There are a number of actions insurers can take to respond to the new macroeconomic environment and soften the blow to customers:
1) Product innovation: Insurers can offer products and solutions that address some of the macroeconomic risks customers are facing. For example, more affordable low-cost products with an increased focus on risk and loss prevention, as well as usage-based propositions. A good example of the latter is telematics technology.
2) Indexation: Incorporating an indexation feature in insurance policies ensures that the policy benefits keep up with the rising costs of living and inflation.
3) Review of indemnity periods: At times of shock, a small business might not fully understand how long it will take to return to full operations. Drawing customer attention to this and working together to set realistic indemnity periods is crucial.
4) Investment in technology and digitalization: Technology can help insurance companies automate various processes and streamline their operations, reducing costs and increasing efficiency. For example, online marketing and distribution, digital customer self-service, and claims automation.
5) Communication with customers: Educating customers on the potential impact of inflation on their coverage and the risks of underinsurance, as well as providing regular updates on any adjustments to products or pricing to account for inflation are key.
6) Strategic partnerships: Insurers can combat inflation by partnering with other organizations, such as healthcare providers or technology companies, to develop new products and services that are more efficient and cost-effective.
7) Diversification of investments: Preventative asset allocation that invests in a range of different asset classes, such as equities, real estate and commodities can help insurers to spread their risk and generate returns that are not undermined by inflation. Insurers can also invest in inflation-linked bonds, building additional protection through investment returns that are directly linked to inflation.
“We can’t cover all eventualities, but we can provide a better degree of predictability by maintaining standards in our profession, providing sterling and reliable advice, enabling products that respond to the uncertainty of our time, and communicating with our broker partners,” says Hobbs.