The recent movements in the financial sector, including high-interest rates and the economic seesaw, made many companies and industries more aware that they should have insurance to protect them during trying times.
The insurance industry has already determined that getting optimal is their unique advantage against the competition. However, they also have to contend with each customer’s requirements because they want the best price.
Insurance pricing
All companies want to have prices that will maximize their profits, which they call optimal pricing. The same principle applies to insurance, where ideal pricing or premium must cover operating expenses, variable costs, and profits. An insurance company can set its optimal price when they understand costs, consumer preferences, competitor actions, and price elasticities.
With the weak economic forecast and rising interest rates this 2024, most insurers are setting themselves up for lower premium income growth.
Turning things around
While the prospects for the current year look bleak, there are still ways to circumvent the circumstances and have better gains that will benefit the insurers and their customers. What they need is flexible pricing, where they can ensure they will not lose while simultaneously responding to customers’ needs.
One of the things insurance companies should do to improve their standing in the sector is to use a tool like insurance rating software. This can help them face the challenges of delivering higher profits to the company, meeting compliance requirements, minimizing risks, and satisfying customers’ needs.
Many insurers are implementing subscription models, giving consumers more flexibility and control to change their insurance coverage depending on their changing needs. However, for this model to be effective, the insurer must clearly define their strategies, use advanced technology, and employ data analytics.
Offering flexible pricing allows insurers to respond and act on market changes in real time, aligning their services to consumers’ expectations. With the right pricing tools, they can generate policy prices that meet the requirements of current and prospective clients.
Flexible pricing, aided with data analytics, can also mean lower prices to low-risk customers and higher premiums to high-risk policyholders. Data analysis can help them quickly assess each customer’s risk level.
Flexible pricing allows better consumer engagement, improving the level of customer experience. For example, the insurer can allow the consumer to negotiate and pay only for the coverage they need. From the client’s point of view, it maximizes the policy’s value because they can reduce the costs of the features that are of no value to them and get a customized price for the product or service they want.
On the other hand, the insurer can also adjust their prices based on the client’s needs and market movements. For example, the insurer can offer lower prices when a client cannot afford to pay the original price. The pricing strategy helps keep the sale instead of losing the customer to a competitor. At the same time, the insurer can increase the price for clients who can pay more, which will improve their profit margin.
Individuals and companies need insurance because the economy is unstable. In addition, flexible insurance pricing can convince more people to invest in insurance that will benefit them should problems arise.
Things You Can’t Predict
In recent years we have witnessed a few monumental events that no one could have predicted. Due to the COVID-19 pandemic and the ongoing conflict in Europe, the global view on insurance changed. When the coronavirus pandemic started many things changed. People lost their jobs or started working from home.
The world that we have today differs a lot from the one we left in early 2020. Insurance still matters a lot, both in the world of business and on an individual level. It’s just the things that people and companies cherish changed.
This should influence the way insurance prices are formed. Flexibility should be the way going forward. There are plenty of reasons that support this idea from the general population’s views. When you see the image of the geopolitics of the world they have changed. They keep changing.
The value of money changes. Fiat currencies are no longer what they have been. We live in the world of digital currencies. Crypto is real, and it influences the value of money and other financial instruments being one itself. How would you put insurance on Bitcoin? Certainly, not on the same principles you would your real estate. Flexible will be the term pushed toward the insurance companies.
The policies can and should remain the same. But how they’re implemented and priced should change. The dynamics of this world will not allow the old rigid system to pertain. They are not meant to. A lot of uncertainty swims around everyone. Fixed prices are not seen as positive by people. Today we live in a world of tension. How about cyber attacks? Laws and legislation regarding taxes are changing. All of this affects the insurers. They need to adapt and grow. Growth is the best way out of insecurity.
Premium policy users will require changes. They are the ones who can put pressure on insurers. From the latter, it is expected to push gears into motion. All that they’re required to do is to be more creative. It’s possible. As we saw in recent years the world around us is susceptible to chaos.
It can fall into it and be consumed. For a while, it felt like we were living in a Sci-Fi novel. The fantasy would be praised for what the world looked like in the last few years. When chaos ensues, one wants safety. Insurance is the one who can provide it.
But we do not live in chaos every day. That’s why insurance companies need to have a flexible pricing model. 2024 only started but changes can be implemented straight away. Let’s hope for the best, but let us also prepare for the worst. Let’s be flexible. Yes, for a while we can be allowed to be rigid, and to work around insurance as it was set in stone by the ways of old. But, if we think about the future, flexibility is the only sustainable model. Our society dictates it.
We are no longer bound by space and time as we used to be. New waters require a new way of swimming. All we need is to work around ways that can allow us to both prosper, and feel safe, and insured, but under a flexible price tag.
