Optimizing the Insurance Pricing Process

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The New Insurance Pricing Process

6 Keys to Success


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WHY A NEW PRICING PROCESS?

In a business that has been around as long as the insurance business, it is not uncommon to findwell entrenched processes that have been practiced for decades. Having been practiced for

such a long time, there is something to be said for the robustness of such processes.

However, in every business comes a time when fundamental changes in the business

environment and shifting market forces make a reevaluation of existing practices necessary.

Advances in technology can also be a catalyst for process transformation. While technology

plays a major role as process enabler, we have all witnessed cases when overtime the process

becomes hostage to the limitations of legacy systems.

When fundamental market forces and significant technology paradigm shifts combine to form

the perfect storm, the writing is on the wall for a reconsideration of existing processes. Thats

the situation we are facing in insurance pricing today.

Based on Earnixs work with leading insurers worldwide, this eBook will help you understand the

following questions:

What are the shortcomings of existing pricing processes?

How do they impact the business?

How to reinvent the pricing process


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WHY NOT JUST CONTINUE WITH BUSINESS AS USUAL?

The new economic realitiesAlthough most insurance companies (albeit with some notable exceptions)

survived the financial crisis of 2008-2009 without any major downfalls, they

cannot escape the broader implications of the new, post-crisis economic

realities. Insurers around the world are acutely aware that achievinggrowth

and profitabilityin this new era is going to be more difficult than in the past.

The age of consumer power

Insurers also realize that consumer behavior is undergoing a major shift.

Empowered by the democratization of information, consumers increasingly

exercise their ability to compare products and services and share

recommendations with other consumers. With these capabilities at their

disposal, consumers are far less hesitant to shift alliances from one brand to

another as their needs and perceptions change.

The shifting competitive landscape

The changing patterns of consumer behavior have a profound impact on the

competitive landscape in all markets, and the insurance market is no exception.

Just like Amazon became a retail powerhouse without building a single brick

and mortar store, new insurance players are no longer inhibited by the barrierof building an agent distribution network. In this new world, the winners are

companies that are able to better communicate directly with customers, present

choices that closely meet individual needs, and promptly respond to market

dynamics.

So why not just continue with business as usual? In short,

because the business has changed forever, and those that

dont change with it will be left behind.

Impact of Financial Crisis on Pricing Importance

Source:2011 Earnix European Insurance Pricing Survey
http://www.earnix.com/surveys.asphttp://www.earnix.com/surveys.asphttp://www.earnix.com/surveys.asphttp://www.earnix.com/surveys.asp


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HOW ARE INSURERS RESPONDING TO THESE NEW

REALITIES?

As Celents 2011 US Insurance CIO Survey shows, although insurers

largely recognize the new normal, the response often lags (see

chart).

Insurers that address these challenges are adopting the following

strategic responses:

Market Challenge Strategic Response

New economic realitiesrequiring new ways to

generate profit and growth

A shift from cost-cuttingto operational efficiency

Increasing consumer power

and diminishing brand loyalty

A deeper understanding

of the customerat the

center of the business

A shifting competitive

landscape whereresponsiveness is the key

competitive advantage

Agilityto keep up with

the pace of change

Unfortunately for insurers, existing pricing processes

often stand in the way of adopting these response

strategies, as we are just about to see

Source: Celent 2011 US Insurance CIO Survey
http://www.celent.com/reports/2011-us-insurance-cio-survey-pressures-priorities-and-practiceshttp://www.celent.com/reports/2011-us-insurance-cio-survey-pressures-priorities-and-practiceshttp://www.celent.com/reports/2011-us-insurance-cio-survey-pressures-priorities-and-practiceshttp://www.celent.com/reports/2011-us-insurance-cio-survey-pressures-priorities-and-practices


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HOW DO EXISTING PRICING PROCESSES HINDER INSURERS RESPONSE TO THESE

CHALLENGES?

Current-state pricing processes are largely constrained by the limitations of an aging IT

infrastructure.

With pricing processes fragmented across multiple legacy systems, changes to pricingstrategies often require substantial IT resources.

Current processes are often laden with manual steps that further slow down the ability of the

organization to respond to market dynamics.

Scattered in information silos that are not readily accessible across the organization, pricing

processes are difficult to audit and control.

Collaboration among the different stakeholders in the pricing process is cumbersome without

a centralized pricing system that all functions involved can directly access.

The constraints of pricing structures and formats supported by legacy systems restrict therange of pricing strategies the insurer can exercise.

With no capacity to capture data about price offers rejected by customers, there is limitedability to test and optimize new pricing schemes.


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THESE SHORTCOMINGS OF EXISTING PRICING PROCESSES HAVE

SIGNIFICANT BUSINESS IMPLICATIONS

Falling behind the competition: According to a recent Earnix survey, most

insurers require at least 1-3 months for rolling out a new pricing strategy; as

many as a third of the respondents require over 3 months (see survey results).

With such long cycles, these companies are always a step or two behind the

competition.

Suboptimal pricing decisions: Long cycles and restrictive systems also mean

that pricing teams have limited opportunities to evaluate new pricing

strategies based on real data, potentially diminishing the opportunity tooptimize prices before they roll them out to the field.

Higher operational costs: With many steps that add little to no value to the

final outcome and high degree of dependence on costly IT resources, current

pricing processes add an unnecessary burden on already strained operational

budgets.

The bottom-line: there is clear and measurable evidence that

inadequate pricing processes translate to lower profits and

grow th ra te s.

Time Required for Executing a New Price Strategy

Source:2011 Earnix European Insurance Pricing Survey
http://www.earnix.com/surveys.asphttp://www.earnix.com/surveys.asphttp://www.earnix.com/surveys.asphttp://www.earnix.com/surveys.asp


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THE NEW PRICING PROCESS:SIX KEYS TO SUCCESS

1.Establish a Closed-loop Process

2.Empower Your Pricing Team

3.Enable Collaboration

4.Implement a Single Pricing Platform

5.Automate Price Execution and Real-time Pricing

6.Simplify and Streamline the Process


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KEY #2:EMPOWER YOUR PRICING TEAM

Given the right tools, there is little doubt that your pricing experts can come up with thebest pricing strategies for your business. However, bounded by todays restrictive

practices and systems, your pricing team depends heavily on IT resources and has little

room to maneuver.

Providing your team with powerful price analytics capabilities that can be easily used by

business users will allow your pricing team to put their expertise to use and maximize the

effectiveness of your pricing strategies.


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KEY #3:ENABLE COLLABORATION

It is hard to find anybody in the organization that doesnt have a say in the pricing decision.In a risk-driven industry, actuaries are traditionally the owners of pricing decisions.

Marketing, however, see it as one of the traditional four Ps (Product, Price, Promotion,

Place) they need to control. The channel managementteam, being the closest to agents

and brokers that interact directly with customers, has a stake in the pricing process as well.

And with direct implications on the companys bottom line, it would only be natural for

finance to be in the picture. Last but not least, senior managementoften gets involved in

strategic pricing decisions.

Effective collaboration on pricing decisions is therefore vital to keeping all stakeholders on

the same page and ensuring that pricing decisions reflect a cross-functional consensus.


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KEY #4:IMPLEMENT ASINGLE PRICING PLATFORM

Putting a closed-loop process in place and enabling all stakeholders to contribute issignificantly more challenging when different steps of the process are scattered across

multiple systems that are not always accessible by all participants.

Eliminating IT silos where fragments of the current pricing practices take place and

consolidating them into a single pricing platform is a key enabler to a collaborative,

integrated, closed-loop pricing process.

Needless to say, such a platform must address all security concerns that come with a

shared system. And to truly enable an end-to-end process, it must also integrate with

other operational systems that play a role in the processfrom underwriting and renewal

applications to agent- and customer-facing systems.

Furthermore, when all pricing activity is performed in one platform, controlling and later

auditing who does what, when, and why becomes an important added benefit that is easy

to achieve.


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KEY #5:AUTOMATE PRICE EXECUTION AND REAL-TIME PRICING

With a compressed development-to-market pricing cycle, insurers are able to stay aheadof the competition and quickly respond to changing market dynamics. Automating price

execution enables insurers to accelerate the steps involved in moving prices from the

development phase through testing and to the field.

Where possible, moving into real-time pricing optimization further empowers insurers to

reach maximum agility and responsiveness by constantly incorporating market input into

their pricing decisions.


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KEY #6:SIMPLIFY AND STREAMLINE THE PROCESS

As often is the case with corporate processes, pricing practices at many insurancecompanies are confined by the limitations of legacy IT systems. One of the greatest

benefits of a new pricing platform is that it frees the organization to remove these shackles

and eliminate inefficiencies that have become entrenched overtime.

A typical pricing process today comprises many steps that can be greatly streamlined,

resulting in significantly quicker turnaround for the development, testing, and deployment

of new prices.


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THE BENEFITS ARE MEASURABLE

The insurance industry is not one to embrace change for the sake of change. But facedwith market realities, insurers are now forced to treat new pricing processes and tools as a

necessity rather than novelty.

Those that have stepped up to the challenge have already been realizing the benefits.

Insurers that have adopted new pricing processes and systems regularly see improvements

of 5-20% in their profits, along with other measurable benefits that include higher growth

rates and greater operational efficiencies.

LEARN HOW YOU CAN JOIN THE LEADERS

To learn how your insurance organization can benefit from optimizing the pricing process,

contact usor visitwww.earnix.com.

The benefits are probably in excessof 15 [US$23.8] mil lion a year.

Martyn Green, Chief Actuary, Lloyds TSB Insurance(Insurance & Technology, J une 2009)
http://www.earnix.com/Contact.asphttp://www.earnix.com/Contact.asphttp://www.earnix.com/http://www.earnix.com/http://www.earnix.com/http://www.earnix.com/http://www.earnix.com/Contact.asp


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ABOUT EARNIX

Earnix is a leading provider of customer value and pricing optimization software solutionsfor the insurance and banking sectors, led by a team of seasoned professionals with

significant financial services background combined with expertise in optimization

technology and enterprise software development.

The Earnix integrated pricing platform enables insurers, insurance brokers, and banks to

maximize customer relationships and drive significant improvements in profitability by

utilizing robust analytics and delivering the power of optimization to the point of customer

interaction.

For more information visitwww.earnix.com.
http://www.earnix.com/http://www.earnix.com/http://www.earnix.com/http://www.earnix.com/

Optimizing the Insurance Pricing Process

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