Securing Insurance Premiums in a Time of Inflation

Securing Insurance Premiums in a Time of Inflation

Before we explore the positive actions an insurer can take to move beyond crisis management into revenue creation in an inflationary environment, let’s first understand the difficulties posed by the current hard market conditions.

A 30-year low

Whereas the UK seems to have coined the phrase, ‘cost of living crisis,’ it’s just inches ahead of other key markets like Canada, South Africa and Brazil. Millions of consumers across the financial spectrum (in all four territories) face the dual shock of surging inflation and rising interest rates exacerbated by shrinking real-term salaries. 

A new vulnerability

Payment shock can reduce the availability of income which now gets assigned to high-value debt, such as rent, mortgage and auto repayments. When the cost of credit, fuel, food and shelter are at an all-time high, insurance premiums and value can become vulnerable to reprioritisation. Once considered reasonable and rational, short-term and life policies can be viewed as expensive and extraneous. Fully comprehensive car insurance may be reduced to third-party cover, and five-star life insurance benefits might be sacrificed in favour of three-star coverages.

A growing temptation

When everyday expenses like food and fuel compete with prioritised debt repayments and other fixed financial obligations, research shows an increase in syndicated and individual fraud manifested as invented or inflated insurance claims.[1]

Suspected digital fraud attempt rate by industry: 159.4% Insurance

Source: Fraud Trends – Quarterly Analysis comparing Q2 2022 to Q2 2021 

The standard response

To counter the effects of shifting financial behaviours as benefit-adjusted, premium reductions and payments lapse, insurers often freeze marketing and sales activities; look for cuts in operational expenses; and batten down the hatches till the economic storm passes.

Tough questions

This positively makes sense when the storm is expected to be short-lived, but what if the crisis extends into one, two or more business quarters?

In a market where insurers are factoring in rate increases to help cover inflated operational costs, will current, elevated retention numbers (up to 95% in some markets) persist if consumers shop around for cheaper, more flexible or value-added offers from competitors?

When the market begins to move, how will insurers that have not monitored their customer’s activities — or stopped marketing quality insurance to their existing customer base — be positioned for growth?

The power of actionable analytics

The tools exist to make affordable, incremental changes to current systems and processes that can help allay the reduction in current revenues; increase policy premiums from resilient clients; and better monitor and manage the risks of potentially fraudulent applications and inflated claims.

Some easy calls for a hard market

Put in a wicket keeper with strong form to mitigate fraud impacts on loss ratios. This can be done quickly and easily using data-driven AI and machine learning software solutions to safely automate the applications and claims processes.

Work your existing book. Most insurers can be better at engaging their policyholders. This captive audience is a rich source of potential to grow new business based on changing needs and life circumstances that can be monitored and triggered.

Segment customers to align with multiple strategic metrics. A holistic view of shifts in affordability, life stage and propensity to purchase can help better manage targeted 

premium support, adjust cover, prioritise profitable collections, and launch cross-sell and upsell campaigns.

Add value through empathy and education. Few people are untouched by an economic crisis. Insurers can help consumers access empowerment tools that help them understand their credit profiles, be alerted to potentially fraudulent use of their identities, and make changes to improve their credit scores.

[1] Aviva news release 2022

How to leverage information for smarter decisions

1. Automate claims processing through integration of data driven decisioning.
2. Conduct custom portfolio analysis to identify vulnerable and resilient customers
3. Segment the book to define effective treatment strategies using limited execution resources: retain, cross sell, assist and disengage.
4. Dynamically monitor policy holders to keep segmentation profiles current (the environment is dynamic and the pace of impact high).

The greatest insurance risk in the current climate is reticence

By actively pursuing such results-driven strategies, informed by enhanced data analytics, insurers can help transform hard market conditions into quick wins and long-term loyal customers. To quote Warren Buffet, “Be fearful when others are greedy, and greedy when others are fearful.”

Speak to your TransUnion representative to learn more about how CreditVision^® and TruValidate^TM can help you profitably navigate the current and emerging economic landscape.