It’s safe to say that current market volatility is on the minds of most — perhaps all — organizations, and that includes insurers. While the impact of factors like tariffs are not as direct to insurers as they are to other industries (e.g., manufacturing, retail), there still is an effect.
The uncertainty generated by macroeconomic and political factors has a significant impact on the equities and fixed-income markets — the exact markets that insurance organizations’ investment teams operate within. Investment strategy and results often are an integral part of an insurer’s overall financial performance and health, both public and private.
This makes getting compensation right for these teams critical. Unsurprisingly, given the current state of the market, we have seen an uptick in inquiries from our clients in the insurance sector about their incentive plan arrangements for investment teams.
Many clients have expressed a desire to review and assess their current plan design features as well as governance. We have found that these types of reviews for investment-team plans tend to occur less frequently than for broader, corporate-wide incentive plans.
In response to several of these client inquiries, WTW conducted a targeted pulse survey of investment-team incentive-plan practices across the insurance industry. This article shares those findings.
Most survey respondents separate the investment team’s incentive plan from the general corporate plan. This separation may be by plan type, performance metrics or other factors.
Regardless of whether the plan is specific to the investment unit or the general corporate plan, the most common measurement period is one year. Among those participants who reported using multiple measurement periods, a combination of one- and three-year periods was more prevalent, and it generally was on a relative measurement basis (i.e., performance measured against an external comparator group).
Five-year measurement periods are uncommon among the participants; this likely is a difference between insurers and more traditional asset management firms. In these firms, longer-term measurement periods in annual incentive plans are more prevalent.
Receivership typically is limited to the chief investment officer (by title, modal answer was vice president and above) and their direct reports. Most participants, about two-thirds, reported using the general corporate long-term incentive plan for eligible investment team members. A significant minority (roughly one-third) have either an investment-specific long-term incentive plan or they apply a combination of the general corporate plan (or metrics) and the investment-specific plan (or metrics).
In viewing the annual and long-term plans together, philosophically, organizations are more likely to use the annual plan to recognize unit-specific performance and the long-term plan to unite folks around broader enterprise-wide goals.
We view the ongoing, rigorous review and validation of compensation and incentive programs as a cornerstone of best practices. Such reviews better facilitate the continued efficacy of these programs, empowering the organization to effectively execute on its stated business and talent objectives.
This review process becomes even more critical during times of volatility and uncertainty, as the difference in having a plan that is fit for purpose in any market condition could very well be the difference in achieving attraction, retention and motivation/behavioral objectives and, in turn, business and financial objectives.
