The majority of U.S. insurers are bullish about their second-half prospects, with many boosting investments in digital infrastructure to enable even faster growth into 2022 and beyond, according to a Deloitte survey of some of the industry's top financial executives. Even though COVID-19 remains a serious threat as U.S. vaccination rates slow and new variants emerge, over half of the 100 respondents surveyed for Deloitte's "Midyear 2021 U.S. Insurance Outlook" anticipate both higher revenues and an improved bottom line for 2021 as pandemic restrictions ease, more people return to work, and businesses reopen to full capacity (see Figures 1 and 2 above). While some carriers surveyed were still trying to rationalize expenses and avoid balance sheet deterioration due to the pandemic's impact, 40% said their companies had increased operating budgets entering 2021, and 31% expect to boost spending even more over the rest of this year. |

Enhanced analytical, digital capabilities

Given the need to digitize and virtualize their operations overnight, it's no wonder that even though 52% of respondents said they had trimmed discretionary spending during the pandemic, often in areas such as talent, only 6% canceled or postponed long-term technology projects, while 96% are now accelerating digital transformation initiatives. Many respondents indicated their companies were committing additional funds to build upon the technology investments that allowed them to work and engage with customers virtually, as well as capitalize on alternative data sources and advanced analytics programs, in order to drive further efficiencies and enable longer-term business model upgrades. The top two technology focus areas among those surveyed were data analytics, where 68% plan to increase spending this year, along with 66% spending more on customer relationship management software — including one in five respondents planning to boost budgets in each area by more than 10%. |

Challenged by revamped workplaces

The insurance workplace will likely never be the same after carriers had to enable most or all of their employees to do their jobs from home during the pandemic. The shift certainly changed the attitudes of many companies regarding the importance of having staff together on site. Indeed, nearly 51% of respondents are now hiring employees irrespective of their location, while 58% are augmenting their teams with contract or "gig" workers. This trend may not only lower real estate expenses since less office space may be required, but it should allow insurers to tap into an expanded talent pool since at least some may no longer be required to live within commuting distance. However, many of the insurers surveyed by Deloitte are struggling to determine how to revamp their workplace long-term in the wake of the pandemic. Only about one in four respondents said their companies are likely to revert to the traditional model of having nearly all employees work together in centralized offices most of the time, while nearly half are planning to adopt a hybrid model incorporating a fluid mix of remote and office work. The remaining quarter are even thinking of maintaining a mostly virtual environment. While adoption of a hybrid model may appear to take advantage of the best of both worlds and be the most flexible option, it might also be the most challenging to execute, as insurers grapple with the details of who gets to work where and when, and who makes those decisions. That's why this may turn out to be the industry's biggest operational challenge for the remainder of the year and likely extend into 2022. Getting employees on board with whatever model is adopted while accommodating personal priorities and preferences will be important in achieving a successful transition. It is, therefore, encouraging that among those surveyed, 87% said they were able to maintain strong engagement with employees during the pandemic. |

Pandemic raised the bar for insurer-stakeholder engagement

Nearly all of those surveyed by Deloitte believed they were able to maintain strong engagement with their existing policyholders despite the pandemic making face-to-face interaction problematic, if not impossible, such as for sales presentations and on-site claims inspections. Yet only 40% strongly agreed with that sentiment, while 38% of respondents did not feel as engaged with new sales prospects and only half felt adequately connected with their distribution partners. This likely indicates insurers still have to work to do in digitizing operations without losing their personal connection with customers, agents, brokers, and other stakeholders. Still, if nothing else, the pandemic demonstrated how adaptive the insurance industry could be when the chips are down and necessity becomes the mother of reinvention. That lesson should not be forgotten as insurers consider how they might: |

• Create more flexible products for current and emerging exposures.
• Use more real-time data to customize underwriting, pricing, and claims handling.
• Enhance digital platforms to enable both greater self-service options and differentiating personal engagement.
• Adopt bolder approaches to address bigger picture customer needs and societal problems, such as how to insure future pandemics, or use their influence as coverage providers and institutional investors to mitigate climate change at its source.

Such innovative thinking and decisive action should be the norm from now on, not just during a pandemic or some other crisis, but as part of an insurer's core culture and business model. For more survey results and an in-depth look at specific market opportunities and challenges, see Deloitte's "Midyear 2021 U.S. Insurance Outlook." Former NU Property & Casualty magazine Editor-in-Chief Sam J. Friedman ([email protected]) is insurance research leader at the Deloitte Center for Financial Services. These opinions are his own. This piece is published with permission from Deloitte and may not be reproduced. See www.deloitte.com/about to learn more about Deloitte's global network of member firms. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. Read more columns and analysis by Sam J. Friedman: |

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