Leading insurers say having intelligent pricing capabilities is now essential to compete in the wake of FCA pricing reforms, a new white paper has revealed from Earnix – a global provider of real-time AI-driven rating, analytical underwriting, dynamic pricing, product personalisation, and fully operationalised telematics solutions for Insurance.
The white paper, entitled ‘How FCA Pricing Reform is Reshaping the General Insurance Market’, features input from several market-leading general insurers and assesses market dynamics in the wake of the FCA’s clampdown on ‘price walking’ on home and motor policies, which came into full effect on 1 January 2022.
The reforms – which, among other changes, force insurers to apply the same pricing methodology to new business and renewals – have led to a significant increase in customer retention and a decline in new business as new business premiums have risen and insurers are offering less incentives to win customers.
Justin Clarke, CUO, Personal Lines, RSA, said there had been a “reset” in the motor and home markets, commenting: “Insurers have typically had one algorithm for new business and one for renewals. Mashing these together changes the dynamic of the market significantly.”
Heightened focus on price accuracy
In a volatile economic and claims environment, the ability to accurately price and segment risks has become mission critical, Earnix found.
Nick McCowan, Head of General Insurance, Post Office, commented: “The reforms reinforce the need for better predictive models, market modelling and monitoring to allow you to trade competitively in this market.”
Insurers with underwriting systems underpinned by agile technology stacks enabling them to efficiently manage complex pricing models, ingest data from a variety of sources to augment decision-making and segment customers who are better risks will be in a much stronger position to compete. There will also be a strong focus on feeding real-time insights into risk models and risk mitigation efforts to drive down loss ratios to enable insurers to pass cost savings onto customers.
Clarke said: “Over time, the market will move to a pure pricing model… Innovation will be focused on managing the customer relationship better, being more centric to customer needs, offering better renewal pricing and improving risk management.”
Adrian Coupland, Head of Insurance, EMEA, Earnix, said: “There is no doubt the FCA reforms have created a fairer marketplace for consumers and reshaped pricing dynamics in the motor and home markets. With a heightened focus on underwriting discipline and consumer duty, we expect the most successful insurers to focus on sustainable, long-term profitability over short-term growth and profits, which can only be achieved with accurate, timely data and intelligent systems which provide the insight and agility to act.”
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