In the first full week of spring, green shoots are starting to poke through the metaphorical ground in the U.S. economy, as well. It may be time to start planning for a robust rebound late this summer or in the fall, both in terms of what needs to happen as insurance employees increasingly return to the office and in terms of what will happen for clients' and prospective clients' businesses.
My optimism hinges, in particular, on a survey of chief financial officers that Deloitte released last week. While straws have been in the wind for weeks now as the vaccine rollout has accelerated in the U.S., I was struck that only 13% of CFOs considered the North American economy to be bad in the first quarter, down from 26% in the fourth quarter and 60% in the third. 29% said current conditions are good, up from 18% in the fourth quarter. (Only 7% consider the European economy good; 48% view it as bad, and 1% as very bad.)
We could still take a hit if capital markets reset -- 83% of CFOs consider equity markets overvalued. But 57% said they feel somewhat more optimistic about their company’s financial prospects, and 10% are significantly more optimistic. Only 3% are somewhat or significantly less optimistic.
In terms of when companies will return to normal operations -- whatever "normal" turns out to be -- 37% of CFOs say their company is already at or above its operating level before the pandemic. 16% of CFOs expect to hit that mark in the third quarter, and another 16% predict their companies will get there in the fourth quarter.
The new normal will likely include less travel: 73% expect travel expenses post-pandemic to be between 50% and 80% of where they were before. Just 12% see travel at 81% to 100% of pre-pandemic levels, and only 2% project an increase.
While the CFOs weren't asked about the likely working environment for their companies, in general, they provided some feedback on their function that may be instructive for others. Only 31% expect the majority of their finance staff to work four or more days on site post-pandemic; 45% expect the on-site work week to be three days.
When you step back and look at the implications for the insurance industry, I'd say that most clients, outside of those involved in business travel, will snap back -- as long as a company has managed to stay in business. The hunger is there -- literally -- for meals at restaurants and for other social outings. (The first thing I'm going to do when I get vaccinated is hop on a plane and fly to Pittsburgh to give my nearly 91-year-old mother a hug, having not seen her except on Zoom in 14 months.) Schools will reopen, and, while the lost year in the classroom will cause problems for a long time, the rhythms of life will return for parents with school-age kids.
But I'd guess that the office environment, both for the insurance industry and for clients, will take time to sort out. There were clearly lots of advantages to working from home -- I fill up my car about every six weeks -- but I miss the camaraderie, and academics argue that creativity drops when people and ideas don't bump into each other.
I'd guess that most businesses will more or less follow what the CFOs predicted, that people will come to the office three or four days a week -- perhaps coordinating so that members of a group are likely to see each other -- but will have much more freedom to keep doing those Zoom meetings. Perhaps keep an eye on Microsoft, which said this week that it is starting to call employees back to the office as it rolls out a hybrid model of work in the office and at home. A recent essay in Fortune offers advice on testing hybrid models -- mostly on mistakes to avoid. The author reports that employee time spent on collaboration declined to 27% in 2020 from 43% pre-pandemic and says that trend needs to be reversed for a host of reasons.
In any case, having to sort out a hybrid work environment is a nice problem to have after a year hunkered down. I'm just delighted to be finally feeling optimistic. See you soon, Mom.
Stay safe.
Paul
P.S. I was also struck by an article over the weekend in the Wall Street Journal about how Blackstone has shifted its investment focus from value-based investments to growth companies. If even Blackstone sees more opportunity in growth than in spotting undervalued companies and wringing inefficiencies out of them, that has to be a good sign, right?
I'd actually argue that it's a good sign for the economy but not for Blackstone. If it's switching from a tried-and-true formula that has the firm with more than $600 billion under management, then the firm is running out of opportunities to work its formula. You just don't stop minting money unless you have to.
Expertise in hyper-efficiency and in the sort of sophisticated financial tools that private equity uses don't relate much to success in spotting and nurturing high-growth companies, so I'll bet anybody a nickel that within a couple of years we'll see Blackstone retrench. But I don't have a stake in Blackstone, so I'm simply pleased that it and its hundreds of billions of investment dollars will chase growth and encourage everyone to innovate, at least for now.
P.P.S. Here are the six articles I'd like to highlight from the past week:
Transforming Auto Claims Appraisals
While the benefits of claims automation are indisputable, delivering a truly “touchless” experience will require a technological evolution.
Straight-Through Processing in 2021
Straight-through processing of claims is likely to become more common, especially in personal lines and individual life.
Analytics That Lower Spending on Claims
The secret is to unlock the potential of the large quantities of unstructured data streaming through the claims function.
Premium Leakage Due to Legacy Systems
A recent study shows that 5% to 10% of insurance premiums vanish every year due to the inefficiencies caused by legacy systems.
Geomagnetic Storm for Insurance?
A geomagnetic solar storm could create havoc; the recent freeze in the Deep South showed how disruptive a failure of the electric grid can be.
Lessons on Reaching Customers Remotely
Tech companies have mastered digital communication because they have always sold products and services to customers remotely.
