Inflation has impacted the insurance ecosystem and had significant impacts on the ways agents advise policyholders, place coverage, mitigate risk, and manage expectations. Both personal and commercial clients have been affected in recent years by the impacts of inflation and insurance, requiring agents to adopt a more consultative approach. As policyholders continue to feel financial pressure, agents can help guide them through these challenges and avoid coverage gaps.
Read on to learn more about managing inflation and insurance.
Understanding Inflation and Insurance
The first step in helping policyholders to manage insurance pressures caused by inflation is education. When clients understand the issues impacting their costs and coverage, they can partner with their agent to find ways to manage rising costs and other challenges. Most policyholders understand inflation as it has affected their daily lives, whether through the cost of groceries, health insurance, or childcare. Agents can help policyholders understand the connection between inflation and insurance by explaining drivers like:
- Rising replacement costs, like building materials, auto parts, and labor costs
- Auto claim severity trends, including higher costs to repair or replace vehicle parts with advanced technology and more total losses, mean claims that once cost $2,500 can now exceed $5,000
- Social inflation impacts liability lines, as jury awards and third-party litigation funding drive up the costs of liability claims
- Reinsurance costs are higher after CAT losses, which means primary carriers must adjust premiums to account for these increased costs
Explaining these factors can help policyholders understand that the total cost of risk has changed as a systemic trend, rather than any action a particular carrier has undertaken. Once policyholders better understand the framework around inflation and insurance, agents can take action.
Help Policyholders Manage Inflation and Insurance
After explaining the drivers behind inflation and insurance, agents can help policyholders manage this challenge proactively.
Schedule proactive coverage reviews. When inflation impacts insurance and rebuilding costs, holding proactive coverage reviews is even more critical. Coverage limits that were sufficient even two years ago may no longer meet replacement costs in today’s market. Agents can work with policyholders to recalculate dwelling coverage based on replacement cost estimates and check personal property limits. Revisit the need for an umbrella policy and excess liability coverage for personal and commercial clients, respectively, given the rise in severity based on social inflation. By proactively reviewing and adjusting limits, agents can help protect policyholders from underinsurance exposure due to inflation.
Reframe policyholder expectations around claims processes and outcomes. Inflation affects claims outcomes by increasing the costs of repairs and replacement costs and driving increases in cycle time. But by managing policyholder expectations early in the claims process, agents can help remove frustrations and partner with policyholders. Agents should prepare policyholders for longer repair and rebuild times due to supply chain issues and a shortage of resources like rental cars and field adjusters after natural disasters and large storms. Policyholders may face total losses due to changes in thresholds or higher co-insurance requirements caused by inflation. Instead of being reactive, agents can spend time after a loss explaining how inflation affects claims outcomes and what policyholders can do to mitigate these concerns.
Use inflation pressure as an opportunity to strengthen relationships. Agents can make the best use of a challenge by positioning themselves as an expert advisor, strengthening existing relationships and building new ones through knowledge transfer. Being the trusted advisor is an important role as policyholders struggle to find affordable policies without losing important coverage. Agents can acknowledge the financial pressures policyholders are facing, offer strategic solutions that add value for the policyholder, and advocate with the carrier through proactive coverage reviews.
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External Links:
- https://www.travelers.com/resources/business-topics/insuring/4-factors-causing-social-inflation
- https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/
- https://riskandinsurance.com/sponsored-how-inflation-impacts-insurance-claims-and-how-actuaries-can-step-in-to-help/
