Will Insurtech Help the Insurance Industry Survive in a Tight Market?

This post is part of a series sponsored by AgentSync.

04 19 insurtech investment Smaart Company Accounting, Tax, & Insurance Services Smaart Company Accounting, Tax, & Insurance Services

Supply chain disruptions, rising consumer demands, a tight job market, a global pandemic, two natural disasters, and war. These are just a few of the reasons that have left us collectively in a state of high inflation around the world. So high in fact that experts are calling it the worst inflation they’ve seen in more than two decades.

While it is true that these high inflation rates wreak havoc across all industries, we will focus on the one we know best – insurance! We’ll cover the impact of current out-of-control inflation on the insurance industry and how industry leaders can use technology to help neutralize its impact.

The effect of inflation on the insurance industry

While it is often referred to as recession-proof, the insurance industry is not actually immune from the effects of market changes such as inflation. With everything getting more expensive, insurance companies could see claims cost a lot more than expected (part of the larger social inflation phenomenon). That is, during periods of high inflation, insurers risk not being able to fulfill their main responsibility – payment of claims.

To avoid bankruptcies, the insurance industry responds to inflation by strengthening the market. Due to the ongoing COVID-19 pandemic and the increase in climate and weather related disasters, the insurance industry is currently experiencing ongoing challenging market conditions.

What is the hard market in insurance?

A tough market refers to a period in the insurance market cycle that is formed as a result of increased demand for insurance products along with decreased supply. Tough markets are characterized by higher insurance premiums, more stringent underwriting, and lower risk appetite. During the fixed insurance market, customers will experience higher rates on their renewals and fewer coverage options for certain risks.

How does the challenging market affect the major players in insurance?

The effects of a tough market can be seen throughout the insurance distribution channel. From clients to agents to carriers and insurers, challenging market conditions have real-world implications for the way these professionals and organizations approach the insurance business.

It all starts with subscribers. The market begins to harden as underwriters adhere to stricter standards and tighten policies to reduce losses. Tougher underwriting increases insurance rates and can make some lines of coverage unattractive, or even unprofitable, to the carriers that offer them.

With fewer coverage options available, insurance customers are relying more on their agents to help them find the coverage they need at the price they desire. The decrease in coverage options also allows carriers that still offer certain coverages to increase their prices more, without fear of losing business to the competition.

Using technical solutions to respond to a difficult market

When the market heats up, policyholders rely more on their agent to help them find the best coverage for their specific risks. An agent’s primary function, to bridge the gap between clients and insurance companies, becomes more important. Producers looking to increase their value to both customers and carriers in a challenging market can do so by leveraging technology solutions to automate processes, help prevent risk, and improve data collection.

Process automation

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 companies will be able to increase efficiencies and streamline producers’ workflows.

Digital solutions can help agencies and carriers reduce operational costs by eliminating 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 most importantly frees up agents and support staff, allowing them to devote more time to helping customers and building stronger relationships. Which is exactly what insurance customers need in a challenging market.

Help prevent risks

In a tough market, insurers’ appetite for risk is shrinking which means the industry needs to shift its focus to focus heavily on risk prevention. To help their customers prevent risks, insurers can use predictive technologies and next-level product and service visualization tools to assess current and future risks.

These technical solutions enable insurance professionals to better predict risks for all types of insurance coverage. Better risk prediction means more accurate pricing, which is vital for an insurance company trying to survive in 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 bird’s-eye view of vulnerabilities and maintenance needs before they become a problem.

A product that can help its customers prevent risks in a challenging market with limited coverage available will win the customer’s trust. Additionally, with insurers less willing to write risks, agents who have a better understanding of their clients’ risks have an advantage and can use it to strengthen their relationship with insurers.

Improve data collection

Challenging 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 best to shop around when it comes to carriers in order to maximize their commissions, but this strategy will no longer work when the market is tight.

When there are a limited number of carriers offering the specific coverage a customer needs, the agent will want to have as many reliable carriers as possible on their side. To improve the relationship between producers and carriers, agencies can invest in data collection solutions that make carriers’ jobs less stressful.

Agencies should look for a technical solution that can improve the quality of their data and streamline their data collection process. A technology-backed solution can help agents provide carriers with cleaner data at a more efficient pace. This way, carriers and agents are happy at the end of the back-office business relationship and can focus more on serving their mutual customers.

Move forward

The insurance market moves in cycles, which means that market conditions will eventually change. The tough market will eventually weaken as inflation stabilizes and carriers’ appetite for risk increases again. Agencies and producers can look at the current challenging market as an opportunity to build stronger relationships with their customers and carriers.

Specialists in securing technology investments in a challenging market will continue to benefit them even as the market declines by continuing to improve workflow efficiency and add value for customers. The good news is that any agency, carrier, or MGA that does well during a difficult market will likely see those benefits carry over and produce better results in a weak market.

If you’re looking to control costs by increasing operational efficiency as inflation eats away at your profit margin, AgentSync can help. Our solutions can automate and streamline agency, carrier or MGA operations to help your business thrive in challenging market conditions

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