Pricing has evolved from a portfolio management tool to a critical strategic component: Experts

Analytics have transformed insurance pricing from a portfolio tool to a strategic cornerstone, industry experts said during panel discussions on InsureTech Connect Asia on Wednesday (June 4), as broader changes and major trends force a rethink of pricing strategy.

The rise of EVs, inflation impacts, and global supply chain disruptions have forced insurers to reconsider their approach to pricing strategy, says Thibault Imbert, Principal for Insurance Consulting at Munich Re.

“We see the gradual importance, and it has started to be more and more on the radar,” Imbert adds. “Pricing has become a more important component in the overall interest liability position from the players.”

The evolution of pricing has been driven partly by the changing nature of data, as the economics of data shifts in the digital age.

“If you look at the evolution of data analytics, the cost has shifted from the collection of data to the processing of data,” says Allan Han, Senior Manager at Tokio Marine Insurance Singapore. “If you look at it now, the abundance of data is from the byproduct of digital processes.”

The problem with this abundance of data, however, is that data generated by digital processes can be incomplete or inaccurate, making it difficult for insurers and insurtechs to process. Advanced analytics can “give context, input context as a factor” and help actuaries and underwriters make more accurate pricing decisions.

But technical complexity doesn’t guarantee business impact, says Monica Carvajal Pinto, Head of International Actuarial Data Science at Akur8. “To me, it is strongly dependent on [whether] you can integrate this in your work,” Pinto says. “The proposal should always be, ‘who will use this?’”

Some firms might go directly to optimising their prices with data, while others would use data insights in different ways, Pinto adds. “So maybe you don’t change the price, but you start a marketing campaign, you open new offices,” she adds.

Firms can start with existing internal data rather than expensive external datasets and look into improving their workflows, says Imbert. They can also go beyond just rates and pricing, and move towards an investment approach. “Can we use AI generative tools to build categories, to better engage the customer?”

Across the value chain

Pricing cannot operate in isolation — and it must be integrated throughout the value chain, says Han. “The underwriters may know that in a specific segment of the market, while we have an optimised [rate], there may be barriers to entry or other competitors,” Han says. “What we as underwriters can do is to charge a little higher than the optimised rating and not lose that much market share.”

Understanding pricing as part of the entire value chain can make it a strategic pillar of any organisation, Han adds.

Integrating these changes into legacy systems will require flexibility, says Han. “So what we did was, in lieu of this changing landscape, when we embark on this rate revision, we take into consideration implementation.”

Traditional insurers seeking to modernise their legacy systems and bring them up to date will have to focus on digitalisation and rapidly innovate, says Heval Polat, Managing Director, Operations, Asia and Regional Head of Multinational, Asia at Allianz Commercial. Incumbents will have to find change agents and field agile teams, Polat says. “This is not the old way anymore — IT, operations, business models, KPI’s are crucial, it has to be tied to business outcomes.”

“We are scaling these systems around broad, different matrices of infrastructure, and it’s very important to be able to [collaborate] for implementation adoption,” Polat says.

Ultimately, pricing isn’t just about charging more, says Imbert. “It’s about understanding and finding the pockets of profitability,” he adds. “Naturally, the role of pricing will emerge not as a small, but as a strong link throughout the whole chain.”