Increased insurance premiums are a hard sell for customers. From a customer’s perspective, they’re paying more money for the same coverage, meaning that they’re receiving less value per dollar on their commercial coverage spend.
Yet price increases play a key role in maintaining a stable commercial property and casualty insurance market, particularly in the wake of the COVID-19 pandemic, wildfire concerns and a record hurricane season.
Insurers will need to understand the customer perspective in order to successfully communicate the value of insurance policies even as premiums increase.
The 2021 Commercial Premium Forecast
For 2021 and 2022, commercial insurers and their customers can expect premiums to trend in one direction: up.
A survey conducted in the third quarter of 2020 by Alera Group found insurers predicting rate increases in all areas of coverage. The size of the increases varied, however. Property coverage rates are expected to increase about 13.6 percent, while general liability and professional liability face increases between 11 and 12 percent. Premiums for commercial auto coverage is predicted to rise 14.2 percent, with larger commercial fleets facing higher premium increases, larger deductibles and lower coverage limits.
No area of property and casualty insurance coverage is likely to be exempt from increasing insurance rates.
“When you start to go by line of business, you can see why some lines are more aggressive in the request for rate,” says Mark Englert, national property and casualty leader at Alera. Lines with decreasing profitability face higher rate increases than those that have remained consistently profitable.
The COVID-19 pandemic has affected different business areas in different ways, resulting in varying effects on insurance rates. Yet no area of commercial insurance has been exempt from the effects of the pandemic.
“For commercial lines insurers, the coronavirus-related economic downturn is constraining premium growth, raising claim costs in certain business lines, and adding volatility to investment performance and capital levels,” says Jasper Cooper, vice president, senior credit officer, at Moody’s. Ongoing risks from the pandemic and other sources continue to affect commercial insurance rates, as do low interest rates, which affect insurers’ investments.
Premium Increases: A Customer’s Viewpoint
One year into the COVID-19 pandemic, business customers face issues they could never have predicted. Many of these issues are related to insurance coverage or can be addressed by better education on insurance topics, but insurers must understand their customers’ perspective in order to shape their message effectively.
Understand the Challenges Customers Face
Customers are likely to see rising insurance rates as a challenge all its own.
Rising insurance costs place additional burdens on a number of industries, including trucking. “Year-over-year, carriers are having to pay more money for less coverage,” writes Jennifer Wieroniey, executive director of the national accounting and finance council at American Trucking Associations. While some trucking companies manage these costs, others go out of business because they can no longer maintain a sufficient profit margin.
Trucking provides just one example. Many other businesses also juggle the cost of insurance against a thin profit margin, and they too may make the hard decision to shut down when costs exceed their ability to grow their business. In the wake of business shutdowns and other measures intended to curb the spread of COVID-19, more businesses are weighing these difficult options.
Some business owners are already frustrated with their insurance companies, as well. In some cases, business insureds come to the table already convinced their insurance company will not help them understand their needs or address claims, says Sara Costantini, managing director at CRIF Decision Solutions, U.K and Ireland.
The pandemic provides “an opportunity for insurers to show empathy and know their customers better to regain trust and face this new phase,” Costantini says.
To Connect With Customers, Meet Them Where They Are
Understanding how customers’ buying habits have changed as a result of COVID-19 and other social and environmental events can help insurance companies meet customers where they are, says motivational sales speaker Andy Preston.
It’s important to understand the ways that customers decide what to buy and how to buy it, “because if we don’t, we end up using that very old sales mentality of trying to force our products or services on to people actually buying in a different way,” says Preston.
On-demand insurance, combined with a commitment to customer education, can help insurers meet customers where they are.
“Today, with the difficulty of making any short or medium-term plans, more than ever before consumers will be looking to buy only what they need and possibly only when they need it,” says Costantini. When customers know exactly why they need certain types of coverage, they’re more likely to embrace that coverage, despite higher premiums.
Communicating Value as Premiums Rise
Insurance customers are often confused by the complexity of insurance. They may also be uncertain about its value, especially if they have not yet needed to file a claim under a particular policy.
To communicate the value of the insurer-insured relationship, focus on building trust and illuminating the many ways insurance can help address issues for businesses.
Focus on Customer Care
Trust is essential to the relationship between insurance customers and their insurers, particularly in the commercial realm, where insurance customers may have invested years of effort as well as thousands or millions of dollars into their businesses.
Trust is “the product of a relationship nurtured over time, across an ecosystem of touch points, including marketing, interactions with agents or distributors, customer care and online platforms, and claims,” write John Jones and Abhijit Mukhopadhyay in Strategy and Business.
To build a longstanding trust relationship, insurers must remain connected with their customers over time. To have the time to build trust, insurers must communicate value well enough for their customers to choose to renew policies rather than shop for coverage with another insurer.
One way to build trust with insurance customers is to help them understand the total cost of risk and the ways that various factors play into that cost, including the value of risk management, says Bart Shachnow, sales performance director at Zurich.
“Risk management is an investment companies need to make, especially in these uncertain times. Employees will refuse to work for companies with unsafe workplace conditions, and customers will simply refuse to do business with organizations that put their own employees or customers at risk,” says Shachnow.
By educating businesses on the value of risk management and the role insurance plays, insurance companies can temper news of rising premiums with a clearer understanding of exactly how those premiums benefit the business.
Treat Regulatory Challenges as Teaching Opportunities
Insurers face a number of regulatory challenges as they enter 2021. Several are related to the pandemic, such as the behavior of insurers toward policyholders in the face of this unprecedented crisis when it comes to handling business coverage. Workers’ compensation claim disputes regarding COVID-19 may also increase as businesses reopen.
Some regulatory issues were on the table even before the pandemic hit, however, write Gary Shaw and Neal Baumann at Deloitte. These include regulatory work on issues like artificial intelligence, social unrest, climate change and cybersecurity.
While these regulatory areas can be complex, they also offer opportunities to educate customers and demonstrate the value proper insurance coverage provides. For instance, educating customers about the value of coverage for cybersecurity and privacy risks can help insurance customers ensure they’re covering risks they actually face. With these risks in mind, companies can more easily build trust with their own customers and clients, improving their ability to leverage data to meet business goals, note Joe Ucuzoglu and John Hagel III in the Harvard Business Review.
No customer enjoys paying more for insurance. With a clear understanding of the value involved in commercial coverage, however, customers will find it easier to weather rising premium prices. Insurers who better understand customers’ perspectives and expectations will find it easier to communicate value.
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