Inflation impacts customers’ overall budgets, and they are going to shop around for the best prices, including for the best insurance rates. (Photo: BillionPhotos.com/Adobe Stock)

Inflation is the highest it has been in over 40 years, and consumers are feeling the pain.

One area that had been relatively unaffected was insurance. But now premiums are rising across the board for auto, health, life and homeowners insurance policies.

McKinsey reports that insurance carriers need to plan for inflation to persist and factor it into their ongoing business strategies and tactics. This provides a tremendous opportunity for insurers to innovate. Even during these tough economic times, insurers can provide solutions for customers that meet their needs. Inflation should not curtail modernization. Instead, companies should utilize innovations to deal with the short-term impacts of inflation and to progress on their strategic goals.

The inflation effect

Inflation weighs on the psyche of customers, and they react according to their personal situation. For some, it leads them to behave in ways that may seem irrational such as driving miles out of their way to save a few cents on a gallon of gas (and burning those savings in the process), or stocking up on groceries they might not really need to be prepared for projected price increases.

On the other hand, inflation encourages rational behaviors, too. For example, customers may not drive as much or as far as previously. They may seek out jobs with expanded work-from-home options, start carpooling, or otherwise cut down their mileage in the face of rising gas prices. The bottom line is that inflation impacts customers’ overall budgets, and they are going to shop around for the best prices, including for the best insurance rates.

All of this leads to an uptick in competitive pressure across the insurance industry, resulting in the need to increase sales and marketing expenses to attract and retain new customers. Additionally, it means insurers must stay laser-focused on customer support and account management. There is no “magic bullet,” and insurers cannot flip a switch to one model or vendor that will make insurance operations “recession ready.”

That said, insurers can put more emphasis on insurance innovations such as real-time monitoring of market changes, engage in constant competitive assessment, and learn to act and react more quickly with technology.

Technology holds the key to long-term stability

AI and Machine Learning (ML) technology is available today to help insurers make decisions more efficiently and effectively. When dynamic decisioning and analytics are infused into every application across the organization, and made available to all levels of the firm, intelligent operational decisions become automatic. This type of technology allows insurers to identify, implement and monitor strategic initiatives more confidently while reducing the manual effort needed to manage daily performance.

For example, product-level implementations can be monitored automatically in real time, and adjustments made on a timely basis (days instead of months), to keep pace with changes in the industry, market conditions, and competition. In addition, keeping manual effort to a minimum helps rein in costs and frees financial resources for strategic initiatives, along with helping to protect the bottom line during uncertain economic times.

AI-driven solutions with ML technology also help insurers deliver what their customers want. For example, rather than taking a “one-size-fits-most” approach to pricing, insurers can leverage technology to monitor market conditions and then deploy pricing to online channels and serve up to millions of quotes and offers per day. This is the kind of attention that consumers expect, and dynamic analytics allows insurers to better serve diverse audiences and implement new market and product strategies in real time.

Telematics is another significant technology that assists customers as it goes beyond simple financial and demographic data to allow insurers to assess the precise risk presented by individual consumers, and to align product offers to those lifestyle and behavioral factors. An example of this is providing teen driver monitoring and coaching programs. Targeted use of AI and ML models alongside telematics technology ensures that these personalized offers and communications are delivered to customers when they want them and on the channels they prefer.

Dealing with inflation needs to be an organizational effort across all parts of the business. The data from AI and ML models can be used for forecasting as well as for internal use. One example is for customer success professionals to utilize the data to highlight any customers they believe might be at risk of changing carriers and reach out to them with a more personal touch.

While the current inflation environment is unpredictable, it is yet another instance of a crisis forcing companies to adapt. Modernizing and innovating today’s insurance infrastructure and creating more resilient and agile solutions will help companies weather the current crisis, bridge the divide between insurers and customers, and prepare for future market changes — all while delivering the type of personalized customer experience that retains happy customers.

Aaron Wright ([email protected]) is director of strategy at Earnix, the insurance-technology solutions provider. These opinions are the author’s own.

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