Record-high inflation and the ensuing cost for most everyday items emergency will be the greatest challenge faced by the insurance industry as we enter 2023 according to industry specialists. With consumers more pressed than ever financially, guarantors may should be adaptable and innovative to retain customers.

As part of a GlobalData survey led on Life coverage International among Insurance Industry M&A Deals insiders, over 33% of respondents refered to inflation as the standout challenge for 2023. It was significantly ahead of other key themes, for example, digitalisation, climate change, regulation, Coronavirus, cybercrime, and international affairs.

Source: A GlobalData survey led on Life coverage International, Q3-Q4 2022
Inflation stances such a significant threat to guarantors as they face a two sided deal. Safety net providers will face inflationary tension themselves in terms of the expense of maintaining their business and claims costs will ascend because of provisions and work becoming more costly. Notwithstanding, while back up plans would usually pass on higher claims expenses for consumers as higher premiums, individuals in the UK have less disposable income than ever, with the average cost for many everyday items soaring and wages remaining stagnant. This will make it hard for back up plans to push through premium rate increases while not losing customers and seeing penetration rates fall.

GlobalData's 2022 UK Insurance Consumer Overview observed that across personal lines items, consumers are leading more research at renewal yet not necessarily exchanging more. This is possible because of Financial Direct Authority reforms keeping back up plans from offering new customers preferential rates, as well as safety net providers battling to offer cheaper premiums while their own expenses are rising. This means safety net providers that offer some place of differentiation are probably going to get more new business, as consumers are increasingly searching for any added value they can find. This could incorporate increased adaptability, for example, the ability to turn cover on and off, just paying for exactly what they use (for example pay-per-mile), or even payment breaks (as was seen during the Coronavirus pandemic).

Overall, it will be hard for safety net providers to make benefit from premiums and maintain penetration rates temporarily. It could be insightful to take a drawn out approach to attempt to continue to exist customers happy and gain new ones by offering consumers more adaptability as financial hardships increase at the start of 2023.