By PwC UK's Ewen Tweedie, Peter Heffernan and Montoux's Shelley Cox, Stephen Carlin

Originally published in Actuarial Post

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A survey of UK life insurance pricing teams conducted by PwC UK and Montoux reveals the degree to which life insurer pricing functions have evolved and grown over the past several years. The survey highlights where certain insurers have made strong commitments to improving the pricing process, strengthening digital capabilities and integrating market data which has transformed pricing from a back-office function to a key growth lever.

Making the pricing process work for customers and insurers

Over 80 percent of survey participants indicated they have a clear pricing strategy which is aligned to the objectives of business and have regular monitoring in place. While individual firms may be looking to differentiate themselves in areas such as product design, or customer service, the strong majority indicates UK life insurers understand the importance of pricing as a strategic lever for growth.

With the focus on pricing as a strategic lever, it is unsurprising to see the high level sophistication of the pricing process within UK life insurers. Nearly half of all survey participants are repricing on an impressive 1-4 week cycle, making price agility a significant contributor to competitiveness and market performance. It also means those life insurers that are operating on longer timelines, months rather than weeks may well find themselves outmaneuvered on price by their competitors. 

Optimizing the pricing process enables insurers to be more competitive - and this won’t change

With all the survey respondents confirming that they use competitor analysis as a key input in the pricing process, market insight is clearly a major influencer of pricing. But there’s more to pricing insurance products than merely being more competitive. Pricing with robust processes that are efficient and repeatable is also important, with faster repricing pointing towards a greater investment in tooling, processes and rate deployment capability. 

There is a significant spectrum in the number of pricing scenarios considered as part of a pricing exercise- half consider fewer than five scenarios but some considering more than 50. This reflects the variations in pricing strategy, the ease with which scenarios can be produced and analyzed and the methodologies underlying them. More than three quarters of respondents use price optimization in some form, but fewer than 20 percent feel their optimization capability was mature and embedded in the process. Increasing pricing intelligence can be a lever to unlocking areas of growth within the portfolio.

Room for growth in the pricing function

Over 50% of participants identified resources as the biggest barrier preventing more frequent and agile pricing. However, only half of these respondents said they were likely to grow the team over the next three years.

Additionally, half of participants feel they’ve identified clear capability gaps within their pricing functions, but only nine percent definitely plan to add resources to their teams.

These barriers show that, while pricing is advanced in the UK life insurance market, there is still room for growth and improvement. This is true for all pricing teams, regardless of maturity. The development of new AI technologies and access to increasingly rich data sources means all pricing teams looking for the ‘what’s next’ have plenty of options at their disposal. 

The survey found 83 percent of respondents believed advanced analytics and data science would play a larger role in pricing over the next three years, and only 20 percent believe they are ‘above average’ in this area. Add in the fact that 94 percent rely on Excel for key steps of the pricing process and most don’t plan to expand pricing teams, it’s clear there’s an opportunity for new technologies, training, and tooling to make up the difference. 

Those pricing teams looking to bolster their repricing frequency should consider specific opportunities to leverage tools and technologies in order to increase their speed from months to weeks. For pricing teams further along this path, this is a good time to consider what the ideal ‘end state’ of the pricing function will look like in the years to come. Rounding out the pricing process through an end-to-end integrated system that leverages available data and delivers precise, actionable insights will improve the ability for pricing to influence strategic decision making.

Time for change

The insurance market has undergone significant change over the last 12 months, and whilst there is a spectrum of maturity of pricing intelligence, UK insurers face similar challenges of resources, cost management and increasing competition. Creative solutions will be required to make the next step on the journey and to continue grow the UK insurance market as a whole in the future.