In a time of rapid claims cost inflation, insurers need to be able to “turn on a dime” to implement pricing and underwriting changes extremely quickly. However, many insurance carriers currently lack the operational agility to do so. This was a key point from Earnix CEO Udi Ziv’s presentation at this year’s Earnix Excelerate Summit, which was held on September 13 and 14 in London.
“Pricing products when it is difficult to predict how much claims will cost in six or 12 months is one of the biggest challenges insurers face in a ‘perfect storm’ of converging issues threatening insurance businesses,” Ziv explained to a group of 250 insurance practitioners. “Insurers need to be able to realise when change is needed, analyse what changes need to be made, make the best decision possible, and then drive these strategies to market quickly.”
Speed and Agility Play a Critical Role
Speed and agility in the face of rising inflation was a recurring theme at the two-day Earnix event, especially in the context of helping insurers "reimagine insurance” through intelligent operations.
“You can’t beat inflation, but you can limit how much you could potentially lose by increasing prices, doing it quickly, and doing it in an intelligent way,” explained Francesco Miani, Head of Strategic Projects, Insurance International Central Team for Generali Group, in a session focused on managing inflation.
Miani has valuable first-hand experience with inflation after living and working in Argentina, where inflation has been above 20% for almost a decade and is now expected to hit 95% by the end of 2022.
“The higher the inflation, the faster you have to apply changes,” he said, highlighting the example where motor insurance premiums rose 61% year-over-year in Argentina in 2021 and a staggering 239% from Q4 2021 and Q2 2022.
Other Ways to Fight Inflation
In addition to raising rates, cost containment and capitalising on increased investment income are the other two key levers insurers can pull to combat inflation. For example, Generali and other insurers in Argentina have also taken such steps such as slashing the duration of their policies to facilitate regular rate adjustments. They are also continuing to focus on essential approaches such as intelligent portfolio management and customer segmentation tools to maintain profitability and retain customers.
“High inflation erodes technical results,” Miani said in his session. “Price adjustment is key, time management is fundamental, and having a smart pricing strategy is the difference between success and failure.”
Intelligent Pricing and Underwriting
Intelligent insurance systems are playing a key role in helping Generali and other insurers cope with the challenges of inflation. These systems enable insurers to analyse claims costs, conversion rates, customer behaviours, and market trends in real time, and then implement changes through simple, efficient, and scalable digital workflows.
For examples, users of Earnix’s Price-It solution have reported dramatic reductions in the time it takes to make pricing changes. One Canadian insurer saw its time to market with price changes, fall from 180 days to just four, while one insurer in the UK has reduced the time from 70 days to one.
“In the past, I was proud that I could change a price in two days or maybe even one day if we were really fast,” said Marcel Kluge, Head of Product Management at BavariaDirekt. “Today, with Earnix, we can do it in 10 minutes.”
For Generali, the ability to implement a new pricing strategy in a single day was a game-changer for its Argentina operation. “If it had taken three to four weeks, the world would have already changed,” said Miani during his presentation.
Yet for insurers who still rely on legacy technology and processes, it can take weeks, even months, for pricing changes to take effect in the market—an unsustainable situation with inflation rates and claims costs continuing to rise.
The Need for New Underwriting Solutions and Processes
These challenges and complications are even worse when it comes to adjusting underwriting rules. While some insurance companies are using the right tools and technology to become more nimble and responsive with pricing, most still find it difficult to implement new underwriting rules. Since pricing and underwriting teams typically operate in silos, it can take months for insurers to bring changes to market since the process typically involves creating a rule in Microsoft Excel and then handing it over to IT to implement.
“Underwriting is not fit for the world we now live in now,” Ziv said. “Decisions are not analytics-based, cross-team collaboration is inefficient—if it happens at all—and the time-to-market for changes is too long.”
This is why Earnix developed Underwrite-It software, a new solution unveiled at the event that will do for underwriting what Price-It has done for pricing. Underwrite-It is the first solution to enable analytics-driven underwriting and connect underwriting and pricing with speed, agility, intelligence, and compliance—all out of the box.
The Best Response to a Perfect Storm of Challenges
“Speed, agility, intelligence, and compliance are mission-critical attributes, not just in pricing and underwriting, but across all aspects of insurance operations given the many challenges insurers face today, including inflation, supply chain disruption, climate change, evolving consumer expectations, declining customer retention, changing working dynamics, and regulatory constraints,” Ziv explained.
“All of this turbulence is affecting the stability and certainty insurance is built on and challenging the entire insurance industry itself,” he said. “Q2 was the worst quarter for the P&C industry in a decade, and the reason is this perfect storm of challenges. In this environment, insurers need embrace speed, agility, and intelligence in order to compete.”
Ready to learn more about tackling inflation by leveraging Earnix’s Intelligent InsurOps? I'd be happy to continue the conversation with you.