How Can Insurers Be Prepared?

July 24, 2020

While many industries have been jolted by the unexpected onset of Covid and the many unknowns about the future, few have had to batten down the proverbial hatches as much as insurance, a sector already accustomed to predicting and managing risk.

As carriers adjust to a global slowdown and a blurry economic outlook, insurers have had to step up their game to reassess their business plans and apply new processes and technologies to help them become more nimble in a constantly-changing context.

In particular, Covid has challenged the renewals and the forward pricing landscape for insurers, but fortunately new tools can supplant now-antiquated manual pricing and renewals analyses.

Covid Challenges Manual Processes
For far too long insurers relied on labor-intensive, complicated manual processes for risk analysis and pricing. Now, with Covid, long-standing operational inefficiencies that were executed on paper-based processes are simply too unwieldy to manage the rapid changes and almost complete virtualization brought about by the epidemic.

As carriers and brokers focused on simply executing their basic business processes at the beginning of the epidemic, it quickly became apparent that the adaptation to 100% virtualization of businesses — many elements of which now appear here to stay — required a fluidity of business infrastructure and cost reduction inherently incompatible with manual processes.

An Infusion of Future-Proofing Technology
Innovative new platforms and other technologies will bring these systems into play more efficiently. Automation processes provide for insurers to create additional capacity and build a nimble resilience into their operations.

In particular in a hardening market, insurers can invest in automating technology to reduce fractional costs and ensure adequately-priced risks, via solid mining and analysis of their data. Analytics technology offers data insights that can quickly detect and apply opportunities for cost reduction, while simultaneously enhancing the pricing process, ensuring the optimization of renewal periods.

Renewals Pricing – The Details
Renewals pricing had already been on the rise prior to Covid, a result of heavy catastrophe losses in recent years, with insurers pushing for higher pricing to offset claims. These conditions are continuing to drive further rate increases, especially when combined with the financial market declines of the past several months that have buffeted the balance sheets of insurers.

Through 2019, renewals did not necessarily have recent catastrophe losses adequately priced-in. The severity of Covid likely ensures that losses are included in renewal pricing at a much more rapid rate. Already in Q1 of 2020, US commercial line rates rose between 12% (Zurich) and 16% (Allianz).

The long-term hardening of pricing is likely, as the unfolding impacts of Covid continue to damage multiple insurers. With a vigorous 2020 hurricane season on the horizon, it’s a good bet we’ll see prices harden even further.

How Can Insurers Be Prepared?
Now more than ever insurers need to reevaluate their processes and incorporate systems and technology that can support their decisions through increased connectivity and data exchange, employing tools that make risk analysis and pricing faster, easier and more reliable.

Trusted technology partners such as DRC can help bolster all of the above, ensuring best-in-class guidance and support as insurers navigate paths toward stability, while optimizing the probability of better understanding their existing portfolios and identifying opportunities for growth.