Can the insurance industry withstand a hardening market with the help of Insurtech?
There is currently a significant rise in inflation across the world due to various factors, including disrupted supply chains, increased consumer demand, lack of available labor, the effects of the global pandemic, a few natural disasters, and war. This has been identified as the most severe inflation witnessed in over two decades, according to experts.
Our discussion will focus on how the insurance industry is impacted by high inflation rates and how industry leaders can use technology to lessen these effects. While all industries are affected by inflation, we will concentrate specifically on the insurance industry.
The influence of inflation on the insurance sector
Although often thought of as immune to economic downturns, the insurance industry is not impervious to market shifts such as inflation. Inflation can lead to an increase in claim costs, a phenomenon known as social inflation. This means that during times of high inflation, insurance companies may find it challenging to fulfill their main responsibility of settling claims.
The insurance industry adopts a method called “hardening the market” to prevent bankruptcy in response to inflation. Presently, the insurance industry is facing prolonged hard market circumstances due to factors such as the ongoing COVID-19 pandemic and an increase in climate and weather-related catastrophes.
What does the term ‘hard market’ mean in the insurance industry?
In the insurance industry, a situation called a hard market occurs when the demand for insurance rises, but there are fewer insurance products available. This causes customers to face higher premiums, tougher underwriting standards, and limited risk coverage opportunities. Consequently, during a hard market, customers may have to pay more for insurance renewals and might be left with fewer choices for covering risks.
What is the impact of a hard market on important insurance industry participants?
The insurance industry is being affected by a hard market, which is impacting everyone involved in the distribution process. This includes clients, agents, carriers, and underwriters who all need to adjust their approach to the insurance business. Hard market conditions have significant real-world consequences.
The begins with underwriters who implement rigorous standards and policies to minimize losses. This results in market hardening, leading to an increase in insurance rates and potentially making it unfeasible for carriers to offer certain types of coverage.
Insurance customers are relying more on their agents to help them find coverage that fits their needs and budget as coverage options become more limited. Additionally, carriers that offer certain coverages can raise their rates without fear of losing customers to competitors because of the lack of options.
Utilizing technology solutions for adapting to a challenging market environment
During a challenging market, policyholders rely heavily on their agents to find the best coverage for their unique risks. Therefore, it’s crucial for agents to connect clients with appropriate insurance carriers. To stay valuable to both clients and carriers, agents should leverage technological advancements to automate processes, reduce risks, and improve data collection.
Streamline operations with automation
Insurance agencies and carriers are looking for ways to manage costs and protect their profits due to inflation. They can do this by using tech solutions that employ automation to simplify operations and make producer workflows more efficient.
Digital solutions can help agencies and carriers cut down on operational costs by getting rid of manual tasks such as form filling and license renewal tracking. This can result in a more efficient bottom line while also allowing agents and support staff to concentrate on helping clients and building stronger relationships. Ultimately, this helps insurance customers during a challenging market.
Assistance in mitigating risks
In an insurance hard market, companies are less willing to assume risk, so they focus on risk prevention. To help their clients prevent risks, insurance companies can use predictive technologies and advanced tools for product and service visualization to evaluate possible risks in the present and future.
Insurance professionals can use technology solutions to accurately predict risks for different types of coverage. This is particularly important in a difficult insurance market to ensure the survival of an insurance carrier. For example, advanced weather forecasting software can help agents understand their clients’ flood insurance needs and digital twins can replicate important equipment to give insurers a complete picture of potential issues and maintenance requirements before they become a problem.
Earning a client’s trust as a producer involves helping them reduce risk during a tough market where insurance options are limited. Additionally, agents who understand their client’s risk well can establish better relationships with underwriters, giving them an advantage because underwriters are less likely to insure higher-risk proposals.
Enhance the process of gathering information
In challenging market conditions, it’s important for agents to build a good relationship with their carrier partners. While looking for higher commission carriers may be helpful during a market downturn, it’s no longer a useful strategy when the market is on the rise.
When the client needs specific coverage that only a limited number of carriers provide, it’s important for agents to have several dependable carriers to work with. To strengthen the relationship between producers and carriers, agencies can utilize data collection tools that ease the workload for carriers.
Agencies are advised to find a technological solution that can improve the accuracy of their data and simplify their data collection process. By using technology, agents can provide carriers with higher-quality data in a shorter amount of time. This will ultimately lead to increased satisfaction for both carriers and agents, allowing them to focus more on delivering excellent service to their clients.
The insurance market experiences cycles, indicating changes in market conditions over a period. A hard market, which is currently challenging due to unstable inflation rates and carriers’ reluctance to take risks, will eventually become easier once inflation stabilizes and carriers become more willing to take risks. During this time, agencies and producers can improve their relationships with clients and carriers to benefit from the existing hard market.
Investing in technology during a hard market can lead insurance professionals to experience better workflow efficiency and greater value to clients, even as the market becomes softer. Additionally, agencies, carriers, or MGAs that perform strongly in a hard market are likely to continue seeing positive outcomes in a soft market.