"UK car insurer needs to show it has overcome pricing problems if it is to deter Belgium group ageas!"  as a headline in the Financial Times of  18th January is to the point.  Blaming unforeseen claims inflation and supply chain constraints is one thing but on the other, carriers like Sabre and Admiral have coped with predicting the future and pricing for decent combined ratios and profits whilst also increasing GWP.

Rising premiums are one part of the answer. Those carriers that have done so constantly and incrementally seem to have escaped the intense criticism consumers have vented on those that left it late and hiked up premiums by 30%, 40%, or more in one massive hike. 

This leads me to conversations I have had recently in the travel insurance market. 

Like motor insurance, travel has been subject to claims inflation; particularly for medical treatment. There is a feeling that rates will increase very soon- Ergo, like Sabre and Admiral, lead the pack so who will be next?

Travel has increased a great deal post covid as consumers took to the skies for new horizons. That is a two-edged sword for MGAs, brokers, and distribution partners. Increased demand brings new competition back into the market putting downward price pressure on prices. Combine that with this being a low-margin business and you can see the pressure points. Can that be countered by product innovation and personalisation? 

One barrier is the difficulty in finding capacity for new products. There seems to be a block in the market maybe waiting for rates to increase. If there was ever a time for market participants seeking new capacity, or renewing existing capacity, to have a deep and wide analysis of each scheme and book of business it is now. Relying on spreadsheets seems like a death wish and incomplete and inaccurate data are dangerous if you are to predict profitability and ultimate loss ratios. 

Those with a deep understanding of their data combined with predictive analytics and resulting insights to inform strategic and tactical decisions stand in a far stronger position than those who do not. In a stable market, it was easier to rely on a good book of business and cover losses in one area with profits in others. In a more volatile market that just won't so.

Eric Giroux the founder and CEO of Giroux.ai explained how he is helping insurers, MGAs, and brokers cope with that challenge. Not just with technology and AI but with understanding business goals, strategies, and long-term vision. Helping the board make the right decisions to achieve growth. Freeing up managers to spend more time managing performance improvements by automating data processing, management, analysis, and forecasting and then combining technology with human intuition and expertise. Helping underwriters spend more time underwriting and pricing teams the time to optimise pricing to achieve growth and achieve profitability goals.

In the diagram below, we see a potential scenario frontier, depicting sales and profit targets- often conflicting goals. Each point on this frontier represents the outcome of the analysis corresponding to a specific pricing strategy. The primary objective of this exercise involves adhering to two principles. 

The first principle emphasises the importance of avoiding missed revenue opportunities, especially when there is the potential to sell the policy at a higher price with only a marginal reduction in demand. This is seen in Figure 7 by moving to a strategy that only increases profit. The second principle underscores the need to prevent an increased likelihood of losing a policy for a relatively small premium increase. This is shown in Figure 7 by a strategy that only boosts sales.


Source Price it right – how to optimise a portfolio's pricing strategy by Yiannis Parizas 

It is only when data is clearly understood, prepared, managed, and analysed effectively across multiple sources and in different formats (often unstructured) that time is freed up for managing strategies like those above. There is no short circuit and neither are generative AI and trained large language models (LLMs) a panacea. 

Data is the enabler or the barrier to enabling the C-Suite and managers to plan and run a successful business. 

I have a great deal of time for people like Eric Giroux at Giroux.ai , Daren Rudd of CGI, Chris Payne at EY, Oliver McGuinness at RightIndem, Steve Sankin at Aimii, and Rory Yates at EIS who know that technology is a tool and a means to an end rather than the end itself   Choosing and executing the right strategies means you must ask the right questions and have advisers like these help you articulate why you should make certain decisions and how to execute them successfully. 

Travel is not the only business that has to navigate the underwriting and pricing challenges described above.

The 2023 net combined ratio of commercial lines was 97.7 according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman. That points to many commercial insurers having suffered adverse combined rations over 100.

The 2023 net combined ratio for the property/casualty industry is forecast to be 103.9, with commercial lines at 97.7 and personal lines at 109.9, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.

Technology, consulting, and system integration partners should be focused on enabling the amount of time spent on planning and delivering growth to double. This can only be achieved if the combination of technology and practical support & advice reduces the time spent on control and admin.  Reduce the time spent on control and admin by 5%, and performance issues by 5% and you can treble the amount of time spent on executing growth strategies i.e. innovation and transformation. 

Many companies say they are data-driven. That is of little value if the data is incomplete, irrelevant,  corrupted, hidden or unstructured. I have heard of underwriters unable to cope with incoming capacity requests by email and ignoring 90% of potential business. Underwriting workbenches need to be able to ingest this unstructured data, analyse, and triage it so that underwriters don't miss 90% of potential business.

It always comes back to the basics. Take care of the data and you have a better chance of taking care of the business. 

Further Reading

Report: 2023 Combined Ratio Forecast at 103.9, Commercial Lines Performed Best

Helping insurers cope with general and claims inflation, rising premiums, surging complaints, and adverse loss ratios

Saints & Sinners - proving effective AI use cases in insurance

The dangers of ‘Static vs Continuously updating risk factors’ using car theft examples


Price it right – how to optimise a portfolio's pricing strategy