Aon plc (AON) Earnings Call Transcript & Summary

Good day. Thank you for joining us for the Q3 Insurance Labor Market Study results. We appreciate your time today. I do want to have a couple of moments and let you know of a couple of things in case we run into any issues. We would simply ask that you please just log in or try to relog back in using the link that was shared with you. If you do have any phone issues, you are able to dial in as well. That information should also be included with the webinar information that was sent to you. As well we do want to let you know that we will be distributing the results of the presentation today, along with the recording within the next two business days. If you should need access to that sooner, the individual documents, please feel free to reach out to us directly, and we'll be happy to share those to you. Otherwise, at this point, I would like to present Jeff Rieder, Partner and Head of the Benchmarking of Aon Strategy and Technology Group to get things going. Jeff?

Good afternoon, and good morning to everybody today. So we're really happy to be here. And I know many of you have participated in this webinar and our study for the last going on now about 17 years or so. And within Aon and our Strategy Technology Group, I lead our benchmarking operations, which help companies evaluate their expense staffing, organizational and compensation practices. And we'll touch on a lot of things that are happening, both from the staffing models as well as the impact it has on compensation. And if you'd like more information, feel free to visit our website. And I'll turn it over to Jeff Blair.

Thanks. Welcome back, everybody. I haven't been doing it for 17 years, but I'm starting to become an old hand at this. First, I'd like to thank all our clients and companies that participated. Your delivery of the data is what makes this possible. As I said, I'm part of the Jacobson Group. I lead our Executive Search practice. For over 50 years, we've been supplying insurance capacity from a staffing standpoint, from temp to professional to executive. And we're excited to share some interesting information and get some questions. So today, we're going to analyze the current labor trends and future staffing expectations, provide an overview of some of the staffing challenges by discipline and provide some commentary on the industry's labor market. We had very strong participation for this survey, a nice mix between carrier size and line of business. Based on the companies that have participated represent almost 10% of the insurance industry. One thing I do want to point out, we do not have a rich sample of the mega very large, both personal lines and commercial insurance companies. And quite candidly, some of the job actions that might have been taken at the very large carriers, we will see those numbers more prominently in the Bureau of Labor Statistics numbers than you will see here. And that will explain some of the difference. I think we have a mix difference. Okay. Sorry. So as we look at unemployment rates, you see that as of this month, the national average is at 4.1% and the insurance sector is at 3.3%. And while 3.3% is the highest since December of 2026, the year-to-date average is 2.1%, and that compares to 2.3% from last year. So there is a little bit of bump, and Jeff and I were talking earlier, there always tends to be a bit of a bump this time of year in the unemployment rate over the summer. With that said, this is two months in a row as it's been ticking up. So it is something that we want to continue to keep an eye on. So when we look at overall carrier employment, you sort of see this trend, and we've talked about it before. We had this high watermark for the industry and then COVID came, there was obviously a drop. Then like many industries, there was rapid hiring back up. And now the industry is sort of finding its new normal. There was -- if we look at it from a peak to now, there's approximately 50,000 less jobs. And part of that, as seen across industries, there's a bit of COVID overhiring. As we came back, we overhired. Other things that we're seeing is more and more carriers, and we're going to talk more about this later are managing their open headcount, maintaining current levels. And when you're doing that and at the same time, there are some staff reductions, that is going to have an impact to the number. We're going to talk a little bit about technology and automation and the impact there. I think AI is the hot term, but I think our view is it's much broader than that from a technology standpoint. And also just a quirk of the insurance industry, combined ratio caused by cat is down year-over-year through Q1. And that cat staffing can have an impact year-over-year. So these are some of the factors that could be impacting this. But at the same time, there is a move to some constriction in the market.

Yes. I think, too, as you reflect on some of the changes there, obviously, your comment on the rebounding from or overhiring during the COVID, but there were also some market impacts that have also been somewhat of a dynamic in terms of impacting insurance carriers. So during that, let's say, really starting in the 2014, '15 time frame, we've seen a dramatic increase in terms of the E&S and specialty space, in particular, that now that represents -- E&S represents about 20% of the overall commercial lines market. And that has also begun to expand into the personal lines market in some states where carrier coverage has been difficult to obtain at the admitted level. Also, there has been that growth in the MGA distribution model that both MGA, MGU has significantly expanded over the same time period. So one of the things as you think about as we recovered from the COVID environment, the commercial lines market was certainly significantly harder in the 2021 through '23 time frame, whereas the personal lines market was stronger in the '23 through early '25 time frame. And so companies were hiring because they had a lot of the premium growth to support that. But now as we're entering a softening market cycle, companies are essentially preparing for that. And we can kind of see some similar trends as you look back on some of the historical data, where companies were rebounding from the recession in 2008, '09 and '10. We saw a similar pattern there. So there could be some optimism that while we're perhaps resetting right now, there is some future optimism that as the economy continues to grow, there will likely be new jobs, whether that's in the -- obviously, the AI sector, but data centers, other growth sectors that will require carrier employment. And then the other piece, as we talk about the growth in the MGA and MGU on the carrier employment, there's a lot of roles that have now shifted from the carrier on the P&C side, but also on the life side for those roles that are being now done at that MGU carrier. The other thing that we are starting to see is because of the growth in the cloud-based systems, that is also having a lot of roles that would have historically been the information technology, but certainly, you have the programmers that are doing both the application development and maintenance, but then there's roles around QA and testing that are also being outsourced or offshored. And then that expands into the infrastructure and networking costs within the carriers where they don't have the same need for roles that might have been there for disaster recovery, for example, or networking engineers, things of that nature. So some of this may also represent a shift in the model in terms of where work is being done in some cases as well. And we'll see that come through a little bit later, particularly as we look at some of the hiring trends, particularly around information technology that has decreased quite a bit. So as we look at the revenue and staffing expectations, yes, this is very interesting that in the past, particularly when we started doing this in 2009, we saw a very high correlation in terms of companies that were expecting to grow revenue and grow staff. Whereas now we see that in this response, surprisingly, not a single company expected to decrease revenue over the next 12-month period. And either we got a bunch of people that are very, very optimistic or very, very unrealistic in terms of what's going to happen. Without a doubt, there will be companies that are going to see decreases in revenue over the next 12-month period just due to the many companies that are contracting their business in terms of re-underwriting books of business. there is a soft market cycle in certain areas and certain lines that I think that we'll see more companies either being a decreased revenue or certainly being not hitting their growth expectations, which is what we're starting to see already midyear from our anecdotal work with clients. And then as we look at those that are expecting to increase staff, only 49% of companies. So now for the first time in a long time, it's fewer than half of companies are expecting to increase staff over the next 12-month period. And the next chart here will give us a kind of a view in a lens in terms of how that has compared over the last 17 years or so. But we're now other than the -- that valley during the pandemic in 2020, we've not seen this level of low number of companies expecting to increase staff since back in 2012. And obviously, in 2012, we were really emerging from the recession, but we're at those types of levels in terms of kind of, I'd say, companies being cautious with their hiring expectations. And with that bump in the July '26 to 11% of companies expecting to reduce headcount in the next 12-month period. I think, again, that's reflecting the realistic expectations around revenue growth. into the remainder of this year. So it is a more challenging environment and particularly what we're seeing in the commercial line sector that companies are being more aggressive around expense management. And again, that was because of the -- as Jeff alluded to, the hiring that emerged post pandemic and seeing some market opportunities that now are not quite as strong as what they were. And then to some extent, as the automation improvements continue to come through, we're not seeing those jobs being replaced as quickly. And so -- and Jeff will be able to talk about that a little bit later. And the view here is also kind of giving that view. And Jeff, I'll let you take on this one here.

Sure. To follow up on what Jeff said, I think it is interesting that about half the firms that we surveyed, 49%, plan to add headcount while only under 30% expect greater than 10% revenue growth. So this feels more like backfilling for key positions rather than hiring strictly for growth. Now we do -- there is a view of hiring for growth, but the reality is this sort of spread, it makes more sense that we're backfilling open positions. And one of the challenges is we'll go a little bit more later on, but these positions are staying open longer and are, in some cases, not being filled, which continues this sort of trend. So I think, as Jeff said, I think there's an expense management piece that is tied into this. I think that there's automation impacts of automation and sort of the impact of process change may require less people and through nonfilling of open recs, you start to get there through your staffing plans.

Yes. I think what might also happen with those open recs being not filled, there could be companies that are going to evaluate that if we've been operating with this open rec now for 9, 12 months without a deterioration in the performance of the business, now they're questioning whether or not that needs to be replaced at all. In fact, I had a conversation last -- yesterday with the carrier CEO, about $1 billion company with -- I think, at the time, about 55 open positions. And as we are going through their planning cycle for 2027, that's the specific question that he's asking his leadership team is we need to identify which of these roles truly do need to be replaced. And I think that's an important question to have and why we need to replace the position if we're not having any adverse results as a result of it.

So when we look at the 12-month staffing plan versus actual, we over forecasted. We overforecasted on what we thought the plan would be compared to actual. This was across -- and we'll break it out by segments. But both -- we had significantly less growth than expected. And I think coming off of 2025, which was overall a solid year, the second half is not as good as the first half. I think we started with these plans, but the reality on the ground, all these different factors led to this gap. Also, I think one of the things is downsizing happened more than expected. So that also -- it wasn't just the growth side. We also ended up having more downsizing than was planned for originally.

Yes. I think some of that might be expected because of the -- we really saw the market turn in the second half of 2025 that by the end of the year, the quarter-over-quarter change in premium in terms of comparing the fourth quarter '25 to the fourth quarter '24 had gone down to only about a 3% to 3.5% growth in both personal and commercial lines. So I think companies were reacting more quickly, essentially not filling open positions as much because they saw that coming as well.

Yes. And Jeff, something else that I've seen too is Q1, Q2 planned hires were pushed back. So like that -- from a plan standpoint, they're still in the plan, but they haven't been happening. And I think that is a little bit of what we're seeing.

Do you -- I know you're closer to it than we are, obviously, but when those positions are being filled, are you seeing that it's taking longer? Is it two, three, four weeks? Or is it two, three, four, five months longer to fill many positions now?

Well, it depends -- it's a good question. It depends on the position. I think overall, the great resignation is over, and we're going to talk a little bit about voluntary and where it is. It is taking longer to fill these positions. One, employees are less willing to move at the moment. I mean, quite candidly, many of them had very good years last year, and there's a lot of incentive to stay and the nature of the industry. I think the other thing that we're seeing is the carriers are not as -- we're seeing instances where they're not as aggressive in bringing in new talent. So taking longer, maybe less aggressive offers. And so we're seeing the process take longer because we have a potential candidate population which has had good compensation, working for companies that are performing well. The likelihood of moving is already lower, especially if the companies are having good results this year-to-date, that also plays into it. And carriers at the same time, as we discussed earlier, are taking more of a slow approach to filling. And so as we say in the staffing world, we're seeing a lot more offers kicked and really trying to work with carriers on sort of is there a sense of urgency on this or not. But without the sense of urgency, it's very -- it's becoming more and more difficult to fill these positions.

Do you -- kind of a follow-up on that. We talked about AI, but when it comes to the recruiting and sifting through all the various resumes. I hear anecdotal stories that when positions are posted, now it's often that you'll get 500-plus applications within a day that are coming through from various AI tools, whether it's on LinkedIn or what have you. How does that impact some of the recruiting from your perspective?

Yes. No, I think -- I mean, one, that is definitely something that would be hammering the talent acquisition departments at the carriers when they post jobs. It is one of the great things and one of the challenges of technology in the Internet is how easy it is to apply for jobs. So they get a flood. I think from a staffing industry standpoint, there are challenges, but we're finding more because we're working in our networks, and we're working with the people that we know, we can cut through some of that. But yes, when I talk to companies, they'll say, we post a director level job, and we could have 2,000 applicants. And it's like how do you even work your way through that?

Yes. Well, I think moving on to our next slide then. This gives a comparison between the life health and P&C side. So as we kind of saw earlier, the difference between the increase, maintain and decrease was just vastly different on both sectors. The P&C side, while 54% of companies were anticipating an increase at this point last year, only 35% did. And I think this was probably the largest gap. I'd have to go back. I can't recall in the -- all the years of doing this that we've seen just a difference in terms of the expectations of where companies were between a year and the actual staffing gap. And to some extent, it's -- you could say, potentially disheartening a bit in terms of the percentage of companies that decreased employees over that time period. But whether it's due to the economic, technological or broader, you could even say, potentially geopolitical concerns that were impacting where we were last year. For example, we had the tariffs that were a major concern, obviously, now since then of the war in Iran and just broader political and, I'd say, economic concerns that may be impacting behavior from a hiring standpoint. Then as we look at the openings in finance and insurance positions, so here, the average -- this is just the average of the 2026. It looks like it bumped up quite a bit from the average of 2025. So it's tough to kind of see the difference in the stories. As many of you that may have followed us through the January, at the end of 2025 in December, the job openings in insurance and finance were, I think, right around 130,000 openings. So it was at a -- over about a 12-year low at that point. So some of this has rebounded, which is a little bit -- I was kind of surprised. It's kind of counterintuitive to what we're seeing in some of the data, but we'll keep an eye on this through the second half of the year. Obviously, this finance and insurance incorporates all financial sectors, whether it's health insurance, banking, wealth, et cetera. But we are certainly quite a bit lower than we were back in 2022. And then for that forward-looking staffing plan, so the dark gray here or dark blue, I should say, is the July '26 plan compared to the light blue of 2025. So perhaps the biggest difference that we're seeing here is shifting again more towards that companies maintaining size going forward. And in particular, only about 57% of P&C companies or I should say commercial lines focused are expected to hire. And that was kind of surprising because that was 15 and 21 points higher than the balanced and personal lines P&C companies, respectively. So still more optimistic, I think we can say in that commercial line sector. Historically, the commercial lines industry other than 2025 had been notably more profitable than the broader personal lines segment. Personal Lines had a near record year, if not record year for most organizations due to the lack of catastrophe activity, no hurricanes made landfall last year. And despite the fact that we had the wildfires in January and February of 2025, it was a really strong year in general. And then one thing to note, you'll see on that third bullet point of the companies who are planning to add staff in the next 12 months, large correlation with 81% of those expecting to increase in revenue with many expecting to increase their overall market share, while the ones that we're expecting to decrease staff we're expecting none -- surprisingly, none expected a decrease in revenue. So it's perhaps not that they're worried about declining in revenue, but they -- it may point to that they're worried that they're not going to be able to grow or hit those growth expectations. And then as we do the comparison here for this forward-looking view by industry, so you can see, again, for both P&C and life aspects, more companies anticipating to maintain size in general. And surprising here, none of our life companies were expecting to decrease staff but holding flat in general in the 2026 view. And then last is our view here on company size and how that is impacting. And we typically do see that the smaller companies here, we're defining those as under 300 employees and medium at 300 to 1,000 employees historically have been more aggressive in their expectations to increase staff. whereas with the larger companies, those by over 1,000 employees, it was a very stark difference this time around with only 28% of the large companies anticipating to increase staff over the next 12-month period. And to some extent, oftentimes, those larger companies just due to their either geographic breadth, may have more opportunity to, let's say, rightsize the organization. In some cases, as I alluded to earlier, on the outsourcing and offshoring, those are also companies that often can benefit more quickly in terms of adopting those programs. And then lastly, as we talked about with the MGU space, we'll typically often find that those larger commercial companies like that are also more likely to participate in those types of programs where they can have some of that labor being done externally. So -- but it was a very stark difference here when we look at the company size and the impact that it has on their staffing expectations.

Okay. And if we're looking at the usage of temporary employees, as I said, 90% of companies are planning to increase or maintain temporary staffing levels for the next 12 months. We're seeing a slight increase in the number of companies that are maintaining current levels with a reduction seen in the increased bucket. It's also worth noting that the use of temporary services across all industries per the SIA Bullhorn Staffing Indicator, staffing hours are up 10% year-over-year. So I think -- and I don't -- there's nothing that jumps out to me that makes me think insurance is materially different. than the broader market. So I think the use of temporary employees is still very vibrant in the industry. I think one of the things that from our perspective at Jacobson, where we're really feeling the client needs out there is on the temporary side, where in the past, we would fill quite a few positions at the most junior levels, data entry, those sort of positions. We're seeing less and less of that, which makes sense with automation. But where we're seeing some real challenge is sort of the next layer or two up. So you're more senior underwriter, you're more senior claims person, the type of people that bring the industry expertise to oversee the more junior people that aren't there anymore because many have been replaced through automation. So we're seeing more of a shift in there, and we're seeing quite a bit of competition for these resources. Additionally, we are seeing increased usage of subject matter experts at the executive level and using temporary solutions to bridge gaps might be from a retirement and getting the next, but the successor isn't ready or there's been a shakeup. And we are finding that more and more insurance companies are open to the idea of bringing in an executive to assess the current situation, make sure the trains run on time. and help prepare the organization for the next person in that role.

Jeff, on that, you made me think of something. It was interesting. This past week, it was an odd coincidence, I would say, but I had three different companies reach out to me asking about -- in this case, they were talking about compensation strategies for -- they were all trying to name an internal candidate as a, we'll say, essentially a President or an elevated role that would identify the person as like the CEO successor and the programs around that. And I'd say more the process and organizational strategy around that. How often are you seeing companies employing that where they're thinking about for -- particularly at this case is the CEO executive leadership transition. Is that a common practice that you're seeing companies adopt more often now?

Yes, yes. I think sort of the person hasn't been annoyed the job, but this is their opportunity to grow into it. And a matter of fact, we're recruiting more people under that idea where it's like, look, this is an opportunity to become a Chief Distribution Officer or a CFO, but this is we're looking for somebody who could be a CEO successor. And it is -- it sort of changes the type of people we're looking for, but we're seeing companies want to get ahead and don't -- if there's an opening on the senior team, it's -- we're seeing more and more companies thinking about this as, well, this isn't just an opportunity to fill this role, bring in some new talent, new ideas, but it's a great opportunity to shore up our succession planning, and we are definitely seeing more of that.

Is there a time frame that you think is optimal in terms of, we'll say, that dual role, if you will? Is it 6 months, 12 months, 15? I don't know if you have a perspective on what you think works best?

Yes. I mean if the person is being hired clearly as the successor, my view is six months is starting to get to the point because after not too long, it starts becoming bumping into each other. Now if it's somebody that's developing into the role, and this is where it can be particularly tricky is you need to make sure that both the incumbent and the Board are on the same page as the potential candidate -- because if you say to a candidate, I see this as three to five years, they heard three years at the most. And that's human nature. I'm not -- and so I think you have to be very transparent because what you don't want to do is just create a second problem down the road.

Yes.