Rocky Road

Is the U.S. economy, with a seemingly endless list of financial worries being dealt with by businesses and consumers alike, in as serious condition as it would seem? Rebecca Amoroso, vice chairman and national insurance leader for Deloitte, isn't sure a recession will come, but she concedes there is reason for concern. Still, the insurance industry appears to be running smoother than others. "We've had some hits with some insurance companies, but I haven't really seen a significant slowdown yet in insurance." The economy, among other issues, is discussed in Deloitte's "Global Insurance Industry Outlook Mid-year Update: 2008."

The philosophy of "lean and mean" has returned, Amoroso believes, although she sees one positive economic indicator for the insurance industry. "[Insurers] are spending money where they think it will enhance one of their strategies–efficiencies, growth, things such as that," she says. "Companies still are investing in themselves."

One recipient of strategic spending is predictive modeling. Carriers are achieving enough benefits from their modeling tools that they are pushing to use analytics in other areas of the enterprise, Amoroso observes. "There's more of an awareness of what these models can do for you and how they can help you run your business," she says. "That's why we're starting to see it around claims, some attention given to help better manage your distribution channel, and some trends on how to better manage your employees to enable you to enhance and improve retention."

Some insurers will have to move away from old thinking, though. "I think many insurance companies still operate in silos," says Amoroso. "If you really want to tear down the walls, predictive modeling can help you cross-sell your products."

One area Amoroso expects to see more activity is with mergers and acquisitions. "The last two years [M&A activity] was pretty slow, but we're starting to see it heat up a bit," she says. "One thing I've seen is the U.S. companies are attractive targets for international companies because of the value of the dollar."

Insurers also will begin to take a different approach to their distribution channels, she predicts. "They need to be viewing distribution not as a cost center but as a profit center–much like a business unit," she says, adding that will be a new way of looking at the channel for many companies. "Companies are looking to enhance and establish better relationships with the distribution channels and have better communications with them," she says. "A lot of attention is being paid to understanding the agents' and brokers' point of view on what is important in those channels and how the carriers can serve those channels better."

Amoroso anticipates companies are going to consider multiple channels of distribution. She doesn't view this as a sign of dissatisfaction with the agency and brokerage channel but rather a reflection of what the policyholder is looking for in insurance. "Even if [carriers] decide not to go direct and stay strictly with the agency channel, having better communications with the policyholder is a different way to do business today," she says.

In addition, insurers must be more understanding of their employees' needs, contends Amoroso, as the balance of power is shifting from employer to employee. "We see employees having more of a choice," she says.

The reason for this switch is companies are facing a talent crisis. "What we find coming for some companies as we head toward a talent crisis is demand is going to exceed supply," she says. "Companies need to ask: How are we going to change our strategy to be more attractive and retain the people we want to retain?"

There are ways to allow employees some flexibility, Amoroso maintains. "It's not about working fewer hours but, maybe for a period of time, working from home a day or two to help manage things in your life, such as child care or an elderly parent," she says. "With technology the way it is, you really are able to connect and work quite efficiently–virtually."