Inflation and Insurance: How Does It Impact Insurance Agents?

By Jason Rogers

The effect of inflation on insurance agents has been profound this year. Need tips for managing the crisis? You’ve come to the right place.

Inflation is the elephant in the room for the insurance industry. Rapidly inflating prices have strained consumer budgets, increased the cost of creating and delivering products and impacted every part of the insurance value chain. How has it affected your business?

Inflation’s Impact on Consumers

Inflation’s impact is plain to see; food, fuel, rent, travel and most other consumer goods and services are more expensive today than last year— by roughly 8%. Insurance is no exception. Inflation has strained people’s budgets and forced them to pare spending and find additional income. Although the economy is doing well— too well in economic terms— consumers feel stressed about their financial prospects. Persistent inflation and the stress it causes do not bode well for the long-term health of the U.S. economy.

Inflation Impact on Insurance

When the cost of living goes up, it affects the cost structure of the insurance industry. Insurers factor the cost of living into their product pricing formulas. In an inflationary environment, insurance policyholders will face higher premiums for their insurance coverage— from auto and homeowner’s insurance to life insurance and general liability policies.

Not only does insurance inflation result from a rapidly growing Consumer Price Index (CPI), but it is also a consequence of industry-specific factors. These include worsening life expectancy due to the pandemic and opioid abuse, more automobile accidents and a greater frequency of severe weather events. Insurance companies are dealing with a perfect inflationary storm due to economic forces and trends unique to the industry. Raising prices has become essential to preserve the financial health of the business. But, pricing decisions have many longtail effects, especially on insurance agents.

Insurance Agent Inflation

The inflation impact on insurance agents creates a double bind. It increases your cost structure and shrinks your profit margins while also financially stressing your customers— individual consumers and business owners— which makes it harder to retain their business and sell them new policies. Unless you address inflation head-on by reducing spending and helping customers mitigate inflation’s impact, your finances might suffer, and so may your mental health, which makes stress reduction essential.

How Agents Can Fight Inflation in their Businesses

Insurance agents must find ways to offset inflation to maintain their profit margins. This isn’t easy when prices are soaring for virtually everything you purchase for your business.

The first step is to assess every cost in your budget systematically. Ask yourself:

• Is it still necessary?
• Can I buy it more cheaply from an alternative source?
• Can I save money by putting it out to bid?
• Can I share the expense with another agent or small business owner?
• Can I tap into discounts available through the Association of Insurance Professionals (AIP)?
• Can I reduce marketing expenses by increasing social media exposure and reducing paid advertising?
• Can I defer large office equipment outlays for a year or two when inflation will presumably be lower?
• Can I move into a smaller office or home office to reduce rental costs?
• Can I eliminate magazine or application subscriptions or unused professional memberships?
• Have I asked other agents how they’ve successfully managed inflation in their businesses?

How to Help Clients Cope with Inflation

Depending on your line of business, educate your clients on how to mitigate inflation’s impact. If you’re involved with investments, advise them on approaches to generate inflation-beating portfolio returns. These include investment vehicles such as Treasure Inflation-Protected Securities (TIPS), gold and a diversified bucket of high-quality stocks.

Talking to clients about the income impact of inflation is also crucial. Most employees receive a 1% to 2% salary adjustment each year. With most industries having labor shortages, now may be the time to push for a hefty salary increase.

Just as you cut business expenses, advise your clients to review their expenses. Reducing travel and eating out can significantly impact their budget because inflation has hammered both spending categories. It has also hit the auto industry hard, suggesting that now may not be a suitable time to buy a new vehicle unless necessary.

Finally, encourage clients to review their debt. Variable-rate loans have produced big hikes in interest rates and minimum monthly payments. Paying down these loans— or consolidating them into low-rate or fixed-rate loans— should benefit family finances.

And then, there’s insurance. Most clients have experienced insurance sticker shock this year, which may worsen through yearend and beyond. Start by letting your customers vent about their premium increases.

What else can you do? Make sure they’ve tapped all possible discounts. Auto insurance offers multiple discount opportunities: safe driver, telematics, student, low mileage and more. Bundling auto, home and umbrella policies is a no-brainer to secure significant discounts.

Then, offer to remarket coverage to qualified customers. Sometimes a family whose underwriting profile no longer fits their insurer’s risk appetite can save money by switching to another company. It’s a hassle, but it can be worthwhile for the right premium reduction.

An Inflation Heart to Heart

Always speak candidly with clients about inflation. Shifting their insurance portfolio to a new carrier might be more bother than it’s worth in terms of potential cost savings. Explicitly ask customers how much savings would make the chaos justifiable.

Even though remarketing can be a hassle, you should still offer customers multiple options for reducing their insurance costs. To that end, consider expanding your product offerings by seeking more insurer appointments. The more products, carriers and discounts you can offer, the happier and more loyal your customers will be.

A Remarketing Warning

It’s natural to want to help all your clients. But that may bury you in work—instead, research why their rates have increased. Then focus on those who fit your requirements regarding sound finances, low-risk profile, customer tenure and other factors. In short, try to assist those whose departure would seriously harm your business. Then, help others in your available remaining time.

Finally, inflation is hurting everyone. But the truth is it’s hurting some people more than others. Does that include you?

If you’re not currently insured or are dissatisfied with your existing errors and omissions (E&O) insurance policy, learn more about AIP’s coverage options. Insurance agent protection for Colonial Life agents and brokers is available for as little as $28.75 per month and comes with a comprehensive slate of added benefits.