Medical inflation forces health insurers to consistently adjust prices to keep up with rising medical costs and remain competitive. This means that each time an insurer reprices, its competitive and market position has shifted - and so has that of all its competitors, making the pricing process complex.
Health insurers have a significant opportunity to gain recurring value from a sophisticated approach to pricing. In order to gain this value, their pricing processes must first be able to deal with and handle complexity really well, including the granularity required to fully optimize pricing.
This includes gaining deep and specific insights into:
- Claims experience
- Price sensitivity
- Competitive positioning
- Customer behavior
- Relationships between pricing and sales, profitability, retention, etc.
For more health insurers, this requires a shift from the traditional, siloed approach to pricing.
The market is more complicated than your pricing process can handle
Unlike some other forms of insurance, health insurance pricing objectives can’t accommodate a ‘set it and forget it’ strategy. Insurers must be able to maintain pricing objectives and positions over time, adjusting for frequent market and competitive changes as well as shifts in commercial objectives.
This inherent complexity creates a number of challenges, including:
- Difficulty building comprehensive controls to accommodate all the complexity, resulting in errors
- No granular understanding of price sensitivity
- Lack of transparency between pricing and commercial teams like sales, retention, claims, etc.
- Being forced to compromise across different stakeholders around competitiveness to achieve sales, profitability, and pricing
Some health insurers already recognize the limitations of the traditional pricing process - and the value of taking a more strategic and scientific approach. As insurers begin to use decision science and data science techniques to make better decisions around pricing and product design, those insurers will begin pulling away from the pack.
The Montoux Platform modernizes health insurance pricing
Taking a modernized approach to health insurance pricing starts with the right tools.
Montoux’s Platform is a sophisticated, cloud-based alternative to traditional pricing tools that goes far beyond simply incorporating standard pricing projections. It uses actuarial and data science to deliver the capabilities most insurers are missing, including:
- Clear illustration and understanding of price sensitivity
- Competitive positioning incorporated into the model, including where you’re positioned against competitive rates and how that impacts sensitivity
- Insights into how different scenarios impact sales, claims, retention, and more
The Montoux Platform and its proxy modeling capabilities also allow you to effectively and efficiently model thousands of scenarios. Instead of simply viewing three or four scenarios, you can explore three or four objectives, each with thousands of scenarios, to try and understand the best way to achieve each objective. This can be used to effectively isolate the scenario which maximizes sales, retention, or any combination you want.
If you increase or decrease your prices in certain areas what does that mean for sales, retention, profitability? You can evaluate all those components every time you do a pricing exercise.
This capability enables you to set your pricing strategy to match overall company objectives and then monitor it over the course of the year, adjusting where you need to for competitors, adverse reactions, or changes in the market. This clarity gives actuaries the tools and information to communicate with the broader business, whether that’s sales, distribution, product, and demonstrate a balanced view of KPIs around different pricing scenarios.
Tying it in with experience
Armed with these insights into pricing sensitivity, insurers gain a deep understanding of price sensitivity to sales, lapses, and more. Insurers and their commercial teams need this to stay on top of competitiveness as well as experience analysis, including where are you getting new claims, where is there pressure you must address through price, and more.
Montoux allows you to monitor your experience on a monthly basis, providing deep insights into customer behavior and enabling you to adjust when there are adverse changes in claims, retention, and sales. Connecting this with your pricing strategy closes inefficient information gaps, getting everyone on the same page.
Using this information surrounding price and experience, insurers can apply expert judgment towards the future, coming up with assumptions around how sales or lapses or experience will change if you change your price. This enables insurers to refine their strategy and objectives over time, gaining value not just in the initial pricing exercise but over time through price optimization.
Don’t make good decisions, make the right ones
So what does all this boil down to? It’s stronger, clearer insights into health insurance pricing, allowing insurers to be proactive and connecting pricing teams back to the overall company strategy.
Pricing modernization allows carriers to be much more granular with their approach to pricing and increases value in different pockets for the stakeholders, regardless of whether your objectives focus on profitability, customer value, retention, or some combination.
Armed with these capabilities and depth of understanding into price and how it impacts the broader business, insurers can make the best possible decisions to objectives while maintaining key business rules and constraints.