This post is part of a series sponsored by AgentSync.
Supply chain disruptions, increased consumer demands, a tight labor market, a global pandemic, a couple of natural disasters and a war. These are just some of the reasons that have combined to leave us in a worldwide state of high inflation. So high, in fact, that experts are calling it the worst inflation they’ve seen in over two decades.
While it’s true that such high inflation figures wreak havoc in all industries, we’ll focus on the one we know best – insurance! We will cover the impact on the insurance industry and how industry leaders can use technology to neutralize its impact.
The impact of inflation on the insurance industry
Although often referred to as recession-proof, the insurance industry is actually not immune to the effects of market changes such as inflation. As the cost of everything increases, insurance companies may see claims costing much more than expected (part of the larger phenomenon of social inflation). This means that during periods of high inflation, insurance companies run the risk of not being able to fulfill their main responsibility – to pay claims.
To avoid insolvency, the insurance industry responds to inflation by tightening the market. Largely caused by the ongoing covid-19 pandemic and an increase in climate and weather-related disasters, the insurance industry is currently experiencing ongoing tough market conditions.
What is a tough market in insurance?
A hard market refers to a period of the insurance market cycle that occurs as a result of increased demand for insurance products combined with reduced supply. Hard markets are characterized by increased premiums, stricter underwriting and reduced risk capacity. During a tough insurance market, customers will face higher prices on their renewals and lower coverage options for certain risks.
How does a tough market affect key insurance players?
The effects of a tough market can be seen throughout the insurance distribution channel. From customers to agents to carriers and underwriters, tough market conditions have real implications for how these professionals and organizations approach the business of insurance.
It all starts with underwriters. The market is starting to tighten as insurers adhere to stricter standards and tighten policies to minimize losses. Stricter underwriting leads to increased insurance rates and can make certain lines of coverage unattractive, or even unprofitable for carriers to offer.
With fewer coverage options available, insurance customers are relying more on their agents to help them find the coverage they need at a price they like. The reduction in coverage options also allows those carriers that still offer some coverage to raise their prices further, without fear of losing business to the competition.
Using technical solutions to respond to a tough market
As the market tightens, policyholders are relying more on their agent to help them find the best coverage for their specific risks. An agent’s basic task, to bridge the gap between customers and insurance companies, becomes more crucial. Producers looking to increase their value to both customers and carriers in a tough market can do so by leveraging technology solutions to automate processes, help prevent risk and improve data collection.
With costs rising across the board due to inflation, insurance agencies and carriers may be looking for ways to control costs and protect their bottom line. By investing in technology solutions that use automation to streamline operations, these businesses will be able to increase efficiency and simplify manufacturers’ workflows.
Digital solutions can help agencies and carriers minimize operational costs by removing human hours spent on manual activities such as filling out forms and tracking license renewals. Eliminating these processes leads to a more efficient bottom line and more importantly frees up agents and support staff, allowing them to spend more time helping customers and building stronger relationships. Which is exactly what insurance customers need in a tough market.
Help prevent risks
In a tough market, insurance companies’ appetite for risk decreases, which means that the industry has to shift its focus to be heavy on risk prevention. To help their customers prevent risk, insurance companies can use predictive technology and next-level product and service visualization tools to evaluate current and future risks.
These technological solutions enable insurance professionals to better predict risk for all types of insurance coverage. Better risk prediction means more accurate pricing, which is critical for an insurance company trying to survive a tough insurance market. For example, advanced weather forecasting software can help agents better understand their clients’ flood insurance needs. And digital twins can replicate large machines to give insurers a 360-degree view of vulnerabilities and maintenance needs before they become a problem.
A producer who can help their customer prevent risk in a tough market with limited coverage availability will win the customer’s trust. Plus, with insurers less willing to write risk, agents with a better understanding of their clients’ risks have an advantage and can use it to strengthen their relationship with insurers.
Improve data collection
Tough market conditions make it more important than ever for agents to foster a strong partnership with their carrier partners. In a soft market, agents may find it more beneficial to shop around when it comes to carriers to maximize their commissions, but this strategy no longer works when the market hardens.
When there are a limited number of carriers that offer the specific coverage a customer needs, agents will want as many trusted carriers on their side as they can. To improve the relationship between producers and transporters, agencies can invest in data collection solutions that make transporters’ jobs much less stressful.
Agencies should look for a technology solution that can improve the quality of their data and streamline their data collection. A technology-enabled solution can help agents provide carriers with cleaner data at a more efficient pace. This way, carriers and agents are satisfied with the back office end of their working relationship and can focus more on serving their shared customers.
The insurance market moves in cycles, which means that market conditions will eventually change. A tough market will eventually soften as inflation stabilizes and carriers’ risk appetite increases again. Agencies and producers can see the current tough market as an opportunity to build stronger relationships with their clients and carriers.
The technology investments insurance professionals make in a tough market will continue to benefit them even as the market softens by continuing to improve workflow efficiency and add value to clients. The big news is that any agency, operator or MGA that does well during a tough market is likely to see these benefits carry over and perform even better in a soft market.
If you want to control costs by increasing operational efficiency as inflation eats away at your profit margin, AgentSync can help. Our solutions can automate and streamline your agency, carrier or MGA operations to help your business thrive in tough market conditions
InsurTech Tech Pricing Trends Market