A 2023 study by the American Property Casualty Insurance Association (APCIA) reveals that the insurance industry saw a net underwriting loss of $26.9 billion in 2022, the largest underwriting loss since 2011. More recently, AM Best’s First Look Report shows that the U.S. property/casualty (P&C) industry recorded a net underwriting loss of $21.2 billion in 2023. That’s a slight improvement over the previous year, but it's concerning, nonetheless.
In an industry that is all about risk, this level of loss is alarming, especially when global trends beyond our control drive it. Inflation, climate change-fueled natural disasters, state regulations, and other factors are all to blame. There’s not much the insurance industry can do to curb inflation or the ravages of climate change. However, we can take a good, hard look at the things we can control. Reigning in costs around operations, claims management, and focusing on growth are all examples of things we can and should improve to keep costs down. By investing in technology to identify and solve operational challenges, carriers can be more profitable and create more value for their customers.
Identifying Operational Bottlenecks
Mid-sized insurance carriers face various challenges that can lead to financial losses. Understanding these areas can help them take proactive measures to mitigate risks. Common ways mid-sized carriers might be losing money include inefficient claims management, labor-intensive processes, and legacy technology that fails to provide a solid customer experience. Modern technology can do more of the heavy lifting to streamline operations and reduce costs.
Mid-sized insurance carriers must actively address these potential areas of loss by adopting technology, improving risk management practices, and ensuring that operational costs are under control.
So, where should they start?
Making Strategic Tech Investments
Let’s approach this in terms of emergency room triage. The first step is always to stop the bleeding. Where are the worst injuries that need your immediate attention? Mid-sized insurance carriers can leverage technology to streamline costs in these critical areas.
- Automation of Routine Processes. Are your agents still using outdated tools like spreadsheets or re-keying customer information more than once? That’s a problem that’s costing you money. Implementing automated claims processing reduces the time and labor involved in assessing and paying out claims. By investing in AI and machine learning, carriers can improve claims evaluation, detect potential fraud, reduce human error, and make more informed decisions with minimal human intervention.
- Customer Self-Service Portals. Offering secure online customer portals where insureds can manage their policies, obtain insurance coverage cards, verify information, file claims, and make payments reduces the need for customer service staff and enhances customer satisfaction. Our research shows that customers who engage repeatedly with their insurers’ portal have a 25% higher retention rate.
- Data Analytics and Predictive Modeling. When it comes to risk assessment, leveraging big data and predictive analytics helps carriers better assess risks, leading to more accurate pricing and reduced loss ratios. In addition, the ability to analyze customer data can help identify patterns and trends that inform more targeted marketing and sales efforts, reducing customer acquisition costs. Analytics can help carriers leverage customer data to identify payment trends, user engagement, and the ability to track customer journeys and identify areas for improvement. It can even help carriers explore new revenue streams by dynamically offering customers new risk products based on their individual needs and preferences.
- SMS/Text Messaging. Outbound messaging plays a pivotal role in customer retention and premium renewal collections. Our research shows that 26% of customers whose policies were on the verge of lapsing promptly paid their premiums after receiving a single SMS alert notifying them of the impending policy cancellation. Furthermore, sending a cancellation message via SMS on the renewal day slashed cancellations by 52%.
- Chatbots. Implementing AI-powered chatbots to handle simple customer inquiries can decrease the volume of calls and emails, freeing up human resources for more complex issues. Customers used to avoid chatbots at all costs. However, improvements in AI have changed that. Research shows that Millennials prefer to engage with chatbots first for basic assistance.
By adopting these technologies, mid-sized insurance carriers can significantly reduce operational costs, improve efficiency, and stay competitive in an increasingly digital marketplace.
To stay competitive, carriers need to focus on new customer acquisition and retaining existing customers while finding ways to keep operational costs under control. The good news is that technology solutions are available today that can solve many of these challenges at a reasonable price. It comes down to leveraging technology to demonstrate to your customers that you anticipate their needs. This is crucial for winning new business and building loyalty with the customers you already have.
Sponsored by: ITL Partner: insured.io
