Bolster underwriting performance through effective pricing and governance and avoid the ‘race to the bottom’

In the upcoming session titled “Bolster underwriting performance through effective pricing and governance” taking place at Intelligent Insurer’s Commercial Lines Innovation Europe Virtual Event on October 11, Patrick Mottram, senior director–product management at Precisely, joins a panel of experienced insurers and pricing experts.

During the session Mottram will discuss how the carriers and their brokers can achieve underwriting consistency, manage their portfolios and provide differentiation not just through price—thus avoiding the much-feared ‘race to the bottom’—but also through improved client care and value-added services. He spoke to Intelligent Insurer ahead of the event.

Why is it so important to talk about pricing and governance?

Patrick Mottram: With the growth of big data, insurers face not only a growing challenge to ensure data governance is met, but also a huge opportunity to enhance their technical pricing to differentiate themselves in the marketplace.

There are three specific opportunities to tackle the frustrations of data use. One is to find new ways of using data sources such as LiDAR imagery of roof construction, telematics for measuring driving habits or predicting car accidents using non-insurance data. Insurers are seeking advantage by finding the best data, analysing it and providing competitive insights.

Insurers are also using analytics to inform risk from multiple and diverse data sources. The aim here is to use predictive risk-scoring insights using many sources of relevant or even proxy data and tools to manage and analyse all the data and create a validated risk dashboard.

The two points above rely on the integrity of the data driving it—trusted insight can come only from data that has consistency, accuracy and location-based context. That is, having access to high-quality data which is standardised and cleansed for risk modelling, and enriching these insights with third-party attributes. This enriched business data can be leveraged into analytical models providing important context for confident business decisions.

What are the potential difficulties for insurers who can’t assess new risks properly?

It comes down to time spent per submission. If you think about the renewal cycle with dozens of submissions coming in at the same time, the underwriters’ time becomes very precious. If they’re spending a lot of time in that short window trying to get data into the system and understand if some is missing then, ultimately, they’re spending less time focusing on effective pricing, especially marginal pricing to optimise their portfolios.

Essentially, we’re trying to help our clients get into the analytical phase a lot more quickly than their competitors.

We commissioned a study from insurance consultant Perr&Knight which found that around 5 percent of homeowner policies and a portion of auto policies—as many as 10 percent when looking at postcode-level data—could be priced incorrectly because of inaccurate location data. Some of these homeowner policies were underpriced by as much 86.7 percent, or $2,800 a year, per policy. Being off geographically by even a little can turn into a big dollar impact. To write competitive premiums, understand aggregate risk, handle claims efficiently and maximise profit, insurers need accurate and trusted data, but they’re often challenged with the quality and scope of the data that makes this possible.

Once the location data is accurate and trusted, customer analytics reveal demographic trends that inform pricing, underwriting, actuarial, and marketing decisions. Using these insights, you can model customised business decisions to improve business profitability and the overall combined ratio. Customer-centric insurance companies enhance policyholder value by truly understanding who their customers are and what they need.

Clients will compare pricing. How can you make sure the pricing is both accurate and attractive?

Complex commercial insurance will never be purely data-driven. There is an art component to underwriting and that will continue to be the case. You can get a very technical price but there are market conditions and competitive factors that are much harder to codify so the underwriting piece is still important.

However, there is plenty of opportunity with data analysis to help minimise what the underwriter has to do, bringing some predictability and making sure the price has the transparency that the client needs. There has historically been a bit of a perception, particularly in the London Market, that pricing was something of a ‘black box’ and carriers couldn’t illustrate how they’d arrived at a price. With more data sources being used in the pricing process, that’s much easier these days and it’s something the client values. It’s challenging and therefore vital to have access to trusted data for smarter decision-making to help you get to that sweet spot.

Patrick Mottram, senior director–product management at Precisely, will be taking part in the panel discussion “Bolster underwriting performance through effective pricing and governance” at the Commercial Lines Innovation Europe event on Tuesday October 11 at 12:20pm BST.

He will be joined by:

Click here to register for the session