Will Insurtech Help the Insurance Industry Survive a Hardening Market?

Supply chain disruptions, increased consumer demands, a tight labor market, a global pandemic, a couple natural disasters, and a war. These are just a few of the causes that combined have left us in a worldwide state of high inflation. So high in fact that experts are calling it the worst inflation they’ve seen in over two decades. 

While it’s true that such high inflation rates wreak havoc across all industries, we’re going to focus on the one we know best — insurance! We’ll cover the effect current out-of-control inflation is having on the insurance industry and how industry leaders can use technology to help neutralize its impact.

The impact of inflation on the insurance industry

While often referred to as recession-proof, the insurance industry isn’t actually immune to the effects of market changes like inflation. As the cost of everything increases, insurers could see claims costing a whole lot more than expected (part of the larger phenomenon of social inflation). Meaning, during periods of high inflation, insurance companies risk not being able to complete their main responsibility—paying claims.

To avoid insolvency, the insurance industry responds to inflation by hardening the market. Brought on in large part by the ongoing COVID-19 pandemic and an increase in climate and weather related disasters, the insurance industry is currently experiencing ongoing hard market conditions.

What is a hard market in insurance?

A hard market refers to a period of the insurance market cycle that forms as a result of increased demand for insurance products coupled with reduced supply. Hard markets are characterized by increased premiums, stricter underwriting, and reduced capacity for risk. During a hard insurance market, customers will face higher prices on their renewals and lower coverage options for certain risks. 

How does a hard market affect key insurance players?

The effects of a hard market can be seen throughout the insurance distribution channel. From clients to agents to carriers and underwriters, hard market conditions have real world implications on the way these professionals and organizations approach the business of insurance. 

It all starts with underwriters. The market begins hardening as underwriters stick to stricter standards and tighten up policies to minimize losses. Stricter underwriting results in insurance rates increasing and can make certain lines of coverage unattractive, or even unprofitable for carriers to offer. 

With fewer coverage options available, insurance customers rely more heavily on their agents to help them find the coverage they need at a price they like. The decrease in coverage options also allows the carriers who are still offering certain coverages to increase their rates even further, without the fear of losing business to competition. 

Using tech solutions to respond to a hard market

When the market hardens, policyholders rely more heavily on their agent to help them find the best coverage for their specific risks. The fundamental job of an agent, to bridge the gap between clients and insurance carriers, becomes more crucial. Producers looking to increase their value to both clients and carriers in a hard market can do so by leveraging tech solutions to automate processes, aid in risk prevention, and improve data collection.

Automate processes

With costs rising across the board due to inflation, insurance agencies and carriers  may be looking for ways to control costs and protect their bottom line. By investing in tech solutions that use automation to streamline operations, these businesses will be able to increase efficiencies and simplify producer work flows. 

Digital solutions can help agencies and carriers  minimize operational costs by removing human hours spent on manual activities like filling out forms and tracking down license renewals. Eliminating these processes drives a more efficient bottom line and more importantly frees agents and support staff up, allowing them to put more time into helping clients and building stronger relationships. Which is exactly what insurance customers need in a hard market. 

Aid in risk prevention

In a hard market, insurance companies’ appetites for risk shrinks which means the industry  needs to shift its focus to be heavy on risk prevention. To help their clients prevent risk, insurance companies can use predictive technologies and next level product and service visualization tools to evaluate current and future risk..

These tech solutions enable insurance professionals to better predict risks for all types of insurance coverage. Better risk prediction means more accurate pricing, which is vital to an insurance carrier trying to survive a hard insurance market. For example, advanced weather prediction software can help agents better understand their clients needs for flood insurance. And digital twins can replicate large machinery to give insurers a 360-degree view of vulnerabilities and maintenance needs before they become a problem.

A producer who can help their client prevent risk in a hard market with limited coverage availability will gain client trust. Plus, with underwriters less willing to write risk, agents with a better understanding of their clients’ risk have an advantage and can use it to strengthen their relationship with underwriters.

Improve data collection

Hard market conditions make it more important than ever for agents to foster a strong partnership with their carrier partners. In a soft market, agents might find it more beneficial to shop around when it comes to carriers in order to maximize their commissions, but this strategy won’t work anymore when the market hardens. 

When there are a limited number of carriers offering the specific coverage a client needs, agent’s will want to have as many trusted carriers on their side as they can. To improve the relationship between producers and carriers, agencies can invest in data collection solutions that make carriers’ jobs a lot less stressful.

Agencies should look for a tech solution that can improve the quality of their data and streamline their data collection. A technology-backed solution can help agents provide carriers with cleaner data at a more efficient pace. This way, carriers and agents are happy with the back-office end of their working relationship  and can focus more on serving their shared clients. 

Moving forward

The insurance market moves in cycles, meaning, eventually market conditions will change. A hard market will eventually soften as inflation rates stabilize and carriers’ appetite for risk increases again. Agencies and producers can view the current hard market as an opportunity to build stronger relationships with their clients and carriers. 

The technology investments insurance professionals make in a hard market will keep benefiting them even as the market softens by continuing to improve workflow efficiencies and add value to clients. The great news is that any agency, carrier, or MGA doing well during a hard market will likely see those benefits carry over and produce even better results in a soft market. 

If you’re looking to control costs by increasing operational efficiency as inflation eats away your profit margin, AgentSync can help. Our solutions can automate and streamline your agency, carrier, or MGA operations to help your business thrive in hard market conditions.