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Actuarial and data science in the future of insurance pricing

Source: Asia Insurance Review | Nov 2022

Samuel FalmagneThe results of Akur8’s Global Pricing Survey provided direct insights into the pricing challenges and expectations of non-life insurance carriers worldwide, says Mr Samuel Falmagne.
 
 
Insurers regard pricing as the most important competitive differentiator in the marketplace, with 81% of respondents ranking it as a very important criteria. Yet despite this predominance, pricing practices are not seamless, with many challenges mentioned by respondents. Among these challenges, the lack of data and resources are considered the main limiting factors, along with the legacy IT and tools.
 
Looking further into pricing processes and tools, established approaches are undeniably robust, yet they still underdeliver on the potential of pricing as a business lever. Indeed, legacy methods are deeply ingrained: Overall, non-life pricing processes remain relatively manual. Technical premium models are rarely updated more than once a year. Commercial prices are reportedly updated more frequently, generally several times a year, but are not based on updated risk assessments, largely due to the lengthy timing of legacy approaches.
 
Pricing teams today share a major interest in measuring the ultimate business impact of ratemaking decisions. Yet they remain limited in measuring this impact down to the combined ratio.
 
How much is your business affected by each of the pricing challenges below?
 
Updating pricing models
There is definitely a gap between what actuarial teams want and are able to achieve, and industry standards in terms of resources and technology.
 
Actuarial teams mainly leverage GLMs, which are a good market standard, but due to a lack of variety in the data sources currently available to them, they are still limited in the power of the models created.
 
Most pricing experts would like to update their models more regularly, but pricing tools have yet to become more disruptive: Manual software still holds a major market share, while Excel remains used across many steps of the pricing process, including predictive modelling. While these traditional approaches and tools are robust, they make the pricing process tedious and repetitive.
 
Which software or programming language do you use at each stage of the pricing process?
 
Overcoming pricing challenges
Looking forward, pricing teams expect automation to solve a number of these challenges. Major untapped value potential is expected to come from automation, powered by AI, as well as fully integrated ratemaking tool suites that empower pricing teams to embrace the tech paradigm without compromising on control and auditability. Next generation pricing tools will also enable pricing teams to focus more on strategic decisions and business impact rather than iterative variable modelling.
 
As pricing teams have voiced across all lines of business and insurance types, the desire to improve business performance through more sophisticated pricing approaches will be fuelled by the ability to leverage the power of data in an unprecedented way, meaning not only to rely on more data sources, but on machine learning to fully exploit them and turn them into actionable insights and decisions.
 
This convergence of data science and actuarial science is what pricing teams are awaiting. With the merger of these two worlds, pricing sophistication can unlock a growth and profitability value reservoir that is largely untapped today, as ratemaking remains underexposed to breakthroughs such as transparent machine learning across many insurance organisations.
Our modular pricing platform automates technical and commercial premium modelling. It empowers non-life insurers worldwide to compute adjusted and accurate rates in line with their commercial strategy, while materially impacting their business and maintaining absolute control of the models created, as required by most regulators.
 
To give a sense of the impact of such a solution, time spent modelling is reduced by 10x with Akur8, the models’ predictive power is increased by 10% and loss ratio improvement potential is boosted by 2-4%.
 
How valuable would the improvements below be for your pricing team over the next five years?
 
Getting market insights 
Akur8 serves 50+ customers across 20+ countries, including AXA, Generali, Munich Re, MS&AD Insurance Group, Tokio Marine Kiln; specialty insurer Canopius and MGA Bass Underwriters; insurtechs Manypets and wefox…
 
As you can see, we work with a wide variety of insurance carriers, both in terms of size and lines of business. One main strength of our solution is its transparency and therefore its auditability: Akur8 adapts to all use cases in non-life insurance, regardless of insurance product, carrier or regulatory environment in which our clients operate.
 
That being said, it is important for us to know the needs and challenges of our customers. We continuously improve our pricing platform thanks to the regular conversations we have 
with actuarial teams across the globe.
 
This year, we decided to go one step further by conducting our own Global Pricing Survey. We asked over 100 pricing professionals across 34 countries, covering all lines of business, to shed light on their pricing practices, limitations, business impact and outlook for the future of ratemaking. This was a wonderful experience as it gave us many insights into our industry and crystallised our company’s purpose in the present and future actuarial world. A 
 
Mr Samuel Falmagne is CEO of Akur8.
 
If you are interested in learning about the full results of Akur8’s first global pricing survey, go to www.akur8.com/white-papers/global-pricing-survey
 

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