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Take the heat out of your insurance pricing indication process

Insurance Consulting and Technology
Insurer Solutions|

By Michael Chen , Scott Gibson and Madeline Main | May 19, 2022

Automation, we believe, is the way forward for freeing up actuaries to do higher-value explorations and analyses.

Forward-looking insurers will benefit from embracing ways to produce and automate data-rich quarterly pricing indications at scale as part of a wider focus on freeing up actuaries to provide analysis and judgment rather than acting as expensive process managers.

Indications are an essential, but recurring, time-consuming and laborious part of the pricing process for North American insurers — the equivalent of the intermittent hum of air conditioning operating in the background of the office, but with the difference, frequently, that actuaries are having to work the fans.

Many of us who have worked in pricing teams will have cut our teeth on indications and know the routine. If we take a single indication as an example, we go through regular steps: compiling data, reviewing premium and loss trends, evaluating loss development and applying credibility checks before shifting to expense selection, profit provision, ULAE (unallocated loss adjustment expenses) and any other adjustments that are needed. In summary, there is a lot of information to collect — and potentially wait for.

For a single case such as this, however, it sounds like it would be easy to apply some rules and have a purely mechanical, automated indication to ease the workload, right?

But what about taking judgment into consideration? Then the simple becomes rather more complex, with analyst selections, manager reviews, sign-offs and checks to consider. It’s still a manageable process but with a lot of important steps.

A matter of scale

But we’re still talking about a single indication. What about when you produce quarterly indications for multiple products in multiple states, as will be the case for most insurers? Fifty states, quarterly for one product/one coverage, is already 200 indications. Add a second product and it’s 400 before contemplating anything to do with multiple programs legacy, runoff, new business, different distribution or segments.

In that context, the potential for the pricing “fan bearers” working in overdrive is apparent. That’s particularly the case when some of the common pricing indication process issues and frustrations are considered, such as chasing status updates and feedback; preventing time lags when processes are complete; maintaining governance and auditability; and the time limitations for doing detailed analysis of exposures at different rate levels, claims and geographic factors.

The challenge then for insurers, or the opportunity in fact with the technology available, is to limit the role of actuaries as process managers and chasers. Automation, we believe, is the way forward for freeing up actuaries to do higher-value explorations and analyses.

How we can help

WTW offers a couple of technology solutions to the common pricing indication quandaries. The price indication methodology built into our Radar pricing suite (see below) provides an automated and efficient model with full auditability and governance that, in our experience, reduces a six-week manual process that is prone to human error in Excel to six days — improving efficiency by 80%. Our Unify workflow software (see below) can handle the process, project management, reporting and documentation aspects of the task, again with full governance and audit trails and integrated where necessary with existing systems, to provide additional functionality and efficiency when working across multiple data sources.

Pricing indications in Radar

The overall rate level indication is derived using the loss ratio method, which incorporates:

  • Expense and profit and contingencies assumptions
  • Premium and loss trending
  • Loss development
  • Credibility weighting each coverage’s projected loss ratio with the permissible loss ratio for that coverage
  • Five years of accident quarter data (crucially provided in the same format each quarter) used to develop the rate indications
  • Premiums that are brought to current rate level using both the parallelogram methodology and extension of exposures

Pricing indications powered by Unify

Unify automates the indication build and review while making it easy to monitor:

  • Extracts, reconciles and pushes data into the indication template automatically.
  • Tracks and manages the process steps via notifications and prompts.
  • Focuses the actuarial resources on value-added tasks requiring judgment or analysis.
  • Tracks reviews, changes and files in a secure, managed repository with a full audit trail.
  • Updates and maintains a status dashboard for oversight at a glance.
  • Allows for customization within a flexible design to fit any insurer’s target process.
Authors

Director/Pricing and Radar Subject Matter Expert
Insurance Consulting and Technology

Associate Director/Unify Subject Matter Expert
Insurance Consulting and Technology

Associate Director/Pricing and Radar Subject Matter Expert
Insurance Consulting and Technology

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