Why are insurance companies laying off people?
Several insurance giants have announced significant job cuts as part of cost-cutting measures. Prudential Financial trimmed 243 executive roles earlier this month, while insurtech Hippo laid off 20% of its workforce in a bid to “drive efficiency.”
About 20 different companies reduced staff throughout the year as insurers looked to refocus their businesses or decelerate cash burn. Companies cited a variety of reasons for laying off staff, including restructuring in the case of some of the larger reductions initiated by more established insurers.
Financial issues are a common reason for layoffs. If a company isn't performing well financially, a simple short-term solution is to save on payroll and benefit costs by eliminating members of teams. This immediately reduces costs and can infuse the cash into areas of the business that need it.
The rising cost of claims based on labor, materials, and other factors can make it challenging to offer attractive pricing to customers. But aside from that, the rise of price-based competition has only increased alongside the internet, which has given insurance organizations a wider reach.
Common reasons for canceling a policy include excessive claims, a DUI conviction or nonpayment of premiums. You're more likely to be dropped after a claim or face non-renewal if you're a high-risk driver.
People are leaving the insurance industry
The hiring pool is limited for entry-level and experienced talent, with 65% of people leaving an insurance job also exiting the industry. The leading reason why employees quit is a need for more career development and advancement.
- Compliance changes. ...
- Cybersecurity threats. ...
- Technology changes. ...
- Climate change & other environmental factors. ...
- Talent shortage. ...
- Financial risks.
Some companies are seeking to cut costs amid the rise in interest rates, while others are shedding workers after a hiring binge during the pandemic. Other businesses are refocusing to invest in artificial intelligence, which has prompted job cuts in some of their non-AI business units.
As we sail through the storm of 2024's financial challenges, many companies are unfortunately having to let go of workers. We've highlighted the main reasons behind these layoffs, such as over-hiring, cost-cutting, and the rise of technology like AI.
Seniority-Based Selection
The last employees to be hired become the first people to be let go. This makes sense logically. If they were recently hired, they probably haven't become as strong of organizational assets yet.
Why are insurance companies losing money?
Insurers are pulling out of California because of wildfire risks. On March 20, State Farm said it would not renew 72,000 home insurance policies in California, representing just over 2% of the company's policies in the state. The company cited “inflation, catastrophe exposure [and] reinsurance costs” among the reasons.
Bankruptcy of Executive Life Insurance Company
Executive Life Insurance Company is regarded to be the biggest bankruptcy of an insurance company in the United States in the course of recent years. Based in California, the life company had to file for bankruptcy in 1991 following disastrous investments in junk bonds.
The industry says it has become too expensive to operate in California, blaming the high cost of rebuilding, growing risk from natural disasters and increasing expenses from buying “reinsurance,” or insurance for their losses, which state law prohibits them from passing onto customers.
GEICO eliminated 2,000 positions and Liberty Mutual cut 850 jobs. From big brands to insuretechs like Hippo that laid off roughly 20% of its employees, the cuts are undeniable. CEOs cite several drivers behind their decisions, from restructuring to improving efficiency to automation to re-evaluating product offerings.
Common reasons for nonrenewal of home insurance include a history of frequent claims, failure to maintain the property, living in a high-risk area prone to natural disasters, changes in underwriting guidelines or risk assessment by the insurance company and failure to pay premiums on time.
State Farm will discontinue coverage for 72,000 houses and apartments in California starting this summer, the insurance giant said this week, nine months after announcing it would not issue new home policies in the state.
While it is not common, insurance companies can and do go insolvent. Policyholders can take steps to protect themselves by purchasing insurance from financially stable companies and regularly reviewing their policies.
One of the primary reasons insurance agents can accumulate wealth is their commission-based income structure. Unlike salaried employees, agents earn a percentage of the premiums they sell to clients. As they build a client base and generate more sales, their income potential increases.
Insurance agents succeed when they prioritize their customers' needs over their own profits. The most commonly cited reason insurance agents fail is that they fail to listen to their customers and take the time to find the best product to suit their needs.
Legitimate Denials
People have successfully fooled insurance companies into paying out for false injuries, so these insurers are often paranoid about paying out for a false claim.
What's wrong with the insurance industry?
The business of insurance, which once was stable and predictable, isn't that way anymore. Growth without sacrificing profitability is challenging, climate change is irrevocably impacting certain risk profiles, distribution needs have become truly omnichannel and customers expect products tailored just for them.
Our forecast for 2024 is decidedly more favorable than 2023, with expected strong premium growth and easing inflation pressures. We raise our premium growth estimate to 7.0% for 2024 (from 5.5%) and forecast 4.5% growth in 2025. We forecast industry ROE of 9.5% in 2024 and 10.0% in 2025.
Half of those surveyed cited concerns about a recession as a reason. Another major factor is artificial intelligence. Around four in 10 respondents said they'll conduct layoffs as they replace workers with AI. Dropbox, Google, and IBM have already announced job cuts related to AI.
Our composite measure of wage growth still shows an overall downtrend, with growth at 4.4% as of first-quarter 2024, down from 5% a year ago and down 180 basis points from the peak in early 2022.
The workers who feel most at risk include those in product management, quality assurance, marketing, finance and IT roles.
