Challenges in insurance
The insurance industry faces many challenges. These include simple day-to-day writing of policies and workforce management to broader issues concerning insurance fraud and state specific legislation targeting how companies may do business. Each insurance company, regardless of its coverage area, must create and maintain a working risk management plan in order to effectively navigate these challenges.
The human element
One of the largest challenges facing the insurance industry is the proper handling of the human element both in insurance professionals hired to do a job and those that are seeking coverage. Properly certified insurance professionals are able to detect misleading statements on application forms, identify possible criminal activity in false claims filing and fairly handle a justly filed claim within the limits of an insured person's policy. These practices work to keep insurance premiums lower as well as work to increase consumer confidence in the insurance industry.
State compliance and price regulations
Each region or state maintains its own compliance standards for insurance companies and agents to remain eligible to engage in the business of insurance. These compliance regulations can shift each year forcing companies to remain constantly vigilant and dedicate positions within the company specifically for keeping the business within compliant standards. Additionally, states like Massachusetts have the power to stop any rate increase by an insurance company that it feels are made for unjust reasons. Insurance companies face the challenge of being able to manage costs while not being able to count on simply raising interest premiums as a method of offsetting financial losses.
Managing risk and catastrophic loss
Risk management is the backbone of the insurance industry. Companies that take on too many high risk policies may enjoy high premium returns but can also lose vast sums of cash in payouts. Insurance companies must take a careful look at how many policies are written in disaster prone areas of the country. An insurance company with too many policies in one area could potentially go bankrupt in the event of a natural disaster that forces a large number of policy payouts at the same time.