The insurance industry is in a transformational period. The investment boom in insurtech startups and innovation departments created numerous successful insurtech companies and turned incumbent insurers into disruptors in their own right.
Between the buzzwords, incubators, and countless technologies promising to transform the way insurers process claims, communicate with customers, and sell policies, there are a few backend systems taking a backseat. One of these is pricing.
We recently took a look at why most life insurers don’t realize their pricing system isn’t optimized. Now, we’re going to dive into the nitty gritty to show you exactly how optimizing your pricing process can create immediate, measurable value without a massive time or monetary investment.
It starts with your pricing toolbox.
Your system isn’t wrong, it’s limited
Yes, you do have a pricing toolbox, but you may not think of it like that. In fact, you may not think about it at all, but your team of actuaries definitely does.
The standard pricing process involves two key elements: your actuarial system and good old Excel. If you’re like most life insurers, the actuarial system works as a projection system, modeling calculations and assumptions in order to come up with a price that meets your strategic goals. Excel works as your ‘swiss army knife’ system, gathering and reviewing policyholder and competitive data as well as analyzing the results of your actuarial system.
Again, for most life insurers, these two systems work separately in an intensely manual process, taking one set of goals/constraints (whether they’re sales, profit, market share, etc.) and spitting out the best price for your product, based on that specific set.
Voi-la, there’s your ideal price point. So, what’s the issue with this system?
The issue isn’t necessarily that your system doesn’t work, because it does. The majority of carriers use this exact same process because it’s worked for a long time, and it’s hard to imagine a world where it doesn’t work anymore. The problem lies in the inherent limitations of traditional system. To name a few:
- Lack of direct integration and interaction between your actuarial modeling software and your home built tools (Excel)
- While Excel is the best tool available, it’s hardly designed for this purpose, preventing a streamlined process
- The process is labour intensive, requiring a lot of time and calculations to come up with a single value that inherently becomes outdated as quickly as new information and data cycles in
- You can set this system for one specific set of goals/constraints, but not for multiple sets and not to automatically adjust as needed over time
What does all this mean? It means that when you set your specific goals/constraints at a given time, you can see where you are at that very moment, but you can’t see the potential uplift because your system is inherently inflexible. It’s like seeing one point on a graph but being unable to see the trajectory it’s on, and therefore being unable to follow it.
This trajectory you’re unable to see is called the efficient frontier, which is what Montoux is all about helping you find. It’s the great ‘what if’ scenario, except it’s every ‘what if’ scenario all at once, laid out for you to see. The efficient frontier is the optimal pricing range depending on an insurer’s objectives, and without it, you can’t see the forest for the trees.
Unlock the potential you’re missing out on
Your pricing strategy is ideally a balance between profitability, the best price you can set, and products your customers want. The problem, then, is that an inflexible system doesn’t mesh well with flexible targets.
Your customer and competitive data is constantly changing, and your pricing system isn’t capable of keeping up. When you run a pricing exercise and set a price, you land on the efficient frontier. But the longer you take to reprice, the further you fall from your optimal price, which inherently keeps shifting. What’s more, you can’t know how far you are from that sweet spot until you reprice, nor can you run a ‘what if’ analysis without putting in an equal amount of work.
The problem is it takes too long to come up with a price that suits your changing goals and constraints. It’s not that it can’t be done, it’s that you have the wrong set of tools in your toolbox to optimize your system.
The potential you end up missing out on is the difference between getting your price 85 percent optimized versus 100 percent. The trade off is how much it costs to constantly keep running this system to reach 100 percent. It requires more actuaries, more resources, and typically more investment than an insurer is willing to put in.
But that 15 percent? It’s significant. It’s the difference between meeting your goals from time to time and consistently hitting the bullseye. And there is a way to do it without the massive time and resource investment because this is the problem Montoux specifically solves.
Transform your pricing with Montoux’s actuarial modeling software
Montoux helps you take the guesswork out of your pricing process. Instead of seeking one set of specific goals/constraints, you can find multiple, see how they evolve over time, and run as many ‘what if’ scenarios as you want, giving you immediate access to the full potential locked in your pricing.
Our actuarial modeling software streamlines your manual process, allowing you to meet your goals/constraints, evaluate your pricing quickly, and make adjustments as needed. This ensures you’re always accounting for those flexible components, like policyholder and competitor data as well as competitor repricing.
So, what’s the grand conclusion to this pricing transformation? What improvement can you expect from your updated tool box?
Simply put, it’s the 15 percent. It’s the difference between being intentional about your pricing and being unintentional. Consistently adjusting your pricing to meet your strategic goals leads to an increased profitability threshold that your manual system could only dream of achieving.
It’s not that your system doesn’t work, because it does. But why settle for 85 percent when you don’t have to? Transforming your pricing process doesn’t have to be costly or time consuming or a massive undertaking. With the right software, you can be intentional about your pricing and implement a pricing process that systematically meets your goals and objectives every single time.
To learn more about the potential currently locked in your manual pricing process, reach out to us, we’d love to tell you more about it.