Insurance pricing – the heart of the inflation 'storm'

Why a "real mindset shift" has occurred

Insurance pricing – the heart of the inflation 'storm'

Insurance News

By Mia Wallace

With the warning of the British Chambers of Commerce’s head of research David Bharier that the UK economy is facing “a lethal combination of recession and runaway inflation” ringing in its ears, the UK insurance industry is having to continuously re-evaluate how it will navigate the tumult of the financial markets.

At the recent Earnix Summit in London, CEO Udi Ziv emphasised that fast, agile, intelligent pricing is key for insurers to combat rising inflation and that insurers need to be able to “turn on a sixpence” to implement pricing changes extremely quickly. Taking up this point in a recent interview with Insurance Business, Adrian Coupland (pictured), head of insurance, UK/EMEA for Earnix, noted that it’s a concept that goes back to the whole principle of insurance – that the misfortunes of the few are covered by the fortunes of the many.

“But that can only be truly effective when there’s a good deal of predictability about the market and how it’s performing,” he said. “What we’ve got at the moment is a situation where that future predictability is super challenging and it is not an issue specific just to the insurance industry. You’ve got both the direct and indirect impacts of inflation so it is pretty much a perfect storm of internal and external pressures.”

Insurers at the heart of weathering the financial storms buffeting consumers

As a protection industry first and foremost, insurance companies are very much at the centre of that storm and are having to navigate their way to safer shores for themselves as well as the consumers and businesses they protect. Coupland highlighted that the current inflationary environment is impacting the attitudes of insurers when it comes to pricing

Pricing is front and centre because if it takes insurers too long to make a pricing or underwriting adjustment, where historically they may have been able to limp through that inefficiency, now it’s going to hit them very hard.

“Insurers are having to start making some very specific decisions about how they drive those inefficiencies out and drive efficiencies into their organisations, so that when they see a change in the market, they can do something about it, quickly,” he said. “And this subject goes so deep because you’re looking at both the existing and the future-facing impact of inflation [simultaneously].”

Between claims costs escalating, rising energy bills and the spiking cost-of-living crisis – the question on the minds of everyone is ‘where’ and, perhaps more crucially, ‘when’ does this end? And while there are forecasts, he said, it’s an onion effect with each layer being peeled back to reveal another concern – as seen by the compound effect of the cost-of-living crisis on employee wages at the same time as supply chain concerns continue to burgeon.

What’s critical to bear in mind, Coupland said, is that the impact of these underlying financial conditions is not linear as rising inflation is not the only factor impacting premium changes amid changing consumer demands and regulatory frameworks. That’s why it is so important that insurers look to agile and fast-moving pricing systems able to keep pace with these changes.

What challenges is inflation creating for insurers?

“[This environment] is creating challenges for the insurers in terms of how efficient they are, how quickly they can respond, and how quickly they can affect changes in pricing and monitor how effective those changes are,” he said. “And in empowering them to be tactical and strategic, to driving inefficiency out and efficiency in, and enacting wholesale changes to their processes is where, I think, Earnix is beautifully positioned to help these insurers.”

It’s important not just to look at the current environment in terms of its challenges, Coupland said, as with these changing market conditions comes new opportunities for insurers to step back and re-evaluate the underlying product design of insurance. For example, the changes in how people live and work over the last few years, combined with the rise in insurance costs, and the increasing inflationary environment are likely to create additional interest and demand for more innovative insurance solutions such as usage-based and telematics.

How can insurers get ahead of these challenges?

The answer for insurance companies is to be ready and willing to embrace the changes required within their own pricing and underwriting systems to facilitate these changing market conditions – both the challenges and the opportunities. Looking across the market, Coupland highlighted that many insurers now recognise that need and, rather than insisting on extensive transformation projects, they’re increasingly understanding the power of tackling pressing pain points head-on – and are looking to composable, configurable solutions as the answer to doing so.

“It’s a real mindset shift,” he said. “They’re taking a different approach to how they execute on these changes… because when you need to respond to a fast-moving marketplace, you’ve got to be more agile. Whereas historically, the view was, ‘we need to go this way’, that view is being challenged because the industry is seeing evidence of how [utilising] composable, agile solutions can get them where they need to be much more quickly.

“I also think the credibility and trust of seeing how these organisations - and some of them are leading, cutting-edge insurers - have actually implemented these system changes, like with Earnix, and are seeing that value and that benefit and are talking about it and sharing it within their communities and their peer groups, that just adds to the confidence. Fundamentally, there’s a real recognition that there is a better way of getting things done.”

How are you seeing the link between augmented pricing systems and battling inflation evolve? Leave a comment below.

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