As an insurance executive, you know that rate increases are a necessary part of the business. However, it’s important to keep them in check to avoid alienating your customers and attracting negative attention from regulators. Recently, the California Department of Insurance issued a plan to keep rate increases in check, responding to criticisms from consumer advocate groups. In this post, we’ll explore how you can apply these principles to your own business.

Step 1: Understand the Importance of Rate Increases

Before we dive into the specifics of keeping rate increases in check, it’s important to understand why they’re necessary in the first place. Insurance companies need to maintain a healthy financial position to be able to pay out claims when they arise. This means that premiums need to be set at a level that covers the cost of claims, as well as overhead and profit. Without rate increases, insurance companies risk becoming insolvent and unable to pay out claims.

Step 2: Be Transparent with Customers

One of the main criticisms of rate increases is that they can feel arbitrary and unfair to customers. To avoid this perception, it’s important to be transparent with customers about why rates are increasing. This means providing clear explanations of the factors that are driving the increase, such as rising claims costs or changes in regulatory requirements. By being transparent, you can help customers understand that rate increases are a necessary part of the business, rather than an attempt to gouge them for more money.

Step 3: Use Data to Inform Rate Increases

Another way to keep rate increases in check is to use data to inform your decisions. This means analyzing claims data, market trends, and other relevant factors to determine the appropriate level of premiums. By using data, you can ensure that rate increases are based on objective factors, rather than subjective opinions or arbitrary decisions.

Step 4: Consider Parametric Insurance

Finally, consider whether parametric insurance could be a good fit for your business. Parametric insurance is a type of insurance that pays out based on objective, pre-defined triggers, such as a certain level of rainfall or wind speed. This can help to reduce the uncertainty and volatility that can lead to rate increases. With Riskwolf, you can turn real-time data into insurance. Using unique real-time data and dynamic risk modelling, we enable insurers to build and operate parametric insurance at scale. Simple. Reliable. Fast.

In conclusion, rate increases are a necessary part of the insurance business, but they need to be kept in check to avoid negative consequences. By being transparent with customers, using data to inform decisions, and considering parametric insurance, you can help to ensure that rate increases are fair and reasonable. To learn more about the California Department of Insurance’s plan for rate increases, check out this article.