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How insurers can respond to differing market conditions

The insurance industry, like all industries, faces cyclical periods of growth and contraction. Within the insurance market, these fluctuations are marked by the level of risk tolerance insurance companies are able to assume and heavily affect the availability and price for buyers. These periods are known in the industry as soft markets and hard markets.

“The fluctuating conditions of the market create unique challenges for insurers, and both hard markets and soft markets require different strategies to drive growth and profitability,” says Terry Brown, President and General Manager at Insuresoft.

With over 30 years of experience within the insurance and insuretech industries, Brown now leads Insuresoft, positioning insurers to be competitive in various market conditions. We sat down with Brown to share her thoughts on what key strategies insurers should focus on during differing markets.

Top considerations for insurers during a soft market:

During periods with soft market conditions, insurers generally focus on increasing their market share using lower rates, broader coverage and are more likely to relax their underwriting standards. The race to grow their book of business by adding new policyholders is a competitive one. Here are a few key tactics insurers should focus on during these conditions:

Customer retention

With competitors providing extensive coverage at low rates, policy holders are more likely to shop. Insurers should focus on strategies that ensure strong customer satisfaction in order to increase loyalty. Providing easy access to self-service through mobile apps is key to retaining customers long-term.

“Creating highly customized experiences for your customers is critical. Insurers should ensure all touchpoints and automated marketing communications with their policy holders are individualized to recognize their unique identities and needs,” says Brown.

Policy holders heavily value ease of use and personalized experiences, and providing these helps build connection and loyalty to companies. A McKinsey report noted that personalized experiences can increase customer satisfaction and revenues by 5 to 10%, as well as lower acquisition costs by as much as 50%.

Cut operational costs

As insurers cut rates in order to grow their market share, their margins are heavily impacted. In order to minimize these impacts, insurers should utilize these periods to look for ways to lower their operating costs. Investments in digitization, virtual solutions, robot process automation and artificial intelligence can provide significant cost savings. According to a report by EY on the impact of automation on the insurance industry, robot processing automation can reduce manual operations costs by 25-50%, while improving both service and compliance.

Differentiate through underwriting & sales tactics

During soft markets, insurers are focused on attracting policy holders through low prices and heavy coverage. To stand out, insurers can offer unique pricing tactics and discounts to specific customer segments. These discounts can help insurers beat out competitors and acquire customers that are lower risk of claims.

“insurers should use software and data analysis to drive marketing and sales tactics that differentiate them from their competitors, in order to capture those populations,” Brown said.

Top considerations for insurers during a hard market:

During hardening market conditions, premiums generally rise as underwriting standards become stricter and demand for insurance coverage grows. These periods are usually the result of an economic downturn, market volatility, or a significant event that results in a higher level of claims, such as natural disasters or a pandemic. In response to this market volatility, insurers should focus on the following key areas:

Third-party integration

Insurers should look at investing in third-party integration software to support their underwriting process. Software companies are able to provide significant data on a variety of demographics and infographics to enable them to accurately assess risk and pricing models.

This can provide a strong competitive advantage for insurers. According to a report by McKinsey, considerable use of data analytics more than double a company’s ability to earn above average profits. However, a 2021 Novarica report notes that only 11% of insurers have reached mature capabilities in the effective use of integrated third-party in underwriting, albeit basic capabilities are much more widespread.

Surcharges and fees

During a hard market, insurers should utilize these periods as an opportunity to place higher surcharges or fees to minimize risk. It’s important to note that different regions may pose different regulations on specific fees, and thus they may only be applicable in specific states or countries.

Insurers need to be incredibly flexible and be able to change prices quickly, while navigating a complex regulatory market. Market shifts can be rapid, and insurers should work with their software providers to ensure they can align prices immediately.

“Whether it’s implementing new fees or ensuring that the right price is calculated based on risk, software companies like Insuresoft support insurers in navigating market shifts and rapidly setting new product and pricing changes,” Brown added.

Summary

The cyclical nature of the industry means that insurers must be nimble and able to respond quickly to market changes. Different periods and conditions pose unique challenges for insurance carriers. The insurers with the most flexible and robust technology solutions will come out on top when it comes to finding new opportunities to strengthen their business operations and expand their offerings.

The COVID-19 pandemic, for example, created significant volatility in the market and insurers were forced to react quickly. However, according to Brown, rather than panicking, many insurance providers were able to work with their technology partners and respond by entering new markets, investing in automation, and finding new ways to interact with customers, such as digital claims payments, virtual appraisals or virtual mailroom solutions.

“Throughout the pandemic, Insuresoft has worked closely with its clients to ensure they have the tools they need to respond to changing conditions while also deepening our resolve to enable them to meet the needs of whatever market shifts come next,” said Brown.