Insurers’ Operational Efficiency is Becoming a Matter of Survival

In the early part of the year, insurance made the news in North Carolina because carriers were asking for up to double the rate along the fragile Atlantic coasts. From the Outer Banks to Oak Island, homeowners – some of second homes, yes, but also many full-time residents – sweated out the potential of doubling their insurance costs for about a month. In February, N.C. insurance commissioner Mike Causey rejected the hike and set a hearing for Oct. 7 – about a week from now.

I bet the commissioner did not expect that so close to his hearing date, a storm of almost unfathomable destruction blasted its way through the Western North Carolina mountains, hours from the coastline. Helene was a massive rain event in the area. Asheville, a mid-sized city, is the biggest population center affected – but swelling creeks and rivers overtopped dams to the point of washing away entire small towns.

In the U.S., insurers face escalating stakes with every catastrophe. The Sun Belt is seeing development in some of the most dynamic areas from a weather perspective -- while property values have climbed considerably over the past several years along with migration. Housing prices in Asheville have nearly doubled since 2016. New construction in coastal Florida is expensive to build -- then rebuild after each convective storm. The insurance crisis that seemed earlier in 2024 to have somewhat abated is now staring at another potential crisis.

Consumers and regulators are always going to push back as much as possible on rate increases. Insurers must prepare for protracted fights, especially in the near future, as they try to gain adequate rate. In the meantime, there is something carriers can do: Strategic digital transformation targeted toward operational efficiency.

One of the most common problems we contend with at Celent is processes that require a high level of staffing attention that’s drawing workers away from more productive work. But there’s a rapidly maturing collection of AI (generative and otherwise) and automation solutions in the market that can allow insurers to redeploy resources away from administrative tasks. Low- and no-code platforms allow business users to customize processes to be as efficient as possible.

That’s crucial as staffing issues also plague the industry, and seasoned pros are leaving crucial claims, underwriting and service positions faster than insurers can replace them. If you’re still manually processing paper documents and reviewing routine submissions the same way you were 20 years ago, it’s likely in a higher-strain environment from a resource perspective than those processes were designed for.

While short-term disruption and spending sounds painful – especially in this dynamic P&C insurance market – it’s important to remember that these conditions are not going to get better any time soon. Even if you felt like you were out of the woods after a relatively calm first three quarters of 2024 – the impact of Helene should disabuse you of that notion. The best time to implement new solutions was yesterday – but the second best is today.