Aon plc (AON) Earnings Call Transcript & Summary

Good day, and thank you for attending today's webinar on the Insurance Labor Market Study from the first quarter of this year. If you do have any difficulty or issues connecting, we would ask that you just please restart using the webinar link that has been provided to you. If, for some reason, you have any audio issues, you can certainly elect to dial in with the information that's on the webinar invitation. [Operator Instructions] At this point, I would like to introduce Jeff Rieder, Partner of Aon and Head of STG Performance Benchmarking, to lead us off.

All right. Thanks. And it's good to be with everybody today. I am joined by Greg Jacobson here. And I'll let Greg introduce himself as well. We have a lot of exciting information to cover on today's call and some really interesting trends that we're starting to see come through with some of the labor market data. But for those not familiar with STG Performance Benchmarking and Ward, now we are using the branding around Performance Benchmarking, which is now a division of Aon's Strategy and Technology Group, also known as STG. And our division within STG provides consulting and performance benchmarking for the insurance industry. Specifically, we focus on staff levels, compensation and other business practices around company operations. If you'd like more information about our services, go ahead and visit our website there at ward.aon.com. And Greg, I'll let you introduce yourself.

All right. Thank you, Jeff, and thank you, everybody, for joining us. We've got a big crowd here. So The Jacobson Group, for those of you who are not aware, is a leading executive search and staffing firm and specifically focusing on the insurance industry. We provide a variety of solutions for talent, including executive search, professional recruiting, temporary staffing and providing interim experts for special circumstances and consulting. So thank you for joining us today. We'll jump right into the study. I'll give you a little bit of a preview of what we're going to be doing today. We've been conducting this study twice a year for the last 15 years. The focus is on analyzing the labor market within the insurance industry and really more specifically within carriers in the industry. We'll be talking about some of the staffing challenges by discipline, the outlook in terms of company growth or labor market growth and, in general, just providing commentary on the industry's labor market. [Operator Instructions] Our study today -- go on to that. Thank you, Vince. Our study today covers about 275,000 employees, which is roughly 17% of the market. So it's a pretty sizable study. 46% of the companies are considered regional and 54% are considered national or multinational. And the study is weighted towards property and casualty. As you can see, 80% of the companies are property and casualty companies. Only 19% are life and health. Part of that is just the nature or the number of companies that there are in the market. And then we referenced companies by size in the study. And so there are small companies, medium-sized companies and large companies. The smaller companies are companies under 300 employees. That represents about 40% of the study. Companies between 300 and 1,000 employees -- over 1,000 employees represent [ 40% ] of the study. So with that, we'll jump right into some of the labor market statistics from the BLS. To be honest with you, I'm not sure this really will -- this is really representative of what's going on in the market. It is interesting though. We know you've -- I'm sure you've all heard the unemployment rate for the general economy is hovering near all-time lows at 3.7%. And the insurance industry, which is the blue -- darker blue block -- blue bar below and then the red trending line for the prior 6 months, so moving average over 6 months, is showing that the unemployment rate is about hovering around [ 2%, 2.5% ] for the industry. Interestingly, if you look at only the last 3 months, there's actually a little bit of an uptick to about 2.5%, 2.6%. I don't know that it's that material. But maybe the biggest take home here is that we're going to see -- we're going to be talking about the market slowing down and so forth, but we're not necessarily seeing that in the unemployment rates. The unemployment picture in the insurance industry is very, very stable, probably will continue to remain there. But there is a significant change happening in how companies are viewing staffing -- their staffing situation. So the other thing that I'd like to start out with here is total insurance carrier employment. It's now at 1.625 million people in the United States. That actually is slightly down over the past 6 or 8 months, not by much. A lot of people may be surprised that -- or maybe they're not -- maybe you won't be surprised that the industry has really been pretty steady for the last 6 to 8 months. We're down about 4,000 jobs in total for -- since August of last year: 2,000 in property and casualty and 2,000 in life and health. But given the numbers, it's relatively immaterial. One thing I would say that's interesting here is if you expand this number, the number of total employees, to the entire industry, so beyond just insurance carriers and related activities, which includes brokers and service companies, we actually hit an all-time high last month in terms of total employees. 3 million employees now work in the insurance industry overall. That's up. That's not -- like I mentioned, that's an all-time high. The majority of that growth is coming from agents and brokers, which added about 15,000 jobs over the last 6 months. So we're not seeing a lot of growth in insurance carriers, but the brokers are certainly picking up part of that.

Yes. And I think, Greg, to that point, too, I wonder to some extent how much of that's being impacted. We've seen growth in the MGA/MGU environment as well. And particularly as we go through later on, we'll notice some changes between -- particularly on the P&C side, between personal and commercial lines carrier. And for many of those who were in our December presentation for the year-end review, we made a note there around the explosion and growth, I would say, in the commercial specialty market and some of the emphasis there on many carriers. Much of that business is being distributed through MGAs, and that could also be impact we're seeing perhaps a small shift in where the employment is.

We did have a question that came through. And Greg, this is probably to a few as well. But is any of this being impacted by offshoring currently?

Good question. Jeff, you may have more information on this than I do. I don't see a dynamic change in the amount of offshoring that's happening. This has been something that's been -- there's been an ebb and flow of that for the last 10 years. So we're not seeing that. Have you seen anything different, Jeff?

Not significantly. We have seen a smaller number, I'd say, of the large carriers. And by that, I would define those as companies with more than 5,000 employees that tend to have a bit more of their business that may be offshore. But I wouldn't characterize it as a dominant trend but more consistent with some of the large and then perhaps, publicly traded organizations. But that may also be as a result of some of the challenges that companies have had too with hiring in the last, let's say, 2 year -- prior 2-year period. But as we see that will be a bit smaller as well. Another question just came through as well. Acquisitions by agents and brokers may also be having an impact on distribution. Yes, I do agree. I think that is a -- something to be considered here as well. Certainly, we know that there's a lot of consolidation going on in that market. And that may also have an impact not only on the availability of talent, but to some extent, when companies do make those acquisitions or a few consolidations, in many cases, some of the back-office areas for technology, HR, finance, other support functions, tend to be impacted greater where they see redundancies and activities. All right. And then on our next one. This is looking at the revenue expectations and staffing expectations. And in the past, a lot of times, these charts tended to look a lot closer to each other, but we're starting to see some variation. And Greg will talk more about this on the next slide here. But overall, 52% of companies are expecting to increase their staff over the next 12-month period. And now a larger percentage, at 38%, are expecting to maintain staff and 10% decreasing. But that compares to about 77% that are expected to increase growth of revenue and 21% flat growth. One thing that is interesting is while we know that there have been rate increases that have been dominant throughout the personal/commercial line segments, we know that the annuity lines have seen some significant growth over the last year as well. In some cases, that growth in revenue is disproportionate to the growth in exposure, meaning that companies may have actually had a reduction in their policy count but are having growth in premium that is perhaps going to start outpacing their surplus positions. And this is causing some challenges for companies that are now seeing higher leverage ratios than what they historically would have. So that is starting to impact a lot of us as well. And then we did have a question that came through that. Why are the growth trend premium inversely proportional to employment transfer carriers? And I think that is really -- the impact there is that companies are also seeing some changes around automation. We know that there's been investments in artificial intelligence and some other things. We'll talk more about that towards the back end of the presentation. But in some cases, I think companies are seeing some of the efficiencies of their technology are also improving as well. And then another kind of comment came in around the baby boomers leaving the industry and the impact that will have is also, yes, I would say it is an interesting observation. We've noted in some of our other studies, in our latest study in 2023 that the average age of the industry and average tenure of the industry, this was specific for P&C, admittedly, but had decreased for the first time. And the average age now was under 46.5 years and the average tenure per employee dipped to about 9.6 years, which was the lowest that we've tracked since we began tracking that in 2006. So that's going to be impacted by turnover and some of the other things as well, and we'll touch base on some of those aspects in a moment, too. Greg, I'll hand it back to you.

Yes. So just to add on to that, it seems like some of the excess retirements versus the average have already taken place. There's been talks about this for 20 years. And so now we're starting to see a slightly younger market than we had before, and that will delay some of the turnover that was -- that has always existed for the last at least 5 to 10 years. So this study is -- this chart is really interesting. This is showing, I think, what's happening in a pretty significant change in how companies are viewing their plans for hiring over the next 12 months. So you can see the top line, the dark blue line is showing what number of -- what percentage of companies are planning to increase their staff over the next 12 months. And we're at 52%, which sounds great. It sounds like, okay, half the companies are planning to add staff. But that 52%, actually, if you take out the pandemic year, that's the lowest that number has been since 2012 just when we were coming out of the financial crisis. So there's been a significant change in thought process as it relates to companies looking to expand their hiring, and it slowed down fairly significantly. That said, this does not mean, and we have not seen this, that there are going to be mass layoffs that are going to be impacting the industry. Now that's not to say there aren't going to be layoffs. There are layoffs. There was some an announcement this morning in the life and health sector about layoffs, and we've been seeing more and more news about this. But those numbers have not been huge numbers. And in fact, 10% -- with 10% of the company is planning to reduce staff over the next 12 months, that's not that different than it has been. It's -- obviously, you can see it's gone up since -- I think at one point, it was 4% 1.5 years ago or 2 years ago. But this is -- it's nothing close to what it was during various recessionary periods. So I think that overall, what this is saying is that there's a significant pause, at the very least, in terms of the growth that's going to be taking place in the industry, but not necessarily mass layoffs as 38% of companies are planning on just keeping the same number of staff as they had over the last 12 months.

Yes. I think to some extent, that might be -- those companies are evaluating their -- again, their product and geographic portfolio, if you will, that I'd say the last 2 years, there's been the -- the rising inflation was much more pronounced in 2022. 2023, it's come down. 2024, it's expected to moderate, it already has. And as -- particularly on the property and casualty size -- side, as companies begin to realize the rate increases that they've seen over the last 2-year period, this 2024 renewal cycle will essentially have the full impact of those rate increases coming through and that earned premium coming through as well. So by all accounts, we should be at a much stronger position by the end of this year, barring any major catastrophe or other event. And this could then position companies for more expansion going into 2025 as well. And as we look at the next slide, too, this will just give that view in terms of where we have seen a much more highly correlated view on growth in terms of premium by the top line and then a number of employees being added on the bottom. So this is certainly the first time where we've seen such a disparate view on those 2 metrics. But again, I think right now, the general theme is companies are perhaps being a little bit more cautious in terms of their staffing expectations. I've talked to a number anecdotally that in some cases, they may have overhired in the kind of rebounding from the 2000 -- or I should say, the pandemic. And then the underwriting ratios are also -- actually, the expense ratios are also coming down to historic lows, perhaps the lowest we've seen that we've been tracking it as well. But a question did come through too is how much is P&C automated underwriting projected in the last 20 years, where companies thought it would be impacting their expense ratios. The automated underwriting, and I'd say this has also been true for some of the automated life underwriting processes, has had some impact. For the personal line segment, it has been pronounced. Particularly over the last 20 years, we've seen significant reductions in head count relative to premium and policy. In the commercial line segment, we have seen greater improvements, particularly in the workers' compensation and small commercial. However, when we look at the impact that automation had on mid-market and larger accounts, I'd say that the underwriting efficiency has not improved significantly. However, it has made the underwriting quality impact increase significantly. So companies are getting appropriate rate, understanding their economic capital models and applying the right type of rate increases and price increases at a very much more targeted approach as well.

Jeff, let me add on to something you had said. It was interesting that you mentioned the policy count or employee head. But at the same time, the cost of employees per premium dollar has not necessarily gone down, which means that more sophisticated employees have been employed to a more sophisticated business over the last 20 years. And likely, that's going to continue even with AI. We'll talk more about that in a moment. But would you not agree that it's not -- the head count has changed, but the sophistication of the employees and the compensation of those employees has not necessarily gone down as a result of automation or -- in general?

Yes, that's a good point. It's almost a shift in the distribution of employees. 30 years ago, when we first started doing a lot of our studies, you might have only seen 7% to 8% of the workforce that were kind of technology roles. And now when you take technology, analytics and some of those other activities, it's not unusual for companies to have 15% to even 20% of their employees in those roles, which are obviously much more highly compensated and require much more technical background. Okay. So on our next slide then, as we look at this, I think the -- what this is doing is it's comparing the staffing plans that occurred in 2023 compared to how companies were expecting this to happen in last year. And it's really interesting. The blue bar is showing the actual staffing that occurred, whereas the teal bar is what was expected to occur. And similar to what we're seeing here, a much heavier emphasis on companies that maintain staff. We did see a handful of organizations that did grow above 20% to 20% -- 10% to 20%. But in most other cases, the growth areas were below what was anticipated. And you'll also note that as expected, slightly more employees that decreased by 2%, 2% to 4%, 5% to 9%. So the number of employees that decreased were just slightly higher, and that might also reflect the challenging economic conditions that continue through 2023.

Jeff, we do have a question that I'd like you to opine on. There's a divergence as you display it influenced by rate increases, pushing revenue up. I think we talked about this. Pushing revenue up while automation is limiting the number of employees needed to handle that revenue. I think we did address that. The answer is I think it is in terms of the number of employees, yes, but in terms of total compensation, premium dollar, not necessarily. Although we'll see what happens in this new environment where the rates have gone up pretty significantly, especially...

The other thing, too, though, is I don't want to minimize the impact that we've seen several national carriers that have pulled out of markets such as California, Florida, Texas, companies that have decided to make the difficult decision to exit out of personal lines, for example. So there have been a lot of organizations that have specifically reduced their footprint and which is also then going to need fewer policies, which means fewer claims. And then when you say, okay, we have fewer people there, that means we need fewer back-office people to support that. So some of that is also being impacted by an actual reduction in policy count.

And in personal lines, my guess would be when we swing into more of a soft market, that's going to change as well because there will probably be new entrants that come into the market or aggressive place to expand books of business.

Yes.

Okay. So we'll go to this -- this is a little bit of a breakdown. Before I do this, I just -- I'll share with you that -- so last year, 67% of companies were planning on increasing staff, and only 55% of companies actually did increase staff in the last year. That's probably a bigger difference than we've seen in the past. We always see like companies who are -- that are being a little bit more aggressive in their thought process than they actually execute on. I think the difference this year, especially over the last 6 months, is that more and more companies are choosing not to fill those positions that were open as opposed to, they were trying to fill the positions, but they just couldn't fill. There's been a bit of a change there. Here, you can see the breakdown between property and casualty and life and health, where 54% of companies were planning on increasing their -- I mean, I'm sorry, 69% of companies were planning on increasing their staff in property and casualty, and only 54% did. And then 13% of companies actually decreased staff when only 9% were planning on it. Much more stable, I think, in the life and health market, where 50% were planning on increasing their staff, 53% did, so slightly more. And slightly less companies actually reduced staff in life and health than were planning on. So we'll talk a little bit about -- this is an interesting slide here. This is the total number of open jobs in finance and insurance as reported by the JOLTS study by the BLS. And I don't think this really tells the whole story. This -- we do this on an average yearly basis because the numbers kind of fluctuate a great deal. So you can see the average of 2022 were 400,000 for the year -- 400,000 open jobs in finance and insurance, and that dropped to 344,000 in 2023. However, in December, if we -- those numbers are to be believed, the drop actually was down to 303,000 jobs. So we're talking about going from actually a year -- December of '22, it was about 445,000, so about 1/3 less -- or no -- well, yes, about 1/3 less jobs open in -- at the end of '23 versus the end of '22 in finance and insurance. So it's pretty significant slowdown in terms of the number of open opportunities.

So this is, again, kind of sticking up with the earlier slide, but this is now just comparing the plans for '24 compared to '23. And we reviewed those plans for '23, which was the teal. But as you look at the proportional changes here, again, as we mentioned, 38% of companies expecting to stay flat. When there are the decreases, they are fairly nominal, with about 8% of those staff reductions are expected to be under 4% when you combine both the under 2% and 2% to 4%. So not massive changes, but that will have somewhat of an impact. And then as companies are looking to grow head count, it is interesting. It's fairly evenly distributed in that 2%, 2% to 4%, 5% to 9% range with about 13% to 15% in those areas. It is interesting to note that of the companies that are expected to grow in the -- or I should say, of the companies that are expecting to grow, 66% of commercial lines companies, in particular, were expecting to grow, which was 32 points higher and 16 points higher than the personal lines and balanced lines companies, respectively. So no surprise, they're seeing a lot more emphasis in that commercial lines segment as well. And then on the next slide, comparing the staffing plans between the 2 segments -- or 2-year studies. This is just looking at the P&C on the left, life on the right. And again, coming down just a little bit for the life segments, where the notable change is on the P&C segment, with 53% expected to grow compared to 69% a year ago. It was interesting to note, too, just a slight decrease in the number of companies that were expecting to decrease staff for the life segment compared to a modest increase from 9% to 10% on the P&C segment. And then lastly, on this next slide, it's just -- does the impact of employee size that we're seeing here that the smaller companies, perhaps not too surprisingly, are expected to be a bit more stable. Small being under 300 employees. And the largest companies, over 1,000 employees, were expected to have the largest percentage that were decreasing staff. But it was fairly consistent with the medium, at 13% as well. So notably higher for all of those impact there.

And we'll see that later on when we talk a little bit about voluntary and involuntary termination. I think that the larger companies are being much more aggressive. And the smaller companies probably tend to focus a little bit more on those relationships and keeping people because they know how difficult it had been to get people in the door and then to develop them. So we're also seeing a bit of a slowdown on the temporary employee utilization as well. 16% of companies said that they were planning on decreasing the use of temporary staff. That actually tied an all-time high in our study versus about 5 or 6 years ago. So -- and then the 8% of companies that were saying they're going to increase their use of staff was near the bottom in terms of that metric as well. So we're seeing a bit of a slowdown in temporary employees usage as well as in the hiring overall. So next slide, we'll talk about voluntary and involuntary termination. I think I already referenced this about the larger companies and the smaller companies taking sometimes a different approach. What you can see here is, on the left, the 2 graphs on the left are showing the voluntary turnover. And then the 2 graphs on the right are showing involuntary turnover. You can see that actually the amount of voluntary turnover is coming down pretty significantly. If you look back 12 months, they're saying -- a company was saying, over the last 12 months, we have gone from 11% voluntary turnover down to 9.3%. Over the last 6 months, it was even accelerating -- slowing down even more so. We've seen voluntary turnover go from 8% down to 6.2%. And in terms of involuntary turnover, we're actually seeing an uptick, if you look at it over the last 12 months, but a downtick in the amount of involuntary turnover over the last 6 months. I know that's all confusing, just looking back at different periods. What I would say, though, is that in general, we're seeing less employees leaving on their own, slightly more employees leaving on -- are leaving the organizations on an involuntary basis. In fact, I look back -- Jeff and I had a discussion about this, and I look back at the numbers from a year ago, and they actually have come down a little bit in terms of the number -- the amount of involuntary turnover, especially over the -- if you look at it over the last 6 months. But it's still probably at a fair -- a little bit of an elevated basis right now. But again, I mean we're seeing more and more companies that are announcing layoffs, but the number of layoffs are pretty small numbers. So I don't think we're seeing huge dislocation like we see in the past.

It is interesting to the extent that this 4% range or so will be the new norm, if you will. Where it's tracking over the 6 months at about 2.4%, that's more typical than what we'd expect to see. If we go back 15 to 20 years, involuntary turnover rates of about 1% to 1.5% were much more common. So we're probably running over the last 12-month period about double what we would have historically expected to see in those involuntary turnovers. And those days were more due to performance issues -- individual employee performance issues, whereas now these are things that are more to address the challenges that the businesses are facing.

It is interesting though, like I looked at the JOLTS study for layoffs. And actually, layoffs were slightly down this year versus last year in finance and insurance. I don't know what that means. It seems a little counterintuitive because we've been hearing more in the news, but that's at least in finance and insurance combined, that's what the JOLTS study is showing.

Yes. Okay. And so I think on some of the notable trends here that we're seeing. So total head count grew about 1.17% versus the expected rate of 1.67%, so slightly lower there. The P&C head count grew about 1.2% versus 2.07%. And then as we look at the life industry, this actually grew a little bit more than anticipated at 0.7% compared to 0.5%. And overall turnover, when we combine both the voluntary and involuntary turnover, was about 13.5% over the past 12 months. And that 13.5% combined is a little bit lower than what we saw in 2022, but certainly higher than what most insurance companies would expect to see when they were typically operating probably close to 9% to 11% range in most other years.

All right. We'll jump to recruiting difficulty, and then we'll try and get back to some of your questions. I know there are questions -- we're getting flooded with questions and we're skipping over. And we'll try and get back to them at the end. Recruiting difficulty, it remains high, but it's waned a bit. In fact, I think if you look at the average difficulty for all positions in both industries, life and health and property and casualty, the number is 5.7% right now versus 5.9% in June. So it's gotten a little bit easier, not significantly easier. So the hiring has slowed down, but as I said, the unemployment rate hasn't gone up. So it's a little easier but not necessarily that much easier. There -- so several positions have gotten easier over the last 12 months: technology, underwriting, claims and so forth. Interestingly, the one outlier is executives. As people were -- are retiring, the industry is thin in terms of its development of senior leaders, and that is having an impact in the difficulty to hire people. Overall, I would say that we're seeing more difficulty in hiring life and health people than we are in property and casualty. The average number for life and health is 6.3% on this scale versus 5.6% in property and casualty. And life and health actuaries and analytics people are kind of going through the roof. I think the number was about 8.0% or something. It was very, very high for life actuaries and analytics people. And then you ask the question, is it -- just to kind of further solidify what we're seeing here. Are you seeing -- are companies seeing more difficult or less difficult to recruit people than it was a year ago? 53% are saying, hey, it's about the same. But 28% of the companies are saying it's a little bit easier and 4% are saying it's a little -- it's more than a little bit easy, it's significantly easier. And still a few are saying it's -- 14% are saying it's either significantly or moderately worse. But it's clear from this slide and the slide prior, it's getting a little bit easier to recruit people, which is great because we've been in historic highs in terms of the difficulty.

All right. So then looking at the areas that companies are more likely to increase staff. And we broke this out by industry segment for P&C balanced, P&C personal line-focused, commercial lines-focused and life/health. And you'll note that the segment that tends to be quite a bit lower than all others and most activities is, again, that personal lines-focused organization, which is the third on each of these charts here. And essentially in just about every category, not all but most categories, that tended to compare near the lowest. Whereas we see that commercial lines-focused, which is the teal, the second teal line, was -- tend to be more likely to be above in each area. And to Greg's earlier point, you can see the life actuarial. And interestingly, the operations component were areas that companies were also expected to increase staff here. But I find it also very interesting to note the difference in a couple of roles. One will be for the underwriting function, which is the second to the left -- or from the left, I should say. And you'll note that for personal lines-balanced -- commercial line-balanced organizations, that was the highest for commercial lines in particular. And claims actually was even higher than the technology roles for those commercial lines-focused organizations. So that, again, might be reflective of both the opportunity to grow premium or revenue right now as well as the better profitability that we are seeing in that segment. And then likewise, as you look at the -- I mentioned on the life side but just that growth. But we did see that technology in aggregate across all 4 segments does remain the #1 function that companies are hiring for. And then when we look at the next chart here, this will show up by year. And it's very interesting to see as companies were coming out of the pandemic in January of 2022, kind of full year of kind of getting back to normal, if you will. But technology has shown a sharp, sharp drop in the expected likelihood to increase since that '22 segment. And it even came down in '24 compared to '23. And that's despite the availability of talent that is now there as we've seen that many of the insurtech organizations have had some pause in their ability to operate. There have been notable layoffs that we've seen across some of the large technology giants outside of insurance as well. So there's a lot of availability of staff, but companies aren't perhaps hiring as much for that. And then the other piece is just noting the interesting trend around underwriting and claims. Arguably, there are 2 core customer-facing activities for many insurance companies. And kind of post pandemic of '20 and '21, those remain very high that companies still are hiring at levels that are even higher than the pandemic-level areas. And the other thing that I thought was interesting is looking at the sales and marketing component here. And as we've seen that where companies are perhaps not emphasizing growth in terms of their exposure count and policy count, we've seen a reduction in growth in sales and marketing. And I've seen also other comparisons looking at things like advertising spend coming down as well. So that emphasis we'll say or lack of emphasis perhaps on sales and marketing might also be more reflective of going after kind of the existing known opportunities versus trying to build out new markets or territories. All right. And then this last one is looking at the employee levels by job function. And this is consistent with the last year's view that about 72% of positions are expected to be filled by experienced staff and 27% by entry-level. One thing that did pop out a little bit more is the underwriting function, we can see now that 21% of roles that has increased a little bit are expected to be entry-level -- only 21%, I should say. And we know that while underwriting remain the #2 function in total. And it was the same thing with technology, #1 function, with companies expected to hire in those 2 areas and more experienced staff at 81% and 77%, respectively, that can still cause some challenges from competitive pay programs and perhaps expected higher levels of attrition. And there was a question that came through that I noted on merit increases and just the impact that all of this is having on merit increases. With the declines, we have started to project that merit increases for 2024 are likely to be approximately about 0.5 point lower than what they were in the prior year. So as companies are repositioning and trying to have more cost-control measures and looking at their overall staff profile, that's also resulting in lower merit increases. And for many organizations, incentive payments in 2024 based on 2023 results are going to be lower or there's been many organizations that we work with that the short-term incentive programs, in particular, have zeroed out in some cases. So it is impacting employees and their wallet as well. Okay. And then our next slide here is just talking about why companies, if they are expected to increase staff, 34% are expecting an increase in their business volume; 30% are expected to have an increase in their business and new product, if they are increasing; and others, 22% feel that the areas are understaffed. When we look at the most common reasons, top 3 for companies to decrease staff on the next slide here, the most common reason that companies are expecting to decrease staff, we can just advance forward one screen there, the automation improvement was the most common response that companies were stating, 5% having reorganization, and then 3% were anticipating a decrease in business volume. One thing that I think is interesting, however, is it only showed up at 1% here to correct the manager-to-staff ratio. And I can tell anecdotally and from several engagements that our firm was involved in last year, many organizations are evaluating this manager-staff ratio. Now that they've seen the automation improvements, which have reduced the number of frontline employees, there's been a heightened sense to evaluate the job leveling within companies and determine if they have the right number of VPs, AVP, director type of positions with the sense that many companies have felt that they are, perhaps, bloated in the upper executive levels compared to the size of the overall organization. And there have been several companies that have made some quiet changes to evaluating that overall executive level or senior-type officer position as well. So that might have a greater impact as companies try to truly evaluate what their -- the management levels that they'll need to support the organization are.

So first of all, we had a couple of questions. There was a question or maybe it came up more than once. We'll be able to get these slides. Yes, we will be setting out the slides with all this information on out to everybody who's participated in the study and everybody who's participated in this webinar. And I think it should probably come out tomorrow, depending on editing, but you will be receiving those slides. The other question, which we're -- I think we'll be -- about to address is, do you think a voluntary turnover recurring due to back in the office increasing? I think that flexibility is an incredibly important thing that -- in general, the industry does a pretty good job with. This slide is actually showing you that 86% of the companies are offering at the very least, flexible hours, 14% do not. What we're seeing anecdotally is when we're recruiting people from one company to another, the first question they always ask is how often do I have to be in the office? And there are, primarily with larger companies, kind of a return to work -- return-to-the-office focus with some of them. We'll see it's not wholesale changes, but it is increasing. And we do see that those are employees who tend to look at their situation and try to figure out if they can make a change that will allow them not necessarily to have to come into the office as much.

Yes. And then on the next slide, this gives us a view in terms of the required work-in-the-office experience for the majority of employees. So 6% of companies were expected to be in the office every day; 46%, 1 to 2 days; 3 to 4 days was at 30%; and 18% at rarely. What was interesting here on the rarely comment is the same question when we asked in July of 2023, that was closer to 1/3 of companies were expecting employees to be rarely in the office. So there is a movement to get employees back in more frequently to provide both the training and learning that companies have but also to help build the culture. And I would say that many companies felt that the surge in productivity that occurred when everybody first went home during the pandemic has dissipated significantly. And they're saying that there's been a deterioration in the quality of work as well as the volume of work that employees can support as well. So that may continue to push a little bit more for employees to be there in -- much more. But at least for now, the 1 to 2 days is most prominent. And then for the requirements for employees to be in the office more, with that being said, only 84 -- or actually only 16% said that they will require employees to be in the office more, and 84% are projecting to be about the same. So it was interesting. No company did expect that they would be in the office less in the next 6 months. So not a significant shift, but if companies are changing anything, just a slight shift to be in the office more over the next 6-month period.

So we'll just wrap up with some summary thoughts. And then if there are additional questions, we're happy to answer them. And if you have any questions that are real specific or if you want us to look into some -- the data a little bit more carefully, feel free to reach out to either Jeff or myself. So here, some of the -- a summary of some of the key points here. 52% of companies are planning to increase their staff over the next 12 months, driven by property and casualty -- the property and casualty segment at 53%. But like I said, that's down significantly from where it has been in the past. So the companies are still hiring, but it's slowing down. 10% of companies are planning to decrease their number of employees. This is the same total expected in both the January and July 2023 study. So we're not seeing an increase in terms of the number of companies that are planning to reduce staff. 53% of both medium-sized and large companies plan to add staff during the next 12 months, and this is 2 points higher than smaller companies. So I think we are seeing, in general, larger companies are adjusting more quickly, either in reductions or increases than their smaller brethren. And 77% of companies expect to grow revenue during the next 12 months. This is 5 points higher than the July survey. But as Jeff has talked a lot about, that revenue is often coming not from policy count increases but from rate increases, especially in personal lines. Commercial lines property and casualty companies are the most optimistic to increase revenue at 84% of them expecting both compared to 78% in personal lines and 75% in property and casualty multiline companies. 71% of life and health companies are expected to increase their revenue. Overall, 46% of companies stated that the change in market share will drive their expected revenue change, while 37% cited pricing factors. So that's interesting. We'll see how that works out in -- over the next year. This is the first time since July 2012 that P&C companies responded that the primary driver was -- for revenue change was expected to be pricing so -- at 43%. So property and casualty companies are more focused on the pricing changes, which makes sense. The primary reason companies plan to increase staff during the next 12 months is expected -- is an expected increase in business volume. 34% of companies listed this as the primary reason to hire, followed by expansion of business and new markets. And automation is the most common reason companies are planning to reduce head count over the next 12 months. But I should point out that, that number was 8% of the 10% of companies who were looking to decrease their staff. So still a pretty small number.

And then technology underwriting claims rules are expected to have the greatest growth during the next 12 months, with 90% of companies planning to increase or maintain staff this year and voluntary turnover showing slight signs of slowing, recruitment will still be a challenge for the industry throughout 2024. Insurers will concurrently be focused on retaining top talent as they continue to navigate shifting complexities and expectations. Product management and sales and marketing are the 2 top areas where companies are looking to add experienced staff, while operations and claims roles are identified as most likely to add entry-level positions. Actuarial, executive and analytics positions continue to be the most difficult to fill. And in total, 14% of companies feel the ability to hire talent had become more difficult compared to the prior year, which is down from 25% a year ago. At 6.2%, the 6-month turnover -- voluntary turnover is 3 points lower than a 12-month average of 9.3%, and the average 6-month involuntary turnover is also lower at 2.4% compared to 4.2% for the 12-month period. During the next 6 months, 76% of companies are expecting most employees be in the office at least 1 day. And over the next 6 months, 16% are expecting to change their approach to require employees to be in the office more. And then last, 6% of companies require staff to be in the office every day, that is up from 4% in last January. And we did have one other question come through that says, "What does all the research tell you about the percentage of the relevant workforce retiring in the next 12 months? Is that lumped with the statements that you've shared on anticipating turnover -- voluntary turnover expectations being lower?" The piece on the retiring workforce over the next 12 months, we have seen that uptick. I'd say, where the trend probably started in the 2014-2015 time frame, where we saw retirement beginning to have a more meaningful impact. For most organizations, retiree turnover typically tends to be roughly around 2.5% to 3% of their turnover now. And with the overall broader turnover that had occurred in the past 2 years, there has been a shift with a higher percentage of employees that are now younger, often in their -- under 40. And so I don't expect that retirement will have an outsized impact on the overall turnover. My instinct that it will be relatively proportionate as we've seen over the last couple of years, which means that it's still difficult because it's higher than what we may have seen a decade ago. But I don't think it's -- for most organization, it's going to have an extraordinary outsized impact. And Greg, I don't know if you would share that comment.

Yes. I think so. I mean I think that number overall has started to decline, right, slightly.

Yes. And then we did have one other question that came in that I thought would be -- oh, no, I think we answered that one. But it was on the sense of customer service and contact center turnover and what that looks like. Those typically are significantly higher for most organizations. It's common for companies to be between 25% and 35% in their turnover in those call center activities. But I think we addressed all other questions that have come through.

Actually, there's one more here real quick. "Are companies still requiring degree education requirements for recruitment or is this moving more towards skill base?" This is a really interesting question. For the longest time, I think 20 years ago, it was really not a focus on education. Formal education was not a focus of the industry, and then it became an extreme focus. And now anecdotally, we're starting to hear companies say, we're not really as concerned about what someone has in their educational background as much as they -- what we're looking for and the skills and their experiences. So maybe we're -- maybe it's slowing down slightly in terms of the race to the -- to recruiting the top -- from the top schools, I don't know. But that's what we've been hearing a little bit.

All right. Well, with that, we'll close our presentation here and complete with our projection for the next 12-month period that if the industry follows through with the plans that the company has put through here, we'll see about a 1.2% increase in industry employment during the next 12 months. And we can see that across the various sectors. Overall, life and health is expected to be up about 0.9%, whereas the property & casualty, about 1.35% where you can see, particularly on the P&C commercial at 2.3% is outpacing the personal lines segment at about 0.26%. So pretty significant differential there between personal and commercial lines. If you'd like more information about this, please contact [email protected] and we'll be conducting the next iteration of the survey in July of 2024. We really appreciate all of your participation in this. It provides a -- we hope it provides a lot of meaningful data for you and gives you a sense in terms of where the industry is as you're thinking about your business plans for 2024. On behalf of Aon and the STG, we thank you for attending. And Greg, I'll let you close as well.

All right. Thank you, Jeff. And on behalf of Jacobson, we really very much appreciate your participation, and we'll look forward talking to you again soon.