Rising inflation rates are presenting an immense challenge to insurance companies globally. In this high-inflation environment, insurers face escalating costs and have the daunting task of predicting the influence of future inflation on their business, while setting prices today.
In a recent paper, Akur8 outlined that high inflation makes the future more unpredictable, amplifying the risks of pricing inaccuracies.
In 2022, the majority of G7 countries saw consumer price inflation reaching heights not seen in decades. This trend continued into early 2023, with inflation rates still high compared to the 50-year global trend.
When it comes to insurance pricing, premiums are determined based on risk models and assumptions regarding customer and market behaviour, among other things.
However, in a high inflation period, Akur8 stressed that the future deviates quickly from past trends. This complex environment accentuates the severity of the pitfalls an insurance company can face if they fail to adapt their pricing strategies promptly and appropriately.
High inflation also complicates risk segmentation. Customer and market behaviours change more swiftly during high inflation periods, thus exacerbating the challenge inflation poses to insurers’ segmentation models.
Akur8 detailed several strategies insurers can employ to navigate high inflation. These include improving future inflation estimates, utilising scenario analysis, adjusting the product offering, employing a credibility approach, and enhancing time to market.
Overall, insurance companies must be proactive in managing the impact of inflation on their pricing. They should identify the main inflation drivers for their business and develop a customised plan that considers their specific conditions and objectives. This plan should involve a combination of short-term and long-term strategies to mitigate the impact of inflation.
To discover the strategies that can help insurers weather the high inflation storm and come out stronger in the long run, you can download Akur8’s full article here..
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