Thank you for the question.  The damage in the photo was caused by a yellow bellied sapsucker, a kind of woodpecker.  This type of woodpecker drills the tree for sap, not live insects living in the tree and they prefer trees with thinner bark like yours.  The damage may attract opportunistic insects which the sapsucker may then feed upon.  Typically, damage isn’t serious and the tree recovers but occasionally, the health of the tree is jeopardized. You can try to wrap burlap around the tree trunk and branches to discourage drilling.   Sapsuckers, like all woodpeckers, are protected by the Federal Migratory Bird Treaty Act, so a permit is required for lethal control.

Read more:  http://www.na.fs.fed.us/spfo/pubs/howtos/ht_sap/sap.htm