How insurers can weather times of high inflation

The Office of National Statistics (ONS) recently commented that inflation had risen to 8.6 per cent in the past 12 months to August 2022, up from 8.2 per cent in June. In addition, Citi predicts UK inflation will hit 18 per cent while average pay increases have risen by just 4.2 per cent, meaning that pay has effectively decreased over this period.

For insurers, this leaves a stark predicament: how to stay relevant, affordable and accessible during times of crisis when everything is much more expensive or less readily available. For example, the limited availability of courtesy cars or replacement parts, and even labour and the respective costs associated with a car insurance claim can be prohibitive. In turn, this has a dramatic knock-on impact on insurers’ underwriting positions which need to reflect emerging risk and provide the right coverage and customer service at an affordable price.

Consumers feeling the pressure of inflation will be more sensitive to spending money on anything they deem unnecessary or that doesn’t offer additional value. Claimants may be more demanding of insurers, uninterested in the sudden spike in rising claim costs that they feel are already factored into their insurance premiums. Insurers that quickly evolve and respond to socio-economic impacts are leading the pack. They recognise the importance and value of topics like personalisation and advanced risk modelling, underpinned by data and technology capabilities.

To offer holistic coverage and customer service, insurers need to create end-to-end digital and agile operating models.

Many insurers have adopted agile ways of working within the technology department but have failed to move from technical to organisational agility. Others will have applied agile in a bid to deliver their programmes of work faster. In either case, the most critical point is to recognise that agile ways of working probably already exist somewhere in the organisation today, it's just stuck in a silo.

Three steps to enhance organisational agility

1. Design for simplicity and leaner structures to deliver solutions faster and more efficiently

Many companies adopt agile in functional silos, with any form of cross-party collaboration bound by project teams and governance. This approach creates functional hierarchies, inhibits transparency, and prevents the delivery of value in the shortest lead time possible to customers.

One insurer we worked with found that scaling agility beyond its technology department was vital to its success. Through consultation, the technology leaders showed the greater value opportunity by aligning business and technology people, processes and technologies around customers. Through its approach, the insurer was able to release new solutions faster and more efficiently.

2. Create an integrated, end-to-end customer experience to reduce operating costs and increase customer intimacy

Leverage simpler and leaner structures to create end-to-end customer experiences around core insurance products to drive customer-centricity. For example, insurers that offer incentives for either pay-as-you-drive insurance or for enabling location-based tracking within their customer app can increase preventative cover. By monitoring their customers’ driving patterns, cross-referenced to the latest weather and traffic reports, insurers can recommend, in real time, alternative routes. This will reduce the probability of an accident and ensuing claim (positively impacting an insurer’s operating costs) as well as increase customer intimacy at a time when consumers are making stark decisions on how to reduce their cost of living.

3. Empower employees to increase confidence and commitment in times of increased uncertainty

As strategies, technology and innovation collide, incumbent insurers face increasingly stiff competition from emerging digital native start-ups that appeal to high performing talent. Incumbent insurers who adopt simpler structures to deliver greater customer experiences create an environment where employees feel secure, valued and motivated to make a real difference every day during times of economic growth and uncertainty.

Organisational agility is the embodiment of an insurer’s ability to pivot and grow at pace. As strategies, technologies and innovation collide, the leaders of the pack create opportunity from complexity and achieve enduring results. In doing so, they will help society ride socio-economic impacts such as inflation and the cost of living.