Insurers update investment priorities to accelerate pandemic recovery
Although insurers are investing in resources to help traditional agents, many also are increasing funding in direct online sales.
As we enter 2021, most insurers have updated strategic plans, adjusted budgets, and reconsidered investment priorities to hasten the industry’s recovery from the effects of the ongoing pandemic while positioning for growth in what is likely to remain a challenging economy.
The COVID-19 outbreak and resulting economic fallout radically shifted consumer and employee needs, habits and expectations, prompting a shift to a remote workforce and virtual engagement with consumers practically overnight. While insurers were generally quick to adapt, it wasn’t easy, and most believe they still have their work cut out for them.
Indeed, 48% of insurance company leaders surveyed by the Deloitte Center for Financial Services said the pandemic “showed how unprepared our business was to weather this economic storm,” while only 25% strongly agreed their carrier had “a clear vision and action plan to maintain operational and financial resilience” during the crisis.
Deloitte’s global “2021 Insurance Outlook” survey explored both the tactics that industry leaders have been following to ensure their foundation remains strong for however long the effects of the pandemic last, as well as the investments they plan to make to position themselves for long-term success. Among the major themes emerging from the survey results:
- Expense management was a top priority even before the pandemic, but it is being even more strongly emphasized now among many insurers to offset COVID-19’s ongoing impact on their premium volume and investment portfolio, given high unemployment, small business closures, changes in driving habits, and near-zero interest rates.
- However, rather than cutting budgets across the board, most insurers are more likely delaying or scaling back non-essential, pre-pandemic investments in part to free up additional capital to fund higher priority projects and hire specialized talent that can help them adapt sooner rather than later.
- The need to accelerate digitization and enhance virtual operations turned innovation headwinds into tailwinds at many insurers, driving faster action to deliver within the coming year what might originally have been three-to-five-year transformation plans.
- Necessity might have been the mother of reinvention for many insurers during the pandemic, but the speed of change and much greater reliance on connectivity and remote access may also generate a host of new exposures for carriers and their policyholders, particularly in terms of cyber risk.
Technology upgrades in a variety of areas were cited by respondents as a vital element helping insurers continue to conduct business and remain connected with intermediaries and clients while working remotely. Even so, Deloitte’s outlook survey found 79% of respondents believe the pandemic uncovered shortcomings in their company’s digital capabilities and transformation plans. That rose to 87% among respondents with operational responsibilities, who were probably the most directly impacted.
In response, 95% are already accelerating or looking to speed up digital transformation to maintain resilience. Cybersecurity was cited as the top priority, mainly because of the new exposures that go along with protecting a largely remote workforce. But spending on cloud computing and storage is also being emphasized among survey respondents, along with data analytics and digital channels (see graphic above).
Insurers hedge their bets
Forty percent of insurers surveyed by Deloitte expect to increase investment in direct online sales, at least partially because many customers may be less able or unwilling to meet face-to-face with insurance salespeople until the pandemic is completely resolved — or perhaps longer term if consumer preferences evolve more fundamentally.
However, most respondents indicated they are hedging their bets by helping traditional agents and brokers in a variety of ways, including prospecting and sales management support. European respondents went so far as to cite direct financial aid for struggling intermediaries as their top distribution priority (although that option ranked eighth in North America).
Such help would likely be welcome, as most independent agents lost personal and commercial lines clients due to the pandemic, while many agencies had to apply for federal Payroll Protection Program loans or some other grant or financial assistance to sustain themselves during the height of the crisis.
Balancing the needs of a hybrid workforce
Most insurers surveyed are looking to eventually get the bulk of their people back to the office. However, with the periodic surges being experienced in COVID-19 infections and uncertainty around the timing of large-scale vaccine distribution, many returning workers likely will remain concerned about potential health and safety risks well into 2021.
Indeed, 74% of Deloitte’s survey respondents feel their organization’s success post-COVID-19 may be hampered by employee fear of returning to the office. Compounding this, those who’ve acclimated to remote work may question the need to return to an office, regardless of COVID-19’s status.
Many insurers will therefore likely have to consider moving beyond traditional office-based work structures and build a roadmap to thrive virtually. Some may decide to shut selected offices for good and allow full-time remote work, while others should consider a hybrid remote/office system or at least a more flexible template.
This might also prompt a shift in bigger picture strategic thinking, as recruitment of new talent will not have to be limited geographically if proximity to a particular office is no longer a job requirement.
Insurance innovation becomes vital to thrive
There are many additional challenges not related to the pandemic facing insurers in the year ahead. One is the potential impact of worsening climate change on insurer bottom lines, with 80% of survey respondents expecting to increase investment in initiatives promoting sustainability. Another is addressing inclusion issues, with 67% of respondents reporting their company is focused on increasing the level of diversity in hiring, development, and leadership.
However, perhaps the biggest challenge overall may be coping with what we’re calling “the unknown of unknowns.” While pandemic recovery efforts have been generally robust in substituting digitization and virtual encounters for manual processing and face-to-face sales and service, such changes will likely result in new risk management challenges for insurers and their policyholders. These include the risks of increased dependence on connectivity and third-party data, as well as cloud functionality and security.
With so many commercial customers undergoing similar digital transformations under great duress, there is likely a big opportunity for insurers to help mitigate and cover any resulting exposures that might arise. This may play out much like cyber risk — a rapidly evolving exposure both threatening data-rich insurers while also opening up a growing market for the industry to cover.
How insurers respond by continuing to innovate in their insurance policies, distribution strategies, and underwriting and claims operations could turn out to be their biggest differentiator in 2021 and beyond.
Click here for Deloitte’s full “2021 Insurance Outlook,” and click here to register for Deloitte’s Jan. 13, 2021 insurance outlook webcast.
Former NU Property & Casualty Editor in Chief Sam J. Friedman (samfriedman@deloitte.com) is now the insurance research leader at Deloitte’s Center for Financial Services. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn.
This piece is published with permission from Deloitte. See www.deloitte.com/about to learn more about Deloitte’s global network of member firms.
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