Challenges Facing the Insurance Industry

In addition, while the insurance business and the needs of policy holders and distributors are rapidly changing, many insurance companies can’t keep up because they are unable to differentiate their business, reach customers likely to respond to new sales opportunities or make the most of their valued staff. Insurers that define and implement solutions to these challenges are those that will successfully compete and thrive into the future.

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Some of the challenges facing the insurance industry include: Lack of a big pool of customers Under the system of pooling, insurance companies come together to form a pool, which can provide protection to insurance companies against catastrophic risks such as floods and earthquakes. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled. In particular, it is difficult to pool dissimilar risks in a voluntary insurance market, unless there is a subsidy available to encourage.

Lack of a big pool of customers has led to some of the risks to be insurable. This reduction in variability allows a decrease in safety stock and therefore reduces average inventory. Remedy The insurance industry should put up civic education or awareness of the importance of insurance to the public I. E. By advertising . A good example is the Jubilee insurance in Kenya, which has very many policies a policy holder may want to get a cover against e. G. They insure against riots, political violence, drought and many more. This attracts many customers hence creating a big pool of customers.

Lack of proper research has led to a poor background for decision making especially in finding out the insurable risks and setting up the premiums to forgo in order to gain the insurance cover. Challenges Facing the Insurance Industry and How to Overcome Them By alder This can either be done by offering an Inviting “Customer Front Door”. This will give hem direct response/feedback from the customers. It also gives the insurer first hand information from the insured and can now strive to provide better services with the aim of dominating market share.

Public dishonesty – some of the time the public does not uphold the policy of barrier fide which compels parties to disclose of all material facts thus leading the customer reaping and benefiting from misfortune. Sometimes the claims are overstated thus proving to be costly to the public. In situations of insurance application, most people have ended up filling in half-truths and lies so as to be charged cheaper premiums. The insurance industry should give agents the information they need to do their Job And initiate proactive contact with the customer.

The agents should make aware the principle of indemnity and warn the customers that if the information indicated in the contract is wrong, then the insurer will term the contract void and the insured will not get any compensation in case of occurrence of a risk. Legal laws set by law making bodies – When insurance companies are forced to pay up a big amount of money for license and the burden ends up passed to the public has led to high insurance rates that have proved difficult to pay.

This makes many customers shun insurance. The motor industry has been forced into insurance by the law such that normally motorists Just insure in order to use the roads not as a means of protection. The insurance industry needs to control internal expenses and improve our systems and service levels at the same time. With call volumes going up, the ability to continue providing a really good service at a lower cost can be achieved.

This will cut down on the costs incurred by the law making bodies Lack of proper management and transparency – Some insurance industry lack proper management due to lack of transparency, this has led to customers losing their money in the process and thus making the public lose trust in the industry. Incompetent management could lead to unrealistically low premiums that make insurance affordable yet not payable. Incompetence is also found in the relay of wrong message to the public by various insurance agents whose qualifications are most times in question.

Read also a project report on life insurance company

The insurer should not be tempted to seek to bolster your margins by taking actions that could cause consumer detriment. Examples might include: unfairly rejecting estimate claims; reducing claims payments; or applying unfair contract terms. This you risk further damaging consumer confidence in your industry and you will attract unwanted attention from us. Unpopularity of insurance policy to some people – most people are not used to paying premiums in order to alleviate the risks, therefore consider these rates exorbitant thus they don’t seek insurance.

This has been bad for business in the industry as most insurance companies are found straining to meet their budget and pay claims. Some have resorted to unethical means of luring customers into this industry. These are mainly through reduced rates that thus lead to unpaid claims. The first step in ensuring an exceptional customer experience is to offer multi- channel Contact centre interactions comprised of phone, fax, e-mail, SMS text messaging, and perhaps even Web chat, so that prospects and customers can conduct business with you exactly when and how they like.

Lack of public trust in the insurance industry – this is mainly due to the number of non-paid claims that lie about within the market. Many claims have not been paid due to prolonged investigations to the point that rather than other insured’s commend insurance to their friends they always end up discouraging them and most of those who seek insurance always do so in order to gain the benefit of tax reduction that comes with the package.

The industry should focus on restoring consumer confidence by providing products that consumers want and reducing the risk of them buying products they don’t need. The products must offer real benefits to customers and the risks and limitations must be made clear. They should be designed, targeted and marketed appropriately. Poor services from insurers – After service is badly missing and the customer has to hash the Agent for queries, updates and many other issues.

Call centers entrusted with the work of ‘customer relationship’ are mechanical and lack personal attention required to be given. This may be done by: ; Facilitating Integrated and Consistent Cross-Channel Interactions with the customers ; Get Customers off the Phone and Onto the Web ; Handle Calls More Intelligently ; Make More Effective Use of Customer Data and Segmentation Life insurers – in the life sector, the greatest challenges have been for those most exposed to falls in asset values, widening bond spreads and low interest rates.

In other words – annuity providers and with-profits firms. Remedy decline, some of these insurance industries may find it difficult to take actions to further conserve or raise additional capital. So a key priority is to pay careful attention to capital management and planning, with a particular focus on the risk of a further downturn in the economy. Solvency – one biggest prudential challenge for all industry in the insurance sector is Solvency.

Solvency will radically alter the capital adequacy regime for the insurance industry. The requirements for delivering and demonstrating the standards of risk management and governance will be challenging, and especially so for groups that operate in multiple countries. Solvency will require greater disclosure and transparency, together with additional and more frequent reporting. Although there are some material technical issues that are not yet finalized, firms should not be waiting for these to be resolved.

There are bigger risks associated with inadequate engagement than with managing through the uncertainty. Financial crisis and the weakening shilling-The impact of the financial crisis on the general insurance sector was less immediate and less significant, but the prolonged secession and the slow and uncertain recovery have increased the prudential risks in this sector. Firstly, the long-term structural changes to the economy arising from the financial crisis may fundamentally alter the characteristics of risks insured by the industry.

Pressure on corporate clients to drive down costs and squeeze out margins could increase their risks, which could in turn lead to a pick-up in insurance claims across commercial lines, from business interruption to product and employers’ liability. This also increases people’s propensity to claim, with increases in the number, size and type of claims. This happens for a number of reasons: * increases in fraudulent claims by policyholders in financial difficulties; * an increase in social crime leading to higher claims on property-related insurance; or * Decisions by commercial customers to self-finance fewer insured events.

Remedy Firms should take care not to underplay this risk, they should ensure they are monitoring trends in the financial market and building this into decisions on reserving. Competition – Insurance companies today are facing stiff competition due to a softening property and casualty market and a flat life insurance market. To maintain profits and provide shareholder value in this environment, insurance companies are more aggressively trying to acquire competitors’ customers. At the same time that demand has slowed, insurance customers have increasingly higher expectations for service.

Other industries have raised the bar by providing customers with greater responsiveness (in large part because of Web-based options), more highly personalized interactions and customized or – targeted offers for products and services. Insurance companies should consider initiating proactive contact to stay in touch tit the customer. Insurance companies find that policy renewals increase with frequent communications leading up to the renewal event, and that the number of products sold per customer also increases.

Keeping Costs Down is Difficult – Insurance companies are trying to keep costs low without negatively impacting customer service. This tough task includes employing techniques that minimize contact centre costs, such as decreasing call volume and handling times, and reducing workforce and overhead expenses. Using Web self-service, members, providers, agents and brokers can interact with the many whenever they want, not Just during weekday contact centre service hours.

Not only does Web self-service enhance customer service, it also helps to migrate calls away from expensive call centre agents. Call centre agents can dedicate their time to handling more complex inquiries and concentrating on selling activities, rather than responding to routine calls that can be easily automated. The opportunities for self-service in insurance abound for all customer audiences. Members can view policy coverage, pay bills, make changes to policies, submit claims and check the status of claims progress and this is cost effective.