Request a Consultation

Faheem Shakeel
Faheem Shakeel Posted on Aug 14, 2023   |  5 Min Read

Like it or not, inflation follows cyclical trends causing it to recur from time to time. As a result, the economy goes through periods where the cost of goods and services attain unsustainable levels only to get back in control after due measures. It is an omnipresent threat that affects all industries – some more than others – insurance included.

While there’s little one can do to control the global economy, insurance businesses can develop policies and processes that can shield the company from inflation. More specifically, a few strategic investments in insurance technology can put you on a solid footing to beat the effects of inflation. In this article, we examine various strategies to stay ahead of the inflation curve.

Imperative for Insurance Technology Investment

How Does Inflation Impact the Insurance Industry and Its Technology Investments?

Inflation eats into the spending capacity of a business. The shrinking purchasing power paired with the higher cost of goods and services can be a deterrent to their insurance technology investments. Such a combination leads to the following outcomes:

1. Higher Insurance Premiums

Inflation affects insurance premiums in various ways. For starters, as goods and services become more expensive due to inflation, insurers may have to shell out more money for repairing or replacing damaged property or to pay for labor. Inflation is led to increased claim costs, which has thereby contributed to higher premiums. Further, high inflation can erode the investment income of insurance firms, as their returns on invested premiums might fail to match escalating expenses, potentially causing reduced income and increased policy premiums.

2. Increased Operational Costs

As the overall cost of virtually everything scales, companies will face rising operational costs across the insurance value chain. Whether it is the cost of hiring and retaining talent or acquiring or maintaining hardware and software infrastructure – everything will witness a jump in cost per dollar.

3. Capital Constraints

Investors become risk-averse during inflationary periods. As a result, insurance companies may struggle with securing capital for major investment decisions. Borrowing is also out of the picture since interest rates increase proportionately to inflation rates. This can halt cash inflow and slow down technologically-advanced and innovative projects.

4. Insurance Tech Prioritization

Limited capital resources mean that insurance companies have to carefully plan and prioritize technology investments to focus on more pressing ones first. Think claims processing, customer service enhancement, fraud protection, etc. Seeing as how inflation also dampens the measurable ROI of tools and technologies, factor in this variability before making such critical decisions.

5. Changing Consumer Behavior

Much like it does to businesses, inflation hits consumers in different ways. Broadly speaking, you will notice a rising price sensitivity amongst policyholders, which can make it tough to balance customer satisfaction and business profitability. What you need, would be an intuitive window into the customer’s psyche to cater to their immediate needs without disrupting business viability.

6. Shifting Regulatory Landscape

Inflation often triggers a change in government or regulatory policies, especially in the BFSI sector. In response, businesses are left scrambling to comply with the changes and implement them at an accelerated rate, sometimes even overnight. Such demanding stressors can also have a lingering effect on how insurance businesses cope with inflation.

How Can Smart Insurance Technology Investments Inflation-Proof Businesses?

We’ve seen so far how inflation has a multi-dimensional effect on the insurance sector. From hampering R&D of technologies to redirecting resources like funds. Despite such challenges, insurance technology can redefine business paradigms and can play a crucial role in injecting resilience and adaptability to brave inflation. Here is how it does so:

Makes Insurance Digital On Priority

Digitization of insurance has been a hot topic for some time now. With most businesses taking the digital route, insurance technology is an effective trend to implement the transformation. It promises a buffet of advantages from smoother operations to wider reach to effective policy management and administration. Such benefits, along with inherent elasticity and flexibility will help insurers adapt to changing market dynamics, specifically in relation to inflation, whether it originates from the customers or governmental and regulatory bodies.

Elevate Your Edge in the Digital Insurance Arena

Explore Now

Reduces Costs Using New-Age Technologies

Insurance technology solutions leverage advanced technologies like Artificial Intelligence (AI), Machine Learning (ML), Robotic Process Automation (RPA), etc. The incorporation of such cutting-edge technologies streamlines insurance processes, reduces manual intervention, and decouples performance from resource availability. Such a boost cuts resulting from technological innovation down operational costs while boosting profitability. As such, insurers can weather the effect of inflation without damaging their bottom line.

Makes Decisions More Data-Driven

Most insurers rely on intuition to make business-related decisions. While such an approach may hold its own under normal circumstances, inflationary pressures can skew the odds. As seen, consumers may become price-sensitive, which can only be ascertained by understanding market sentiments. More importantly, such an understanding must warrant quantitative and qualitative support. Investments in insurance data analytics technologies make it easier for insurance companies to collect, analyze, and work with vast amounts of data to make smarter decisions. They can use it to identify patterns and adapt strategies accordingly.

Improves Customer Experience and Retention

By focusing on customer-facing processes, personalizing customer experiences, making interactions meaningful, and front-loading value across the insurance value chain, insurance companies can win customer favor. It paves the way for happy and satisfied customers which increases their loyal customer base. Such customers are more likely to stay loyal and stick around, even during the inflationary period. So, going by Pareto’s Principle, this 20% of your loyal customer base can bring 80% of your business! During inflation, educating customers on the potential impact of inflation on their coverage and the risks of underinsurance, as well as providing regular updates on any adjustments to products or pricing to account for inflation through digital apps., emails, social media, and website touchpoints are key.

In Conclusion

In conclusion, inflation is unavoidable. Rather than fearing it, insurers should focus on building resilience that can mitigate its impact on technology investment, operational cost, capital availability, and consumer behavior. Taking proactive action at the right time will allow insurance businesses to cut down operational costs, improve customer experience, make data-driven decisions, and more.

As insurance technologies continue to advance, businesses that embrace this wave would be better poised to navigate the complexities arising out of inflation. Such agility, sustainability, and protection from inflationary effects will push them as global leaders in insurance!

Case in Focus

A multinational insurance organization based in the United States sought to modernize its core systems due to manual processes and complex data handling. With our partnership, they migrated and modernized their insurance management system to Azure cloud using microservices architecture, resulting in a unified, agile platform supporting risk management and insurance functions. This transformation reduced IT complexity, maintenance costs, and process inefficiencies while enhancing decision-making capabilities, leading to successful migration within budget and schedule. The detailed case study is available on our website.

Take Your Insurance Business to New Heights