How Can We Price Risk in a Time of Claims Inflation?

In a time of rapid claims cost inflation, insurers need to be able to “turn on a sixpence” to implement pricing and underwriting changes extremely quickly. However, many insurers currently lack the operational agility to do so. This was a key point from Earnix CEO Udi Ziv’s presentation at the recent Earnix Summit in London. Earnix is a global provider of real-time AI-driven rating, analytical underwriting, dynamic pricing, product personalisation, and fully operationalised telematics solutions for Insurance and Banking.

“Pricing products when it is difficult to predict how much claims will cost in six or 12 months is one of the biggest challenges insurers face in a ‘perfect storm’ of converging issues threatening insurance businesses,” Ziv explained to a group of 250 insurance practitioners. “Insurers need to be able to realise when change is needed, analyse what changes need to be made, make the best decision possible, and then drive these strategies to market quickly.”

Speed and agility in the face of rising inflation is a recurring theme especially in the context of helping insurers “reimagine insurance” through intelligent operations.

NOBODY BEATS INFLATION, BUT THERE IS PLAN B

“You can’t beat inflation, but you can limit how much you could potentially lose by increasing prices, doing it quickly, and doing it in an intelligent way,” explained Francesco Miani, Head of Strategic Projects, Insurance International Central Team for Generali Group, in a session focused on managing inflation. Miani has valuable first-hand experience with inflation after living and working in Argentina, where inflation has been above 20% for almost a decade and is now expected to hit 95% by the end of 2022.

“The higher the inflation, the faster you have to apply changes,” he said, highlighting the example where motor insurance premiums rose 61% year-over-year in Argentina in 2021 and a staggering 239% from Q4 2021 and Q2 2022.

INTELLIGENT PRICING

Intelligent insurance systems are playing a key role in helping Generali and other insurers cope with the challenges of inflation. These systems enable insurers to analyse claims costs, conversion rates, customer behaviours, and market trends in real time, and then implement changes through simple, efficient, and scalable digital workflows.

For example, users of Earnix’s Price-It solution have reported dramatic reductions in the time it takes to make pricing changes. One UK insurer has reduced the time from 70 days to one and a Canadian insurer saw its time to market with price changes fall from 180 days to just four.

“In the past, I was proud that I could change a price in two days or maybe even one day if we were really fast,” said Marcel Kluge, Head of Product Management at BavariaDirekt. “Today, with Earnix, we can do it in 10 minutes.”

For Generali, the ability to implement a new pricing strategy in a single day was a game-changer for its Argentina operation. “If it had taken three to four weeks, the world would have already changed,” said Miani during his presentation.