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Rising prices continue to hammer the balance sheets of both insurers and their customers. The latest Consumer Price Index (CPI) figures show prices have cooled slightly from their June high of 9.1 percent. But thanks to post-pandemic pent-up demand, coupled with ongoing supply-chain disruptions, inflation remains at a painful 7.1 percent over last year.

The rising cost of materials has made both home construction and auto repair more expensive. And because home and auto insurance premiums are based on such costs, insurers are having to raise the cost of coverage to protect both themselves and their customers. As a result, home insurance premiums in particular are up 12.1 percent on the year, according to Policygenius. Faced with such increases, consumers will shop around.

The Fed’s efforts to get a grip on inflation through a series of “jumbo” rate hikes offer some relief for insurers, because rising rates are generally positive for portfolio yields. But for their customers, increased borrowing costs are only intensifying the sting of higher prices in the medium term.

With consumers looking to tighten their belts, it’s likely we’ll see increased competition in both the home and auto insurance markets. But given inflation, competing on price alone will be tricky. Instead, smart insurers will gain the edge by preparing themselves now for when a cash-strapped customer picks up the phone in search of a better deal.

A recent study revealed that nearly half of consumers would consider switching brands after a single negative customer service interaction. The insurer that can guarantee a positive outcome from such a call is the insurer most likely to prove resilient in a challenging economy.

How can an insurer increase the chances that an interaction is as satisfying for the customer as possible? It’s the very nature of insurance that one size does not fit all. Every customer will have a different risk profile, not to mention a different level and type of income. So the more an insurer can talk to each customer as an individual, the better the outcome is likely to be—for both the customer and the insurer.

When a customer is struggling financially, being able to talk through, and make sense of, their options with a human being provides an opportunity to explore alternatives to cancelling a policy. A live agent can help a customer see if they’re paying for coverage they don’t need, or advise them if they’re putting their property at risk by being unknowingly underinsured.

The same agent can also suggest ways the customer might reduce their premiums without increasing their risk—or without going elsewhere. Increasing a deductible, say. Or offering a multi-policy or customer loyalty discount. Or even suggesting a quick home-security fix or a defensive driving course to bring premium payments down.

In tough times, though, it could be tempting for an insurer to try to cut costs by funnelling more customers toward virtual agents or self-service. These automated channels are quite effective for simple requests like updating an address but not always the best fit for more complex needs.

In fact, research shows that nearly 70 percent of customers already prefer to speak to a live customer-service agent. What’s more, Forrester reports that even a minor improvement in the the customer experience leads to measurable increases in revenue—in the tens of millions.

Using AI to Humanize Customer Interaction

Luckily, some of the most exciting developments in AI aren’t those that replace humans with bots, but those which use data on past interactions with the insurer to humanize and personalize the customer experience. For example, it’s now possible to use AI to connect a customer to the agent who’s most able to help them explore their options and find the right deal for their unique situation.

Smart insurers are using technology to build their resilience in the current challenging environment. In doing so, they’re nurturing relationships with customers that can endure beyond the point at which inflation subsides.

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