Insurers get your pricing right and stay competitive

How to maintain profitability in insurance 

For an insurer to avoid being adversely selected against, accurate competitive pricing is essential. This not only protects the bottom line, but also helps to attract and retain customers  According to KPMG’s report, Future of Small and Medium Business Commercial Insurance, 78% of consumers say value for money is the most important purchase driver, and the cost of living is front of mind for many consumers in the current economic climate.

Customers can rapidly compare rates from many insurers thanks to the prevalence of comparison rate websites, and they frequently choose the offer with the lowest price. This disadvantages less sophisticated insurance companies and leaves them open to unfair selection, especially in categories where prices are set unfairly. As a result, customer acquisition and retention, as well as underwriting profits decline, with a detrimental effect on an insurer's financial stability.

Are legacy systems causing pricing issues?  

The inability of insurers to take advantage of economies of scale or price dynamically can be attributed to a fragmented, antiquated IT estate and data silos, often resulting in both skyrocketing operational and IT expenditures. In a recent report, Tech Market View predicts that investment in new technologies by insurers will increase by 11% through to 2025, which will leave those who do not keep up in this competitive market at a disadvantage when it comes to pricing. 

As around 70% of IT budgets are still allocated to "keeping the lights on," insurers are worried about the high total costs of IT and the perceived lack of support current legacy IT may be providing. As a result, some insurers are losing out on opportunities that depend on dynamic pricing algorithms being communicated with their partner eco-systems in real-time. Higher degrees of automation can be made possible by consolidating and modernising legacy IT while simplifying operations like pricing models and considerably shortening the time it takes to sell new products.  

Top three challenges of insurance pricing 

Consumer understanding  

For many consumers, insurers aren’t pulling their weight and providing what they want. And, for business buyers, just 54% believe that insurance meets their businesses’ challenges very well. Insurance companies that have developed a brand that people respect and associate with trust are most likely to succeed in today’s consumer-driven market.  
 
Consumers' actual understanding of how their insurance is priced and what their insurers know about them is poor, with only three in ten saying they understand how their insurance company calculates their premiums. 

Consumer satisfaction 

Because of the lack of understanding, consumers may feel frustrated by higher premiums. Many believe they’d prefer to see everyone pay for their insurance according to their level of risk, even if it makes insurance unaffordable for some people. Although it is acknowledged that insurance premiums rely on a customer's specific circumstances (their risk profile), there is uncertainty around which elements are being considered and how much they can reduce costs in comparison to other factors like broader market dynamics such as inflation and industry competition.  
 

Fraud prevention 
Fraudulent claims can drive up premiums. Therefore, it is vital for insurers to put in place effective measures against fraud at both an individual and importantly enterprise level to be in a position to predict fraudulent activity before it happens, not after the fact, which increases churn rate due to its impact on profitability and competitiveness.   

How can insurers get their pricing right

To offer customers the best price, insurers can reduce their variable costs by predicting and preventing fraud with analytics at scale and implementing a more seamless, automated claims process to lower claims management costs. 

Pricing intelligently through data-driven technology  

In a survey, 76% of consumers claimed that in exchange for more individualised pricing, incentives, and discounts, they would provide more personal information to insurers. This type of granular information can support more specific pricing and risk tiering. It is through technology that insurance underwriting could be made continuous rather than one-time-only, with new products being developed to meet changing consumer behaviour. In the future, insurance companies will have better access to detailed data through models such as ecosystem-enabled data sharing, supporting more precise pricing, risk tiering and personalisation. The convergence of technological developments will make it possible for insurers to provide more flexible and responsive coverage for consumers. 
 
Machine learning models = accurate pricing 

Analysing vast volumes of data and spotting relationships between different attributes can be undertaken by machine learning models. Increasing numbers of consumers will shop for insurance on a more regular basis as a result of the rising cost of insurance or may decide not to insure what matters due to rising inflation rates and cost of living crisis.  Due to this, an insurer's ability to draw in clients, keep them, and maintain a healthy bottom line depends on having accurate pricing capabilities. 

Dynamic pricing  

Digital technology innovation can help insurers continuously evolve and keep up with trends.  A cutting-edge portfolio for an insurer already has capabilities like real-time product customisation from a set of required and optional product modules, allowing for dynamic pricing. True dynamic pricing is where prices are altered in real-time. As digital technology transforms the insurance sector, new product types will appear, particularly through the increased use of the Internet of Things in consumer products which can provide real-time data.  

Find your pricing sweet spot with technology 

There is a tremendous opportunity for insurers looking to be strategic about their customer acquisition and retention plans through competitive pricing, made possible by technology. Accurate, smarter pricing can clearly be achieved by using data more effectively. Thus, there are revenue improvement opportunities that come from utilising digital technology and data analytics and AI. This gives the insurer the chance to know their customers better so they can underwrite premiums more accurately and in real time – in turn, satisfying the customer of today.