How buildings and contents insurers were impacted by the inflation | NTT DATA

Fri, 06 January 2023

The impact of inflation and the recession on buildings and contents insurance

2022 was a challenging year. Factors such as the conflict in Ukraine and the aftershock of the pandemic led to global economic challenges, with rising inflation fuelling the cost-of-living crisis and the meteoric rise of energy bills. Understandably, consumers and businesses across the UK and Ireland have growing concerns over their financial stability.

As always, the concerns of the customer are reflected in the services provided by insurance practitioners. With buildings and contents insurance specifically, there are new challenges emerging on a daily basis. To name just a few, these include natural disasters caused by climate change, Brexit-related labour shortages, and supply-chain disruptions related to the war in Ukraine.

All of these emerging challenges have driven up the costs to serve, meaning insurers in the buildings and contents space have to find ways to mitigate these increases whilst still delivering maximum value to their customers. In this blog, I will explore some areas across the buildings and contents insurance industry that have been most heavily affected by inflation and offer strategies to deliver maximum value to customers, maintaining a competitive advantage when times are tough:

Fraud: a rising threat in trying times

 The good news is that the ongoing increase in the number of households continues to raise the demand for buildings and contents insurance. At the same time, however, the volatile economic climate has resulted in a sharp increase in the level of fraud.

As we enter a hard market cycle, with premiums increasing and the capacity for insurance dwindling, losing money as a result of insurance fraud is the last thing the industry needs. In fact, the Insurance Fraud Taskforce reported just this year that fraudulent claims have risen to be the single largest expense to property and casualty insurers, taking up to 10% of their annual revenue. Moreover, in the UK alone, the value of detected fraud is in excess of £1 billion and undetected insurance fraud is estimated to cost the UK economy more than £2 billion a year.[1]

These are scary numbers. However, there are a number of tactics that insurers can use to combat fraud and protect honest customers from rising premiums. Of course, insurers can’t control inflation, but what they can do is mitigate fraud to reduce the damage to their profits. To do so, they must focus on developing innovative solutions designed to continually assess fraudulent activity across their entire ecosystem. When I say the entire ecosystem I mean at all points throughout the policy lifecycle, not just at the point of quote or claim.

Being able to monitor the entire ecosystem is no easy task, especially when legacy estates are not seamlessly connected. Without sufficient connectivity, it is extremely difficult to stay alert to independent fraudulent behaviours. Once these behaviours are combined and can be streamlined and visualised, insurers can act on the intelligence faster and control the damage caused by fraud. With the right use of technology in place, insurers can make use of the data they collect to stay ahead of the growing threat of fraud.

Data: the key to extracting valuable customer insights

It’s clear that all insurers have an abundance of data. Making use of that data will be the difference for the providers who want to separate themselves from the crowd and demonstrate their value proposition. Data can also help insurers reach those that are uninsured or underinsured by offering them the exact services that are tailored to their specific needs.

Looking at the industry as a whole, making better use of technology and AI is the silver bullet for providing seamless customer experiences that enable policies to be written in as few steps as possible. Speed and usability prevent customers from turning their attention to alternative options, which is vital in the current hyper-competitive landscape.

Knowing your customer means understanding the product they need and the service you can provide them. Above all else, customers want reliable products tailored to their specific needs. Insurers need to know their customers better by transforming the data they collect into valuable insights, and in doing so, design their products and offerings to match their customers’ needs.

One approach is insurers offering incentive-based policies to customers who live in smart homes. These policies use the data collected from their home to reduce the cost of the policy but also can be used to provide evidence in the event of a claim being made. Crucially, there has been some scepticism from customers over this approach due to concerns over their privacy. As a result, whilst trusted providers are finding it easier to sell these policies, the lesser-known providers are having to make a case for the value it can bring to their potential customers.

If we look at a specific example in parametric insurance, we’ve seen that data-driven policies can improve customer experience and increase how quickly impact claims can be resolved. Recently, commercial flood insurance provider FloodFlash was able to pay a claim within six hours. In this instance, data proved to be the difference, providing FloodFlash with the tools to resolve this claim quickly and effectively.

The role we play

At NTT DATA, we’ve been assisting our insurance clients in their transition from legacy estates to modern architecture. The ultimate aim of these transition projects is to create a fully connected ecosystem that enables our clients to trade digitally and gives them an edge over their competitors in the race toward digital.

As we move toward a digital future for the industry, insurers will have to continue investing in innovative digital technologies and working on streamlining their processes. In today’s landscape, customers want high-quality risk protection solutions that give them the assurance they need. A connected ecosystem is absolutely vital to creating these solutions because they need to be data-driven, fast, and most importantly, effective.

Ultimately, General Insurers will achieve better results and greater engagement from their customers by offering a highly-personalised customer experience. As competition continues to grow, the best strategy to increase profits is focusing on retaining customers through loyalty, rather than placing sole priority on reducing costs.  Building customer intimacy will also help retain customers directly and reduce the need for them going through price comparison websites.

[1] Insurance Fraud Taskforce: Final Report, p. 5

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