Report: Financial Services Sector Faces Competitive Pressures

The New England Council’s recent report on the region’s financial services industry provides a comprehensive look at Connecticut’s role as a financial services hub.

The sector represents a major source of employment and contributes significantly to the state’s GDP, with economic impacts extending well beyond direct employment in banks, insurance companies, and asset management firms. 

Connecticut maintains distinctive strengths within financial services.

The state leads the nation in insurance employment concentration and some of the world’s largest hedge funds. Its strategic location in the Northeast corridor provides access to capital in the nation’s premier financial centers. 

Yet the report also highlights emerging competitive pressures.

Midwest states have gained ground in insurance, and Vermont dominates the captive insurance market where Connecticut has failed to keep pace.

While the sector has continued to adapt over time, these trends raise important questions about state-level policies needed to sustain Connecticut’s competitive position. 

Economic Footprint 

Connecticut’s financial services sector employed approximately 100,000 people directly as of 2024, with total employment reaching 238,203 when accounting for indirect and induced jobs—representing 13% of all employment in the state.

The industry paid $37.6 billion in total wages in 2024 and contributed $127.6 billion in value-added economic activity. Finance and insurance alone accounted for 12.4% of Connecticut’s GDP. 

The sector’s wage profile distinguishes it from most other industries.

Asset management positions averaged $421,000 annually, more than five times the state’s average wage of $82,000 in 2024. Insurance roles averaged $156,000, while banking positions averaged $203,000.

Connecticut shows the largest wage premium for financial services workers relative to average workers among New England states, reflecting the concentration of high-value activities in asset management and insurance. 

Insurance remains Connecticut’s strongest subsector, employing 55,946 people directly—the largest component of the state’s financial services workforce.

Connecticut shows the largest wage premium for financial services workers relative to average workers among New England states.

The state’s 2.2% concentration of employment in insurance leads the nation. Connecticut also hosts significant banking and asset management operations, with 26,752 and 17,300 employees respectively in those sectors. 

Beyond traditional financial institutions, Connecticut has developed specialized strengths.

The state houses 10 of the world’s largest hedge funds, including Westport-based Bridgewater Associates, the largest globally.

Connecticut ranks second nationally in hedge fund capital, trailing only New York City. Savings bank deposits totaled $25 billion in 2024, placing the state fourth nationally. The state’s venture capital ecosystem invested more than $770 million in 2023, ranking eighth per capita nationally. 

Notably, while financial services employment has declined over the past 25 years, the sector’s GDP contribution has remained among the largest in the state.

This pattern suggests significant productivity improvements, with the industry generating more economic value with a smaller but likely more specialized workforce. 

Warning Signs, Competitive Pressures 

Despite Connecticut’s established strengths, the New England Council report identifies several concerning trends.

Most notably, Midwest states have emerged as serious competitors in insurance. Iowa now ranks second nationally in insurance employment as a percentage of total state employment at 1.8%, while Nebraska and Wisconsin each stand at 1.4%.

When measuring insurance’s contribution to state GDP, Nebraska and Iowa have surpassed Connecticut, leaving us 3^rd in the nation. 

The growth of these Midwest insurance centers likely reflects advantages in business costs and regulatory environments.

The report notes that these states offer “favorable business environments” and lower operational costs while maintaining U.S. domicile for regulatory purposes—a combination that appeals to insurers seeking to improve margins without moving offshore or to less regulated jurisdictions. 

When measuring insurance’s contribution to state GDP, Nebraska and Iowa have surpassed Connecticut.

Connecticut has also lost ground in captive insurance, a specialized segment where companies create their own insurance subsidiaries.

Vermont has dominated this market with 659 captive insurance carriers, far ahead of second-place Utah with 439. Despite efforts to develop its captive insurance market in recent years, Connecticut does not rank in the top five states, according to the report. 

The composition of Connecticut’s financial services employment has shifted as well. Banking employment has declined, though this has been partially offset by growth in insurance and asset management.

Financial services overall reached a post-pandemic employment high of 120,200 jobs in July, but this represents a smaller workforce than the sector maintained 25 years ago, even as GDP contribution has held steady.

This productivity driven transformation suggests the sector is retaining higher-value positions while other roles migrate elsewhere or become automated. 

Policy Implications 

The competitive dynamics highlighted in the New England Council report point to clear policy priorities for Connecticut.

The migration of insurance operations to Midwest states underscores that even established industry clusters remain vulnerable to jurisdictions offering more attractive business climates.

Iowa, Nebraska, and Wisconsin have demonstrated that lower operational costs and favorable regulatory environments can overcome Connecticut’s advantages in talent concentration and proximity to major financial centers.

This suggests Connecticut cannot rely solely on historical strengths or geographic position to retain its financial services base. 

Business climate considerations extend beyond corporate taxation to encompass the full cost structure firms face when operating in the state.

Business climate considerations extend beyond corporate taxation to encompass the full cost structure firms face.

The sector’s high average wages provide significant tax revenue and support consumer spending throughout the economy.

However, these compensation levels must remain competitive with what firms can achieve by locating operations in lower-cost states.

Connecticut’s cost of living, particularly housing costs, affects both employers’ location decisions and their ability to attract talent, especially younger professionals early in their careers. 

The captive insurance market offers a cautionary example of how quickly competitive positions can shift.

Vermont identified an emerging opportunity in captive insurance and built the nation’s dominant position with 659 carriers, while Connecticut failed to establish a meaningful presence despite its broader insurance expertise.

This outcome illustrates the importance of monitoring industry evolution and acting decisively when new segments emerge.

Rapid Evolution

Financial services continues to evolve rapidly, with ongoing convergence between banking, asset management, and insurance, alongside the growth of fintech and alternative investment vehicles like private credit.

Connecticut’s ability to capture growth in these emerging areas depends on regulatory frameworks that accommodate innovation while maintaining appropriate oversight. 

The state’s existing advantages remain substantial. The concentration of hedge funds and asset management firms, strong insurance cluster, and strategic Northeast location provide a foundation for continued leadership.

Connecticut’s $770 million in venture capital investment in 2023 and ranking as the eighth-highest state per capita suggests capacity for supporting financial innovation.

Connecticut’s policy choices in the coming years will determine whether the state builds on its historic strengths.

The state’s universities can supply talent in financial engineering, data analytics, and related fields that financial services increasingly requires. 

Maintaining Connecticut’s position as a financial services center will require sustained attention to competitiveness across multiple dimensions: business costs and regulatory environment, workforce development and talent pipeline, housing affordability, and responsiveness to industry evolution.

The trends documented in the New England Council report indicate that the competitive threats are real and that other states are actively working to capture financial services activity.

Connecticut’s policy choices in the coming years will determine whether the state builds on its historic strengths or gradually cedes ground to more aggressive competitors. 

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About the author: Dustin Nord is director of the CBIA Foundation for Economic Growth & Opportunity.