Broadening the lens: The future of retail lines pricing

June 27, 2008

Abstract

New York, NY, USA June 27, 2008

 

There is no holding back the advance of actuarial pricing. The burning question for insurers is whether this continuing drive for micro-granularity produces better performance.

If you buy home or car insurance from a market-leading player, you could be classified into one of between 200 million and 1 billion cells – more cells than there are people in the US. Customer categorisation is becoming not only more granular, but more frequent, as well. In some cases, quotes change in real time as the latest claims data is updated.

looks at actuarial pricing and argues that insurers must think more about building customer value and less about precision of claims prediction. Prices should be set to acquire and retain customers who will become more loyal, who will more likely accept future price increases, and who will more likely buy other (appropriately priced) products and services.

The challenges of customer lifetime management differ in execution (for example, broker-distribution offers opportunities for optimising the broker relationship which may be as great as end customer management), but the principle is the same.

The report is 12 pages and has four figures. A table of contents is available online.

 

Members of Celent's Property/Casualty Insurance research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

 

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

New York, NY, USA June 27, 2008

Broadening the lens:  The future of retail lines pricing 

The advance of actuarial pricing 3
Customer lifetime value 6
  Step 1: Focus on customer development 7
  Step 2: Build capabilities in test and learn 7
  Step 3: Change organisational culture 9
Getting it right 10

 

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