📄 Pricing in an Age of High Inflation
May 22, 2023
How can insurers deal with the challenges posed by high inflation? This White Paper outlines several strategies insurers can utilize to deal with high inflation.
The challenges of high inflation
When pricing an insurance risk, the premium charged is based on a large set of models and assumptions about the likely performance of the risk in the future. Based on data from the past, we try to build an understanding to create accurate premiums for an uncertain future. High inflation increases the risk of mis-pricing as it causes the near future to behave less like the past more quickly than in a low inflation environment. This challenges both the base rate price, as well as the segmentation models.
Strategies for dealing with high inflation
In the White Paper, we highlight 5 strategies that can be used to deal with high inflation. These include:
- Improving estimates of future inflation
- Utilizing scenario analysis
- Adjusting the product offering
- Utilizing a credibility approach
- Improving time to market
Next steps for insurers
In the future, insurers need to be proactive in terms of pricing for inflation, and do what is possible given the current conditions. Incorporating strategies such as identifying the main drivers for inflation for their business, and staying up to date with the inflation developments, insurance companies can weather the storm of high inflation and emerge stronger in the long run.
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