According to the Reserve Bank of Australia (RBA), inflation is currently 7%, down from a peak of nearly 8% in December. The official interest rate is 4.10% and news reports suggest it shouldn’t rise much further. However, the cost-of-living crisis continues to bite hard. This month, according to ABC News, power bills for many consumers rose by nearly 20%.
Insurance companies are also struggling with inflation challenges. Many are relying on premium rises to cover rising costs and keep budgets under control.
Gallagher Bassett (GB), one of Australia’s largest third-party administrators (TPAs), has developed strategies for cost containment focused on the claims management process. GB describes the offering as “an insurer’s comprehensive guide to stability amid economic turbulence.”
John White (pictured above) is the firm’s head of sales and client services for general insurance.
“In these times of economic instability, insurers are grappling with skyrocketing claims costs and inflationary pressures,” said Brisbane-based White. “That’s why they’re teaming up with strategic claims partners to tackle these challenges head-on.”
With premium rises such a focus area for insurers, he said pricing optimisation tools and predictive modelling are two ways insurers can effectively manage their pricing strategies.
White said GB’s expertise in this area, including in the provision of reserving and cost containment practices, “is like having a crystal ball that helps insurers confidently navigate the market, offering competitive pricing while keeping profitability in check.”
However, a current hurdle for insurance companies, he suggested, is the current cost challenges combined with the need to upgrade technology.
“Managing costs in the insurance industry can be challenging, especially when it comes to developing and integrating technology,” said Brisbane-based White. “One of the most effective ways to do this is to work with a strategic claims management partner.”
He said this partnership can facilitate access to industry-leading technologies and improve the claims management processes. White said this will “foster cost efficiencies” and overall performance improvements.
The claims process is a prime candidate for cost savings, said White.
“Using claims technologies to automate the claims process is a tried and tested strategy with many benefits for insurers,” he said. “Automation can significantly reduce the need for rework and additional touchpoints, improve accuracy and ultimately speed up the time to approve and settle a claim.”
He said these tools are key for driving cost savings and also to improve the customer experience.
A more specific insurance operation where costs can be reduced is reinstatement, or restoring lapsed insurance policies to an active status.
“There are a number of ways that insurers can speed up reinstatement,” said White. “Claims management automation technology and effectively partnering with claims managers and repair panels are two ways to accelerate reinstatement.”
He said automation of the claims process, which allows policyholders to lodge claims online, also “drives a more efficient claims-handling process and quicker approvals.”
“It’s also critical that claims managers and their repair partners are fit for purpose, have the right geographical spread, and have established robust and achievable SLAs [service level agreements],” said White.
The operations side is one big part of many insurance businesses. The other side: investment portfolios, can also be very important and higher interest rates can boost their value.
At the end of last year, as interest rates continued their climb, a report by the Swiss Re Institute said the rate hikes would improve investment results over the medium term.
The report anticipated “positive catalysts” for the insurance industry during 2023 and 2024 from expected market rate hardening and higher interest rates.
“The repricing of risk in the real economy and financial markets is actually healthy and a long-term positive,” said Jérôme Haegeli, Swiss Re group chief economist. “Higher risk-free rates should mean higher returns for investing into the real economy.”
The report said commercial lines were projected to benefit most from rate hardening and expand more than personal lines (excluding health). Swiss Re estimated a 3.7% increase in commercial premiums during 2023.
However, the report said inflation remains the “number one” industry concern.
“We forecast high inflation in cost components relevant for insurers, such as construction and healthcare that suggests insurers’ claims and costs could rise markedly in 2022 and 2023, even without considering changes in claims frequency and natural catastrophe activity,” said the report.
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