By Robin Wagner, senior vice president: International Insurance at TransUnion
Whereas the UK seems to have coined the phrase, ‘cost of living crisis,’ it’s just ahead of other key markets like South Africa, Canada and Brazil. Right now, millions of consumers across the financial spectrum are facing the dual shock of surging inflation and rising interest rates exacerbated by shrinking real-term salaries.
This raises two challenges for insurers. Firstly, payment shock can reduce the availability of income, which gets assigned to high-value debt such as rent, home loan, and car payments. When the cost of credit, fuel, food and shelter are 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 unnecessary. Fully comprehensive car insurance may be reduced to third-party cover, and life insurance benefits might be sacrificed or dialled back.
Secondly, 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, which manifests as invented or inflated insurance claims1.
To counter the effects of shifting financial behaviours as premiums reduce and payments lapse, insurers often freeze marketing and sales activities, look for cuts in operational expenses, and batten down the hatches until the economic storm passes.
This 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 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?
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The power of actionable analytics
Thankfully, 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. In a hard market, there are some easy calls to make.
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.
Segment customers to align with 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.
The greatest insurance risk in the current climate is reticence. By actively pursuing 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.’
The bottom line? In a ‘hard market’, insurance companies must take incremental steps — informed by data-driven insights — to positively engage existing clients to mitigate losses and seed future growth.
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