Insurance Industry Response – “Return to Fundamentals”
Being subject to state-specific regulation, insurers are limited as to how quickly and steeply they may raise rates. With limited relief available via rate increases, insurers can dip into policyholder surplus, but they do so at the risk of dropping below regulatory thresholds and in turn limiting their ability to write coverage and possibly jeopardizing their future.13
Given the above, insurers will need to be both operationally efficient and technically sound in underwriting risks and handling claims. Critical to this success should be a “return to fundamentals” in the following areas:
- Policy Considerations – This area entails ensuring that policy language and commitments reflect the current inflationary environment. Items like “inflation guard” endorsements should be regularly updated without using a “one size fits all” approach. Carriers should be looking closely at providing scheduled versus blanket limits, as these are heavily dependent on market conditions and require an accurate breakout of each.
- Underwriting Considerations – Data accuracy, relevancy, and recency will be of paramount importance now more than ever. With respect to Personal lines, are insured values being updated to reflect current realities? Have all home additions and renovations been reported? As to Commercial lines, does the insured have specialized equipment or materials that cause long lead times, such as that potentially associated with internationally sourced equipment?
- Claims Department Performance – Timely and accurate loss adjustment will now take on increased importance. On the first-party side, are Claims staff using pricing tools and estimating software that accurately reflect material costs, labor wages, overhead and burden? As to Casualty claims, are large cases being evaluated early on, with a focus on obtaining accurate medical records and bills, while concurrently developing damage models that address a continuing care and accurately reflect ongoing costs?
- Loss Mitigation and Prevention – The best loss outcome is the loss that never occurs. To that end, insurers would be well-served by implementing incentives that promote loss-preventing policyholder behavior. With respect to Auto, it may mean making greater use of safe-driving discounts, enabled and/or fortified by telematics. With Homeowners and Commercial properties such a strategy could include insistence on use of “smart” products that detect water leaks and/or infiltration.
Baseball great Yogi Berra reportedly once said that “It’s tough to make predictions, especially about the future.” Predicting inflation’s path in 2023 and beyond is one such example. Nevertheless, the insurance industry finds itself once again amidst persistent inflation.
While these periods have periodically plagued the industry previously – and at levels much greater than this – it has endured them while maintaining commitments to policyholders and the public at large. So too will it persevere through this current storm, but not without remembering how it got through prior ones.