Don't let inflation catch you off guard – get insured to mitigate risks in 2023–2024 - Nordic Broker
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Don’t let inflation catch you off guard – get insured to mitigate risks in 2023–2024

Inflation has been a major concern for both insurers and insureds as the pressure for rising prices continues to grow. Inflation poses a significant risk to the insurance industry as it can lead to underinsurance, which can ultimately affect the overall value of the insured assets. With the current inflation pressure being so high, it is crucial to monitor the building and goods in storage values at least twice a year to avoid potential losses.

The building cost index has risen by almost 6%, while the building materials index as a whole has increased by 9.6%. Some types of building materials, such as insulation materials, have seen a staggering increase of 25%. The labor cost, on the other hand, has only risen by 1%. However, the cost increases in energy and overall will put a lot of pressure on salary increases during 2023 and 2024.

The rise in inflation affects not only insurers but also those insured. It is essential for those with insured assets to monitor their building values and goods in storage closely. Failure to do so may result in underinsurance and, consequently, financial losses.

The inflation pressure is expected to continue in 2023–2024, and it is crucial for businesses and individuals to take necessary steps to mitigate the risks associated with inflation. Below are some of the measures that can be taken to manage inflation risks:

1. Review and update insurance policies regularly

As the inflation rate continues to rise, it is essential to review and update insurance policies regularly. This is to ensure that the policies reflect the current value of the assets being insured. Failing to update the policies may lead to underinsurance, which can ultimately result in financial losses.

2. Monitor building and storage values

As mentioned earlier, it is crucial to monitor building and storage values at least twice a year. This is to ensure that the insured assets’ value reflects the current market value. Failure to monitor the values may result in underinsurance and financial losses.

3. Consider inflation protection products

In Finland, insurers still have a difference between gross premium (including distribution) and net premium (excluding distribution cost). This difference is called a brokers discount, and it’s usually around 15% of the premium. The discount is deducted from the gross premium and results in a net premium that is lower than the cost of insurance obtained through direct distribution. For example, an exporting company in the technical devices industry might have an insurance cost of 11,500 EUR with direct distribution costs. However, with a broker, the cost to the insurer might be 10,000 EUR, plus a broker fee of 1,500 EUR, resulting in a total cost of 11,500 EUR. This means that using a broker is cost neutral compared to dealing with an insurer as a direct client. The difference is that the broker serves his client only there is never a conflict of interest. The broker is providing a range of services and advice to help them find the right insurance policy for their needs from all available insurers.

In conclusion, inflation poses a significant risk to both insurers and insureds in 2023-2024. It is crucial to take necessary steps to manage the risks associated with inflation, such as reviewing and updating insurance policies, monitoring building and storage values, and considering inflation and cash flow protection products. By taking these steps, individuals and businesses can mitigate the risks of inflation and avoid potential financial losses.

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