Inflation continues to profoundly affect the insurance sector, as evidenced by rising claim costs, wage pressures, increased supplier charges, and heightened regulatory scrutiny. These factors have created an increasingly difficult operating environment and combine to test the resilience of finance and actuarial functions, whose role is to maintain control, compliance, and confidence in the face of investment freezes, reduced spending, and the implementation of tighter cost controls.
However, inflation doesn’t just reduce profits; it can actually reveal outdated working practices and create a compelling case for radical change. For those insurance organisations prepared to launch a strategic response to inflation’s impact, it can be a catalyst for modernisation, resilience, and adaptability in the face of ongoing volatility.
Inflation can fundamentally reveal weaknesses and inefficient processes that were previously tolerated or even unnoticed. Lengthy manual reporting processes become frustrating when costs increase month on month. Spreadsheet-based reporting can lag behind volatile assumptions. Long reserving cycles can become out-of-synch with rapidly changing assumptions. And legacy systems can limit scenario modelling at the moment that regulators require faster, more incisive insight.
For insurers, it’s crucial that they can predict future costs using historical data. However, inflation derails this process. And when costs such as repair bills, medical expenses and legal settlements rise faster than anticipated, what happened in the past can no longer be relied on to determine future outcomes.
These conditions have created urgent challenges for actuarial teams who are being asked to do much more with much less. It’s a situation that is no longer sustainable and can lead to burnout, attrition, and obsolete data for decision-making.
Automation offers a practical and immediate solution to these issues. Process automation and integrated workflows can assist with routine finance and actuarial tasks such as reconciliation, data validation, cleansing and standard management reporting. These solutions should not be regarded as replacing the expertise of an actuarial team; rather, they free up their time to concentrate on more high-impact activities such as trend evaluation, scenario analysis, and assumption setting.
In inflationary environments, the ability of insurance firms to respond quickly is crucial. Automating routine processes enables faster responses to pricing pressures and emerging risks, helping increase profitability.
Traditional actuarial models were built for environments of relative stability, where change was incremental. Inflation rises bring those assumptions into question and cause claims patterns to shift, social inflation to accelerate and historical data to become less useful.
Bespoke analytical tools, such as cloud-based modelling and advanced data processing, enable actuarial teams to update assumptions in real time, improving accuracy and enabling a wider range of potential economic outcomes to be evaluated.
This not only improves capital planning and speeds up decision-making but also supports more effective collaboration between finance, underwriting and actuarial teams and, most importantly, enables clearer communication with boards and regulators.
However, relying on technology is not enough – it is people who make the greatest transformation in any organisation. An inflationary environment intensifies competition for skilled finance and actuarial professionals who can apply their technical expertise to interpret complex data and communicate results simply and effectively.
Many insurers are responding to this skills shortage by investing in upskilling their existing teams and offering further professional development in data analytics and automation, as well as availing themselves of the skills of specialist contractors and interim leaders in order to provide direction during transformation processes. This blended workforce approach offers flexibility, the potential to access specialists' skills on a temporary basis and the ability to control costs during modernisation programmes.
Inflation undoubtedly causes problems and can create difficult choices. Insurance firms can respond by focusing on defensive cost-cutting that simply creates short-term savings or they can use the pressures they face to completely rethink how their finance and actuarial functions add value to their organisations.
Through streamlining, modernising actuarial models, and investing in their finance and actuarial teams, insurance organisations can respond more effectively to economic uncertainty in the future, whether it presents as emerging risks, changing economic cycles, or more stringent regulatory requirements. This shift in mindset reduces inflation’s threat and turns it into a positive catalyst for change, highlighting where improvements can be made, where modernisation can be implemented, and where the potential for value creation is greatest.
If you’d like more information about how Brighter Consultancy can support your insurance organisation during periods of transformation and modernisation, contact us.