🔒Economic Headwinds: CT struggles to regain financial services, insurance jobs

Connecticut’s financial services sector — a cornerstone of Hartford’s and the state’s overall economy — remains in a jobs slump.

Finance, insurance and real estate jobs — which make up the broader “financial activities” industry — have not only struggled to rebound from the global health pandemic, but employment in the sector remains well below pre-Great Recession levels.

And the finance and insurance industry was identified as the leading contributor to Connecticut’s economy contracting by 4.7% in the second quarter, according to the U.S. Bureau of Economic Analysis, the second-largest decrease in the nation after Wyoming.

The Wall Street Journal recently reported that New Britain-based Stanley Black & Decker eliminated 1,000 finance jobs as part of a larger restructuring, although the company later refuted that number.

Regardless, economists say numerous factors are putting pressure on financial services jobs in the state, including retirements and increased automation across the sector.

However, boosters and other experts say Connecticut remains a hub for financial services activity, and the state could grow the sector by focusing on improving its business competitiveness and offering tax incentives to spur the industry.

The numbers

At the end of August, Connecticut’s financial activities sector employed 118,600 people, down from about 123,000 jobs in the early part of 2020, right before the pandemic led to a partial shutdown of the economy. At its low point over the last two years, the sector employed 116,000 people.

Longer term, the industry employed about 144,000 people in the early part of 2008, before the Great Recession took hold. Over the last three decades, Connecticut financial activities jobs peaked in January 2007, at 145,600. The state is currently about 18% below that level.

Across all industries, Connecticut has only recovered 87.9% of the 289,400 jobs lost during the early part of the pandemic, in March and April 2020. That slow recovery is occurring as employers also struggle to fill open jobs. Connecticut businesses reported 113,000 job openings at the end of July, according to the U.S. Bureau of Labor Statistics.

Economist Don Klepper-Smith said technology is playing a significant role in the financial activities sector’s struggle to regain jobs.

“In this age of technology, there are a lot of firms leveraging technology to displace some of that labor,” Klepper-Smith said. “There are some sectors of the economy, like the service sector, where you can’t do that. But, when you talk about finance, insurance and real estate, you are talking about economies of scale and you are talking about technology. We’ve seen a displacement of labor and I think that is a trend that will be continuing for the foreseeable future.”

Retirements and workers leaving the financial services sector due to the pandemic or better opportunities elsewhere, in addition to the draw of lower-tax states, also has contributed to job losses, experts say.

“I think we will build back, but there is a larger issue at play,” said economist Fred McKinney, co-founder and partner of consulting firm BJM Solutions LLC. “Connecticut has been, more or less, stagnant (in job growth) for a number of years. We are a net exporter of young talent. We’ve got a lot of universities here and many of those graduates go somewhere else. We really have to think seriously about how we keep talent in the state; how do we attract talent.”

There is also the issue, Klepper-Smith said, of making the Nutmeg State more business-friendly, and thus, more competitive with states in other parts of the country. In that regard, he said, there is a long way to go.

Connecticut was ranked 39th in CNBC’s 2022 America’s Top States for Business report, dropping 15 places from last year. That drop-off has become a talking point in the high-profile governor’s race.

Klepper-Smith, a longtime Nutmeg State consultant to banks and even former Republican Gov. M. Jodi Rell, said that if Connecticut does a complete reassessment of how states like South Carolina — where he now resides — have poached businesses from the Northeast, and implements some of those policies, a jobs rebound is possible.

“We need to ascertain what is working in other states — things like tax incentives — and use them in Connecticut,” he said. “Why is it that Connecticut continues to be ranked near the bottom (of business-friendly states)?”

UConn economics and business professor Fred Carstensen said there are some things the state and employers in the financial services sector can do to keep and attract jobs here.

“If you have a good employment pipeline, you can keep and expand jobs,” he said.

In addition, he said tax incentives can be helpful in the short term.

The Lamont administration has retooled the state’s incentives strategy, moving away from upfront grants and tax credits to an earn-as-you-grow system that rewards companies with tax rebates after they add at least 25 jobs.

The so-called JobsCT program targets certain industries, including the financial services sector.

Hybrid work impact

Due to the pandemic, many companies in Connecticut — and nationally — have incorporated a hybrid/remote work model.

The state’s financial services sector is no different. In fact, it’s probably embraced remote work more than many other sectors.

Large insurance carriers — like UnitedHealthcare and Prudential — have announced plans to significantly scale back their downtown Hartford office footprints as they embrace a more permanent hybrid model. That’s negatively impacted center-city activity and foot traffic.

What’s still unclear is how increased adoption of remote work will impact local and state employment levels, since the model allows companies to recruit workers from anywhere in the country, or even internationally. It also gives some workers the flexibility to live anywhere they want, even if their job is technically based in Hartford or Stamford.

Kenneth Goroshko, an economics, finance and insurance professor at the University of Hartford Barney School of Business, said he doesn’t believe there is any large-scale use of out-of-state workers to replace Connecticut workers in the financial services sector.

Attempts to do that could backfire, he said.

It’s harder for fully remote workers to understand or embrace a company culture, and work is better done in person for collaboration, brainstorming and mentoring purposes, he said.

“I’d say replacing Connecticut workers with other workers is not common,” Goroshko said. “I think, over the long haul, the concept of engagement, working with others in the office setting is still the best option, especially from a mentoring standpoint. Young folks coming out of college are looking for mentoring opportunities and you can’t get that looking at a screen and watching everything on Zoom.”

Experts said there are some bright signs in Connecticut’s financial activities sector.

UConn’s Carstensen noted that health insurer Cigna’s recent decision to invest $386 million to renovate its Windsor data center was “highly encouraging.”

“We need data centers and IT infrastructure in the state,” Carstensen said because they help fuel various industries, including financial services.

Connecticut in 2021 adopted new incentives for data centers, although they haven’t spurred much activity to date.

Susan Winkler — vice president and executive director of the Connecticut Insurance and Financial Services cluster, an arm of the MetroHartford Alliance — said the state is still seen by many as an “international hub” of insurance and financial services activity.

She pointed to the March 2022 formal agreement between the United Kingdom and several Connecticut governmental entities to launch a new Insurtech Corridor.

The collaboration, Winkler said, is expected to allow participating U.K. and Connecticut companies to: access resources to accelerate business growth; connect with business development and investment opportunities; and streamline the U.S. and U.K. market entry by leveraging the local insurance ecosystems.

“We forged this agreement because, we recognize, that between Hartford and London, these are two centers of insurtech global tech influence,” Winkler said.