Pricing of the future - How marketing and actuarial services are moving closer together

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Pricing of the future - How marketing and actuarial services are moving closer together

My recommendations for action for all those who want to sharpen their target picture now

Digitisation in the insurance industry continues to advance. Although every insurance company is moving at its own pace, there is a lot happening in the specialist areas: In marketing, projects around the customer journey are coming to fruition. The long-cherished plan to address the right customers with the right message about the right product - and to do so across all channels - is taking shape. For this purpose, lead stores are established and provide personalized action and product recommendations for sales by means of analytical evaluation.

In the actuarial field, the modernisation backlog caused by the mandatory implementation of regulatory topics is dissolving. Customers and aggregators are making dynamic pricing an increasingly important competitive factor. At the same time, data science, automation, and shorter pricing cycles, among other factors, are placing increased demands on pricing. In response to this, machine learning is finding its way into the actuarial profession and innovating risk modelling step by step. Modelling processes that were often manual are being transformed into a model assembly line. New pricing engines are being introduced to deploy tariffs more quickly into production, to issue individual offer prices and to actively control product sales according to the company's own targets.

Marketing and actuarial services - two specialist areas in insurance that seem very different at first glance. However, if you take a closer look, both have a lot in common. They both solve their business challenges through data-based analyses and use the insights gained in this way for intelligent decisions in the value chain - even in real time. Technologically, the same system can be used and shared, no matter if the existing tech stacks in marketing and actuarial services have evolved differently over time so far.

From an insurance company perspective, this is all going in the right direction. Modernizing individual silos, increasing and managing profitability, volume, and customer experience. But for some, not far enough. There are already board initiatives that see this as far from the end of the line. On the contrary - this is where the pricing of the future is just beginning. But what do such forward thinkers actually mean when they talk about pricing of the future?

Pricing of the future is about thinking across silos. It is about the vision of an integrated approach from the analyses of the actuarial department, the portfolio analyses from the specialist department, the knowledge of customer data and customer behaviour from marketing/CRM. If you now add your own strategy, e.g., for product sales, growth, margin, NPS, risk selection, etc., then you are able to control actions and prices at the point of sale in a holistic, differentiated and target-oriented manner. For example, a combination of product recommendations with real-time pricing would be attractive for value maximization, especially for cash earnings management.

What would be the next steps towards implementing such a fusion of classic (risk-)cost-oriented, customer-focused, and market-oriented pricing with data-driven marketing/sales across the entire company? And no less important: How not to be deterred by such a big task?

Let me share a few tips and experiences. As an Innovation Advisor for insurance companies and in particular actuaries, I have participated in many modernisation projects and discussions in recent years. While modernisation is typically seen as a big and difficult topic, there is usually also consensus that it will come and needs to be addressed. But how?

A first step will be to paint a clear picture of the current situation, including the different perceptions of the topic and interests of various stakeholders, and as a next step establish a common vision / future state description with clear recommendations for actions . Here is an example:

Inventory and interviews:

  • Clarify all necessary technical terms internally
  • Make it transparent how these interact and who is responsible
  • Conduct interviews with all stakeholders to make the initial situation and expectations of a future state transparent
    • Actual state (professional, technical)
    • Which tasks are to be assumed in the future (understanding of roles)?
    • What is to be delivered?

Consolidation and market classification:

  • Consolidate the interview results.
  • Bring in supplementary documentation and benchmarks on key points.

Coordinated target picture for pricing of the future:

  • Conduct a workshop with all stakeholders.
  • Do a GAP analysis on the market and future of pricing.
  • Create a tailor-made target picture (professional and technological).
  • Derive an implementation plan and define milestones .
  • Identify quick wins and further optimization potentials.

Once these steps have been completed, the result is a coordinated target picture for cross-functional pricing of the future with a focus on governance, processes, and competitiveness, including a project plan for implementation. The latter can be used very well as a basis for decision-making and show how customer satisfaction, competitiveness and profitability can be ensured in the future.

By the way: The above steps can also be carried out as a pre-study with manageable effort. The trick is to eat the elephant one bite at the time. And the beauty of it - each completed sub-step delivers new insights and added value on its own, and not only when a cross-functional pricing of the future is completely established.

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About Author

Michael Rabin

Michael Rabin assists insurance companys on their way towards digitalization, big data analytics and IoT. Prior to this, he worked as a technical account manager in this segment. He began his career with a German insurer (including businesscontrolling of property / casualty insurance and strategic bank assurance) and is therefore familiar in the field of classic insurance.

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