Manage Rising Expenses in Insurance

Have you noticed your expenses rising lately? Eating out costs are up over 4% year over year, housing expenses have increased by 5-6%, and opening your auto insurance bill reveals a shocking 22% hike. These figures highlight the inflationary pressures impacting various sectors but are particularly severe in the property and casualty (P&C) insurance industry. 

Insurance Industry Challenges 

2023 was one of the costliest years on record for the P&C industry due to several factors: 

• Extreme weather 

• Inflationary pressures 

• • Labor costs have jumped nearly 12%.

• • Residential building costs have risen almost 28%.

As a result, industry combined ratios have reached 103.9%, forcing carriers to take corrective underwriting actions, including significant premium increases, to bring transparency in coverage processes (TCRs) back in line. 

Cost Optimization Strategies for Consumers and Carriers 

While consumer advocates encourage policyholders to shop for better rates, bundle multiple products for discounts, and optimize their policy structure, there are several strategies insurance carriers can adopt to retain and grow their customer base through effective expense management. 

Personalize Your Product 

According to a recent JD Power survey, nearly half of auto insurance consumers shopped their policy last year, and a staggering 29% switched from their current carriers. The driving force? Customers are more likely to engage with companies that genuinely understand their needs and relationships. Personalization offers the consumer a perceived ROI on the premiums they are paying – they are understood and (most importantly) protected.   

Successful carriers leverage their extensive operational data to generate actionable insights, creating integrated, seamless, and tailored customer experiences. Personalization goes beyond sending birthday acknowledgments. It involves continuously learning about your customers’ evolving needs and communicating with them in an authentic tone. 

The benefits of personalization are significant. A life insurance survey indicated that understanding the customer and tailoring offers can reduce customer acquisition costs by up to 50%, generate up to 10% more new premiums, and reduce customer churn by 30%. And, despite the rise in privacy regulations such as the GDPR or CPRA, 70% of global customers are willing to share their data in exchange for better pricing, experiences, or tailored offers from their carrier. 

Improve Internal Efficiencies 

The recent economic challenges have, without a doubt, exposed process inefficiencies, highlighting the need for greater automation in both customer-facing and back-office operations. The insurance industry has one of the highest ratios of labor expense to final product price. Industry forecasts estimate that within 15 years, 10-50% of current insurance processes will be automated, significantly reallocating resources and value propositions. 

By 2025, 60% of organizations will be using automation to address staffing challenges, moving human intervention to the highest priority work. Automated processes have been proven to reduce paperwork by 80% and speed up claims processing by 50%, resulting in substantial productivity gains. 

Automation Success In Action: Our client needed a claims processing platform that could handle high-volume operations, provide all business areas insight into best practices, and provide customers with self-service capabilities. We redesigned the underwriting and claims processing applications using Pega’s Claims for Insurance framework. We created customized workflows and case types, enabled document ingestion and indexing, and provided access to the first notice of loss reports. 

Embrace Artificial Intelligence and Machine Learning 

Beyond operational efficiencies, artificial intelligence (AI) and machine learning (ML) also offer promising advancements for the industry. Integrating data-driven analytics into core underwriting elements will enhance product pricing (e.g., telematics) and development. 

For claims organizations, AI can significantly improve settlement and fraud detection processes. Moreover, predictive and preventative services enabled by AI can help prevent risks before they occur. The use of predictive analytics has positively impacted loss ratios by 3-9%.  

While the current P&C rate increase is helping to bring down combined ratios, 2024 is likely to continue to experience more underwriting pressure, with AM Best predicting a combined ratio of 100.7%.  

AI Success in Action: We developed a virtual assistant to redirect 25% of our client’s incoming call volume of 5,000 calls per month to a self-service model. ​ By off-loading a large volume of third-party mortgage inquiries, our client could focus on providing personal attention to customers when they need it most while also saving significant amounts of labor on tasks that are ripe for automation.   

The Need for Digital Solutions 

Companies that invest in smart technology to future-proof their expense ratios will not only mitigate near-term profitability challenges but also establish a strong foundation for ongoing productivity and customer satisfaction enhancements. Embracing personalization, automation, and AI will enable carriers to navigate the evolving landscape of the insurance industry effectively. 

Your Expert Partner 

Are you prepared to embrace the future of insurance? 

We invite you to explore our insurance expertise, or contact us today to learn how we can optimize your insurance practice.