 2007:
In 2007, the biggest cohort of employees in the industry was ‘Baby Boomers.’
Now in 2017, the biggest cohort of employees in the industry is ‘Millennials.’

More specifically:
In 2007, the industry was out of step with the general labour market in Canada with too many Boomers and not enough Millennials:
o Boomers in 2007 were between 41 and 60 years old and represented 49% (1/2) of the workforce.
o Millennials in 2007 were aged 27 and under and represented 12% of the industry’s workforce.

In 2012, five years later, the industry had done a good job of recruiting Millennials to a more representative proportion in the industry and of the general labour market:
o Millennials then aged 17 to 32 increased to 27%
o Boomers then aged 46 to 65 decreased to 37%
o And important to note: the average retirement age in the industry in 2012 was 60.

In 2017, now five years later still, Millennials (now aged 22 to 37) are the largest cohort in Canada’s general labour market and at 38% are the largest cohort in the p&c insurance industry. With the average retirement age for the industry holding at 60, Boomers’ (now aged 51 to 70) are steadily retiring and their share of the p&c insurance industry’s workforce is shrinking; Boomer share fell to 28% in 2017.

GENDER

Women account for an above average share of the industry’s workforce – with a slight increase from 60.8 per cent in 2007 to 62.4 per cent in 2017. In comparison, that’s a higher share than the average share of women in Canada’s labour market, and more of an increase, than the small uptick from 47.3 per cent to 47.7 per cent over the same period. Too much dependence on anyone gender may be a problem depending on participation rates, tenure, retirement ages, and in terms of increased competition for workers.

2. Incoming will not replace the outgoing.

One way to gauge the industry’s ability to replace retiring workers is to examine its entry-to-exit ratio. The standard demographic research measure for exit-to-entry ratio is to compare the number of employees under age 25 (labour force entrants) to the number of employees 55 or older (those most likely to leave the labour force through retirement). In both 2007 and 2012, for every 10 employees 55 and over, the industry had only recruited 4 employees under the age of 25. The fact that these measures stayed consistent over that five year time period suggested that (a) the industry had not seen the level of retirements original projected, due to the economic downturn around 2010 and (b) had managed to recruit youth into the industry to at least a level consistent with the retirements in the industry then.

The exit-to-entry ratio in 2017 has decreased still: for every 10 employees 55 and over who are eligible to retire, the industry is only recruiting 3 employees under the age of 25.

While the industry’s declining entry-to-exit ratio is far from positive news, it does remain in line with comparator industries, including professional services and finance, insurance, and real estate. (See Chart 9.)

Chart 9: Entry-to-Exit Ratios Remain in Line with Comparator Industries
ratio of those aged 15 to 24 to those aged 55+ by industry, 2017


*data through November 2017
Source: The Conference Board of Canada; Statistics Canada.

What is imperfect about this standard measure is that in general, the industry does not hire a lot of employees under the age of 25; the average age of new entrants is older than 25 (on average between 24 to 28).

A better measure would be to evaluate the ratio of employees under the age of 30 to employees who are 55 or older (this latter measure is still very relevant given the industry’s median retirement age is still young; see #3 below). Based on this analysis, the industry in 2007, for example, employed 16 workers under the age of 30 for every 10 employees aged 55 or older. Since then, however, the industry has seen this entry-to-exit ratio decrease considerably. Currently, the industry’s ratio is the minimal standard of 1:1 – for every 10 workers under 30 that have been recruited there are 10 employees aged 55 or older who could retire. (See Chart 8.)

Chart 8: Not Enough Labour Force Entrants to Offset Expected Outflow of Workers
ratio of those aged <30 to those aged 55+


Source: The Conference Board of Canada.

3. Retirement projections will impact significantly.

In 2007, the media retirement age in the industry was 59.5. In 2017, the media retirement age increased to 61.3. Workers in the p&c insurance industry are still retiring at much younger ages than their counterparts in the rest of the Canadian workforce – which increased from 61.6 to 63.6.

In terms of impact of retirements on the workforce, it was projected in 2007 that 25 per cent of the then workforce would be eligible to retire by 2017. In 2017, the impact of projected retirements is expected to be 27 per cent of the industry’s current workforce by 2027.

Further analysis on retirements realized over the past decade and anticipated over the next decade is still in progress. The final reports will have greater detail.

4. Leadership void looms.

The management occupations are most exposed to retirements. In 2007, 40% of those in management roles were eligible to retire before 2017. Now in 2017, 36% of those in management roles are eligible to retire before 2027. Existing middle and front line managers need to be targeted for moving up. Non-managers need to be targeted to move in. Noticeable gaps in experience and talent are being identified by HR and executives.

One of the additions to the 2017 survey of HR representatives was a question about the most important HR issues facing P&C insurance organizations. Given the high retirements anticipated in the management cadre, it is likely not surprising that the number one issue raised by HR was leadership and management, followed closely by employee engagement and succession planning.

5. Key roles at risk.

In 2007, the research justified the industry’s concerns about recruitment, retention and succession planning in the broker and adjuster communities and projected high losses among the most experienced groups. In 2017, these same concerns continue and are augmented by concerns for the information technology, underwriting, risk management and management occupations – more than a quarter (25 per cent) of each these workforces is between the ages of 51 and 70 (boomer cohort). What adds to the concern is that specific jobs within these occupations, including data analytics for IT, and specialty and commercial underwriters, were identified by HR professionals as positions that are difficult and urgent to recruitment, currently and for future requirements.

6. Key sector at risk.

In 2007, and still in 2017, there is a ‘demographic divide’ between the Crown Corporation sector and the private sector within the p&c insurance industry. Over the decade of research, the workforce of the crown corporations has the highest median tenures, lowest median retirement age, and the highest retirement projections. Independent brokerages, adjusting firms, and reinsurance organizations are also most exposed to the impact of an ageing workforce.

7. Targeted recruitment required.

Future recruitment will continue to be critical for the industry. Crown corporations and independent adjusting firms have weak replacement prospects – for every 100 employees over the age of 55, they currently employ only 73 workers under the age of 30. For other industry organization types, there are 103 workers under the age of than 30 for every 100 workers over 55. For organizations in growth mode, replacement at 1:1 may not be sufficient to meet the organization’s needs.

For organizations advancing their technology and innovation, there is much anticipation that many support roles may be eliminated by automation; therefore a replacement rate of 1:1 may not be necessary going forward. At the same time, there will be jobs created due to emerging technologies and new product offerings within the industry. Such jobs could fall within existing occupational categories, or could require skills that are not yet fully understood.

The results of the 2017/18 demographic research study’s survey of industry executives will have more to report on this, as data is further analyzed by Conference Board of Canada.

8. Retention needs greater attention.

When published, the 2017/18 demographic research report will have important data on employee tenure and industry turnover rates – key retention indicators. Preliminary findings indicate that employee tenures are becoming shorter, particularly amongst men.

Chart 19: Employee Tenures are Becoming Shorter, Particularly Amongst Men
median tenure with current employer by gender, years


Source: The Conference Board of Canada.

Over one third of employees within the industry have 10 or more years of experience with their current employer – higher than the general labour market in Canada, but slightly below the broad finance, insurance and real estate sector. On the other hand, roughly one in seven workers in the P&C insurance industry have one or fewer years of experience with their current employer, compared to one in five in other industries.

Chart 20: Industry’s Tenure Profile Comparable to That of the Broader Labour Force
share of employment by years of tenure, per cent


Source: The Conference Board of Canada; Statistics Canada.

When it comes to turnover within the industry, voluntary turnover rates are just below those seen in the broader sector – 6.5 per cent vs 7.0 per cent – and involuntary turnover is slightly higher – 4.0 per cent vs 3.5 per cent. This is in keeping with the overall finance, insurance and real estate sector, both having a combined voluntary and involuntary turnover rate of 10.5 per cent – a rate that is below the average for all industries.

Chart 36: Industry Turnover Rates Comparable Within Greater Finance, Insurance, and Real Estate Sector
turnover rates by industry, per cent


Source: The Conference Board of Canada.

9. Re-invention rather than retirement may be a solution.

In the 2007 research report, it was projected that 25 per cent of the then workforce of the industry would be eligible to retire by 2017. The report projected that the boomer cohort, ranging in age from 51 to 70 in 2017, would be significantly reduced with 60 percent retiring by age 60 and 80 per cent retiring by age 65. The report questioned whether the industry can let its most experienced workers simply leave? The aging of the industry’s workforce called for human resource management policies that would facilitate the “re-invention of the mature worker.”

Full analysis of the 2017/18 research study is still in progress. When complete, the report will assess the 2007 projection against 2017 retirement data, and project the impact of industry retirements going forward to 2027.

10. Systematic action required.

In 2007, the report projected continued growth of the industry’s products and workforce. It recommended the need for greater attention and broader strategic efforts for the recruitment and retention of workers and, for industry-wide and company specific systemic work force planning.

A decade later, there is still anticipated growth for the industry, but some question about the overall growth of the industry’s workforce. Technology and innovation are anticipated to impact the industry’s workforce – some roles will be phased out, most roles will make better use of technology which may or may not require different or advanced skills sets, and other roles will be created due to technology and innovation.

Fortunately, there has been a significant shift to more strategic work force planning and talent management in most organizations across the industry. Industry-wide, the work of Career Connections and the full-time college programs at 14 institutions across the country, are working to provide a pipeline of candidates interested in careers in insurance.

The last word (for now)

The Insurance Institute started conducting a demographic analysis of the industry’s workforce a decade ago because human capital issues were critical concerns for the industry – issues such as recruitment, retention, management succession planning, and learning and development.

Our goals were (and still are):
– to provide the industry with valuable information that industry employers could use
    • to benchmark their own organization against the industry,     
    • to develop appropriate human resources strategies, and
    • to implement talent management initiatives.
– to provide insights to the Institute’s Career Connections program in its industry-wide promotional campaign to promote careers in industry, increasing the pool of potential candidates interested in a career in insurance; and
– to influence the program offerings of the Institute, so as to meet the education and training needs of the industry’s workforce.

With this 2017/18 study, we have additional goals:
– to understand how the skill requirements of the P&C insurance industry’s workforce are changing; and
– to gain perspective on the expected impact emerging trends may have on the future workforce of the industry – trends in technology, innovation, consolidation and commoditization, for example.

Talent and technology are two key issues keeping leaders in the industry awake at night. The research is intended to provide insight and recommendations to the industry.