The one area of finance where the bonus Wild West still needs to be tamed

The EU has now pushed through its banking bonus cap, but there’s still one place in the financial sector where all-cash bonuses are commonplace, and golden hellos and guarantees are still used to sway talent from one firm to another – insurance. However, remuneration specialists suggest regulatory intervention is long overdue.

Now that bonus caps are extending beyond banks and towards asset management firms and hedge funds face greater deferrals, insurance firms should be “nervous” that regulatory intervention is coming their way, said Jon Terry, partner in the remuneration practice at PwC.

“Solvency II is delayed until 2016, and may not contain any remuneration regulation, so in the short-term pay in the insurance sector is unlikely to be regulated,” he said. “However, there’s such massive political momentum when it comes to clamping down on pay, large insurance firms are arguably more systematically important than banks, and it’s time they came in line with what’s happening to bonuses elsewhere in the financial sector.”

Insurance firms are still willing to hand out sign-on bonuses to persuade the right staff to move, suggest recruiters, while brokers in particular use the carrot of a guarantee to lift out teams from rivals. All-cash bonuses don’t exactly inspire loyalty.

“Brokers are just waiting for bonuses to hit their bank accounts, and then we expect to see the usual flurry of people moves,” said Andy Edwards, head of technical insurance at recruiters High Finance Group. “If brokers are bringing in the revenues, then firms can justify paying them big bonuses.”

Contractual bonuses don’t always work out well for insurance brokers, with some big players like Willis deciding to cut jobs while also ramping up compensation costs last year.

Mark Grice, a partner at who specialises in insurance broking at accountancy firm Mazars, believes that regulatory intervention on pay would bad for the industry. “It’s not practical for smaller brokers to raise base salaries to compensate for a regulatory crackdown on bonuses and larger firms in London would undoubtedly lose talent to financial centres like Singapore and New York.”

Shortages of talent in for roles like actuaries have led insurance firms to continue to offer guarantees and sign on bonuses to people “under the radar” said Terry. If there was more regulatory scrutiny then these practices would inevitably stop.

However, even if the 1:1 ratio was applied to actuarial bonuses, it wouldn’t cause too many waves, said Paul Walsh, chief executive of insurance recruiters Acumen Resources.

“Sign-on bonuses are very common, but often they’re 20% of salary subject to the condition of staying with the firm for at least 18 months,” he said. “Annual bonuses are not insignificant, but still usually amount to 60-70% of base pay.”