Don’t just survive, thrive in niche sectors
By leveraging the right technologies, insurers can overcome financial stress and lean into innovative niche products.
With inflation skyrocketing, loss costs and premiums are going through the roof. Many policyholders worry about their ability to obtain coverage at a reasonable price, if at all.
A survey conducted by the Private Risk Management Association recently found that 78% of risk managers saw their high-net-worth clients’ main concern as their ability to obtain reasonably priced premiums, with 60% concerned about getting any insurance at all. High-net-worth policyholders along with large and specialized commercial industries are more likely to require niche insurance for their more complex property portfolios, and it is these more specialized offerings that are squeezed out first. More generally, 54% of Americans say they cannot afford disaster debt because of premiums increasing.
Unfortunately, each year climate change brings more natural disasters. In 2021, the U.S. was hit by 20 separate billion-dollar climate disasters, from Californian wildfires to winter storms in Texas. A perfect storm of inflation, pandemic supply chain issues and the war in Ukraine saw cost of materials for construction rise 23% year-on-year in January 2022, making the price of rebuilding after a catastrophic event even more exorbitant for insurers.
As a result, cost per claim is soaring. According to one McKinsey report, rising prices have contributed to a roughly $30 billion increase in loss costs. Adverse weather events are driving more demand than ever in specialty lines, just as insurers are forced to raise premiums or lower writing capacity because of the financial risk involved.
With a possible recession on the horizon, carriers must game plan how to balance price point and loss costs. This will require becoming more agile and adapting to rapid change in the sector.
Looking within
One way to adjust to the current business climate while actually profiting from rapid changes is by looking at internal processes and tools. Improving operational efficiency enables insurers to turn a profit in sectors in which they would otherwise have struggled due to inflation and frequent disasters. For example, many insurers are still running on unwieldy legacy systems, creating large amounts of technical debt and making it expensive, costly or in some cases impossible to react quickly to the rapidly shifting landscape.
Cloud-based, SaaS platforms have a lower total cost of ownership and offer value through continuous updates, helping offset high costs with more effective technology. If developers no longer need to maintain or upgrade archaic operating systems, they can concentrate on launching new products to market in line with today’s evolving risk landscape. No-code platforms can further accelerate responses to changing market conditions. Modern platforms also offer flexibility for insurers to provide usage-based plans, on-demand policies, greater personalization, and expanded portfolios to offer additional protection.
With API-enabled platforms built with integration in mind, insurers can make the most of the vast amounts of data at their fingertips. The right data integrations enable insurers to better model risk and offer seamless quoting experiences to capture more of the market. Insurers can even use data to enable straight-through processing, saving agents and underwriters days or weeks of time, offering real-time service for agents and policyholders, and increasing underwriting capacity without increasing head count.
Once a policy has been written, insurers can lean into innovations in photo recognition, chatbots, and AI to minimize their losses, assess claims quickly and efficiently, and give policyholders a faster pay-out in their hour of need. With increasingly complex artificial intelligence models, insurers can use information from previous weather monitoring to model the likelihood and severity of upcoming weather events, or even add value to policyholders by giving disaster preparation advice accordingly. Insurers can also protect themselves from taking on too much risk right before a major weather event by putting moratoriums in place in real time, allowing them to operate in specialty sectors like flood without jeopardizing profitability.
With the abundance of innovations revolutionizing P&C insurance, insurers have the necessary tools to thrive despite relentless challenges buffeting the sector. By leveraging the right technologies, rather than being chased out of niche markets, insurers can be first to market with innovative new products, providing insurance to customers who are currently underinsured, and ultimately growing their market share.
Tim Hardcastle is CEO and co-founder of INSTANDA. These opinions are the author’s own.
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