Macroeconomics: buckling up for the long haul
Despite the continuing headwinds of Covid-19, economic recession and Brexit, the (re)insurance sector has had to move beyond crisis mode to plan for 2021. So how should organisations be setting and communicating their strategy for the long and bumpy flight ahead?
With the UK and Europe on the brink of a no-deal Brexit, London about to enter Tier 3 lockdown, and countries everywhere facing economic hardship and coronavirus restrictions, there is little respite in sight for the (re)insurance sector after what has been an extremely difficult year.
To see anything like the economic stress experienced in 2020 one would need to go back to the 1930s, thinks Jerome Jean Haegeli, group chief economist at Swiss Re.
"We saw deep negative figures in terms of the speed of shutdown and the impact on economic growth," he says.
He uses an Alpine analogy to describe his UK 2021 outlook. "It's still chilly out there, although we do expect to see some sunshine. It's good news on the vaccine side, but not all the damage from 2020 will be repaired. We will be left with more debt, significant fiscal deficit and more negative interest rates."
"In Monte Carlo last year we mentioned that the economic resilience of the industry was poorer then than it was going into 2008," says Haegeli. "Of course, we didn't know then the next crisis was going to be so soon. So, we came into this extreme economic crisis in a much weaker position with a debt overhang from the Global Financial Crisis."
But it's not all doom and gloom for the economy or the industry, with expected premium growth across Europe next year of 2.6%.
"Q4 figures are coming out better than expected and the fiscal response from policymakers has enabled a V-shaped recovery," adds Haegeli. "Next year we would expect to see growth coming back in the UK. This year the economy contracted by 11%, but it is expected to come back up to 4.7% next year, just like a yo-yo."
The continuing low interest rate environment means insurance and reinsurance rates will continue to harden, he thinks.
Managing through a crisis
Most companies have been operating in crisis management mode throughout 2020. At the heart of this strategy is communication, explains Nicolas Aubert, head of Great Britain and chief executive at Willis Ltd.
"Crisis management is the moment where you regroup," he says. "You need to demonstrate that everybody is in the same boat and there is a willingness to work through things together. It is defensive rather than offensive and there needs to be very strong connectivity and collective thinking.
"What we've seen this year is that communications are never as important and as strong as during a crisis," he continues. "The way you engage with talent during this time is highly dependent on what you've been doing in the previous years."
"As the leader of a corporate, you don't suddenly get credibility with your colleagues if you were not credible the year before. It's a tricky time because you need to fully leverage all the strengths and positives from the past."
During 2020, internal communications have mostly been carried out remotely, with companies adopting new ways of involving with their people and trading partners.
Virtual all-hands meetings (or virtual town halls) are a popular option for making employees feel more connected when they are working remotely and addressing critical issues. They also offer an opportunity for staff to engage with senior leaders.
"It helped a lot of firms from the start of the pandemic where the executives were seen to be (ironically) more visible than normal," says Caroline Klein, a director at Haggie Partners, who has previously held internal communications roles in the industry.
"At the start of the pandemic, firms were thinking about how they should best communicate with staff, and virtual town halls and Q&As were happening more often. Senior managers were able to do those more, perhaps because they weren't travelling as much, and that's been really different."
She thinks the pandemic and shift to remote working has been a leveller. "You're seeing your top boss having to work from home just like you, even if it has been smartened up. They may appear to be more of a real person than if you've only ever see them in their posh corner office with the good view."
A marathon, not a sprint
The challenge for a lot of firms is how to maintain the momentum of their communications strategy. With London entering Tier-3 lockdown before Christmas it is a reminder that the pandemic threat is still very real.
Workers are facing burnout as they struggle to separate their home and work life. Communication over Teams and Zoom has blurred the boundaries, particularly in multinational organisations dealing with multiple time zones.
"You can't be in constant crisis mode all the time and people are making that adjustment," says Klein. "It's more of a long haul than everyone hoped but people are adjusting and adapting their approach."
This requires a sympathetic tone and empowerment at a middle management level.
"The companies that have been adapting best this year are the ones where senior execs have got involved from the start," says Klein. "It's really important they are the ones saying ‘If you are having problems or facing burnout please talk to someone’."
"It does feel like the current situation has been going on forever - and likewise, Brexit," she continues. "It's important to maintain a certain level of communication and it might not need the same level all the time, but you need to keep a strategy and a plan and communication. Gossip and uncertainty love a vacuum."
"Middle management have a tough time dealing with these issues and supporting their people on a day-to-day basis, so it’s important that firms support them in turn," she adds.
While a “view from the top” approach for communications from senior leaders was most important to set the tone for colleagues at the beginning of the pandemic, according to research from Aon, team leaders may now be better suited to communicate with their teams in a more personal way.
Sixty-eight percent of senior leaders said Covid-19 had exposed new risks and vulnerabilities that required a significant change in how the business thought about the future, according to a survey by Aon. Rather than focusing on a return to 'normal', it says firms must prepare to navigate new forms of volatility with more innovative solutions.
Climate risk, geopolitical issues, cyber risk, digitisation and talent challenges are among the issues that lie ahead.
As organisations continue their journey through this volatile and uncertain period in our history, one fundamental principle remains.
"Run the business well," says Ken Evans, part of the reinsurance team at Miller. "No one can yet accurately predict where the (re)insurance market will be in 12 months’ time, or longer, not only due to Covid-19, Brexit, and/or a potential recession, but also due to the ongoing effects of climate change and its role in evolving new loss patterns."
"Therefore, regardless of the challenges ahead, the principles remain the same: have a strong balance sheet, be ahead of the pack and continue to invest in intellectual capital."