Expertise, education and other strategies come into play
[C]lients love a superhero who swoops in after the fact to save them
from a crisis. They think even more highly of a superhero who ensures they’re always ready.
By Michael Wayne
From August 1945 to July 1946, prices in Hungary doubled every 15 hours. The daily inflation rate reached a high of 207%.
While such hyperinflation is not what we are experiencing today, inflation feels like an inescapable constant. Costs are rising seemingly everywhere, and insurance is not immune.
Insurance coverage is put in place to help protect clients from threats and to make them as whole as possible in the event of an incident. Coverage solutions, therefore, need to be as robust as possible. That has always been the case.
Inflation, however, creates challenges. Challenges provide brokers and agents opportunities to form lifelong partnerships. Here are the Top 5 ways brokers can shield clients’ coverage from inflation:
Proactive protection
Clients’ needs are not set in stone. Annual, even bi-annual, reviews of coverage limits are necessary to know whether they are in line with costs. From construction materials to vehicle repairs, everything has to be taken into consideration.
The days when a client would be satisfied seeing their broker once a year to sign some paperwork are over. Just like computers or smartphones require regular updates to remain secure and efficient, policies need reviews to ensure their viability.
Brokers should proactively schedule reviews and highlight the importance of staying ahead of inflation. This proactive approach demonstrates a commitment to a client’s financial well-being and helps solidify the broker as a trusted advisor.
Undoubtedly, clients love a superhero who swoops in after the fact to save them from a crisis. They think even more highly of a superhero who ensures they’re always ready.
Know your numbers, know your market
In this environment, brokers need to be valuation experts. Staying informed about current market values for homes, vehicles, and business inventory is crucial. Educated guesses aren’t enough. Brokers have to leverage appraisal services, market data, and industry insights.
Imagine trying to rebuild a client’s business when all the building material and every piece of equipment has skyrocketed overnight. Without accurate valuation, clients could face significant financial shortfalls when they need their insurance the most.
Brokers must be ready to provide data-driven advice. To do so, they need to understand local market trends, track construction costs, and stay abreast of values that pertain to their clients’ world and work. Beyond simply knowing the numbers, this means understanding the real-world implications of those numbers for clients. It’s like a real estate agent who knows the exact value of every property in their area, allowing them to provide the best possible service.
Building in resilience
For some policies, particularly those with long-term implications—like certain life insurance or commercial policies, brokers should explore inflation adjustment clauses. These clauses automatically increase coverage limits based on established inflation indices, such as the Consumer Price Index (CPI). This is akin to having a built-in escalator for coverage to ensure it keeps pace with rising costs.
While not available for all policies, these clauses offer a valuable layer of protection against the silent erosion of inflation.
This strategy is particularly relevant for clients concerned about the long-term impact of inflation. It provides peace of mind because coverage will adapt to changing economic conditions. The broker’s role is to identify these opportunities when they exist and educate clients on their benefits.
Replacement cost vs. actual cash value–demystify and explain
Many clients are unaware of the critical difference between replacement cost and actual cash value coverage. This is a prime opportunity to educate and empower.
Replacement cost covers the full cost of replacing damaged property with new materials of like kind and quality, while actual cash value only covers the depreciated value. This distinction can mean the difference between a client being able to rebuild their home or only receiving a fraction of its true worth.
Use clear examples and real-world scenarios to illustrate the importance of replacement cost coverage. For example, the previous scenario can be likened to getting a replacement smartphone after the owner accidently drops it in the ocean. Will their policy allow them to get a new phone, or would they have to settle for the previous model? Would they possibly even be stuck getting a used previous model?
The ability to simplify complex concepts builds trust and empowers clients to make informed decisions.
Business interruption—into the future
Brokers must emphasize the importance of business interruption insurance, which can help cover lost income and expenses during disruptions. Crucially, brokers must ensure that coverage limits are adjusted to reflect current operating costs, including inflated expenses. This means considering increased costs for raw materials, labor, and other essential business functions.
Business continuity has to be in place so that clients can continue to operate during difficult times. Brokers need to advise on the importance of having a resilience plan ready at all times. This includes helping business owners understand how inflation can impact their potential losses and how to adjust their coverage accordingly.
Guiding a client through this process demonstrates a deep understanding of their business and a commitment to their long-term success.
The broker’s advantage: communication, trust, and long-term partnership
Beyond these five steps, brokers must prioritize proactive communication and build trust with their clients. In an era of economic uncertainty, clients are looking for reliable guidance.
Being able to fulfill that role is invaluable and a differentiator. It is also a key way for brokers to strengthen their business and build lasting relationships based on trust and expertise.
The author
Michael Wayne is a freelance insurance writer.
