How can specialty and commercial insurers evolve beyond "Dark Age" pricing?

Reimagining the flow from data to decision

How can specialty and commercial insurers evolve beyond "Dark Age" pricing?


By Mia Wallace

Effectively and time-sensitive pricing is rightfully regarded as one of the most critical components of a healthy insurance marketplace. But how healthy is the present pricing ecosystem? Recent research carried out by Coleman Parks on behalf of the pricing decision intelligence specialist hyperexponential surveyed 350 specialty and commercial underwriters and actuaries to find out and the results were eye-opening.

Among the key findings of the research, it was revealed that insurers’ “Dark Age” pricing is costing them business, with 53% unable to maximise profitability due to current technology while one in five actuaries ascribe reputational damage to poor pricing models. Digging into some of the key themes uncovered by the report, Thomas Chamberlain (pictured), VP of customer and consulting at hyperexponential highlighted that:

  • Although pricing transformations are a top priority, they have failed to deliver desired results
  • A lack of pricing and underwriting agility is not sustainable moving forward
  • The data problem is bigger than everyone realises across the business
  • Although the industry is moving away from Excel, fundamentally, pricing tools are not helping insurers make better pricing decisions

“In our survey,” he said, “over 98% of respondents stated that they are investing in new pricing technologies now or in the next 12 months, showing a strong desire to move their business forward. However, over 56% are dissatisfied with the results from their investments meaning over one in two pricing transformation projects have failed to deliver the results insurers expected.”

From Chamberlain’s perspective, the data issue facing specialty and commercial insurers stems from two places – internal and external data. For external data, he said, the problem lies in the vast amount of data available.

“Around 100 zettabytes of data was created in the world last year which is only set to grow, with over 10 billion IOT devices already active globally and growing by the second,” he said. “The problem for insurers is efficiently ingesting data that is relevant, without adding to onerous internal processes. Over survey showed 96% of underwriters were rekeying data for over two hours a day, amounting to a whole day wasted over a week.”

For internal data, he said, the problem lies in the silos – with one of the biggest data issues cited being accessing and combining siloed data. The insurance industry has always relied on data to drive decisions but with legacy technology hindering processes, data is locked away and difficult to obtain. Even when it becomes available, technology is prohibiting efficient data cleansing and manipulation, where often more time is spent on this than actual data analysis.

Chamberlain noted that combining these points means that insurers are unable to make smart portfolio decisions based on real time data, with only 22% of respondents in hyperexponential’s survey saying they do this. For the UK, he said, some of the biggest data issues affecting insurers are:

  1. Hours wasted on rekeying data
  2. Lack of real time portfolio visibility
  3. Lack of regular reporting on pricing and underwriting data

He added that only a quarter of respondents said that external data is automatically ingested into their pricing models. Rekeying data can be easily eliminated with the right tools, he said, and data ingestion automated so more time can be spent on value-added activities like pricing and underwriting. Very few respondents (less than 20%) claimed their pricing technology allowed them to make the best data driven decisions. Workflows can and should be streamlined and having the right technology to enable pricing decision intelligence is critical.

Touching on what hyperexponential’s new Pricing Decision Intelligence (PDI) category means for insurers, Chamberlain emphasised that pricing is quite clearly one the most important drivers of the bottom line, but pricing platforms weren't built to help businesses make better decisions.

“They help insurers derive a price from complex calculations for sure, but so much more than that goes into better pricing decision making,” he said. “Pricing decision intelligence is the creation of a tight, iterative feedback loop between data, insights, and the decisions they drive, in such a way that decision making gets better over time.

“It’s about empowering your workforce - empowering actuaries to build powerful models and help underwriters make better decisions. It’s about unlocking the value from data - capturing and surfacing the right data at the right time, both at the individual risk and portfolio level.
It’s about fostering collaboration across your organisation - making it easy for your entire pricing and underwriting teams to collaborate with confidence.”

Hyperexponential’s world-first pricing decision intelligence platform, hx Renew, looks to reimagine the flow from data to decisions, he said. Its platform captures data automatically, helping insurers generate strategic insight from pricing actions, and accumulate a coherent data asset over time –creating a “virtuous cycle” that helps insurers make smart decisions today, and even smarter decisions tomorrow.

Looking to the future, Chamberlain said he is positive about the willingness of speciality and commercial insurers to embrace solutions that will enable them to leverage rich pricing data to drive continuous improvement and optimisation. Pricing transformation has the potential to unlock 3-6% points in combined ratio improvements, equating to hundreds of millions in opportunity for insurers.

“Many lines of business are experiencing a hard market now, and better decisions will allow you to drive profitable growth more effectively than your competition,” he said. “In a softening market, which unfortunately already seems to be on its way in some lines, leveraging pricing decision intelligence will enable you to find margins and minimise claims costs where others can’t. Making the right decisions for your business today will drive profitability in the future - and every insurer cares about that.”

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