Fairer pricing: how insurers can win back customers’ trust

By Dean Lowson, Insurance Industry Expert at SAS UK & Ireland 

The introduction of the Financial Conduct Authority (FCA)’s new policy on pricing practices in the general insurance market is one of the biggest shake-ups the insurance industry has seen in more than a decade. It’s not just a significant implementation challenge that needs to be delivered in a short deadline. It’s a change that affects many of the underlying assumptions around insurance market dynamics and could potentially change the way the whole industry works. 

Opportunities beyond compliance 

I recently discussed this topic with a group of industry experts as part of a webinar hosted by InsuranceERM. The panel acknowledged that practices such as price walking have gradually eroded customers’ trust, and led to a market where customers know that there is no value in being loyal to their current insurer. There was general agreement that the new regulations are a major opportunity for the industry to regain consumers’ confidence. 

The changes will benefit firms that are agile enough not only to implement effective new pricing models and product governance but also to react quickly as pricing dynamics shift to position themselves in a changing market. There’s scope to build stronger client relationships with higher retention rates, and reconfigure products to offer better features and greater long-term value, rather than focusing solely on pricing. 

Accountability spurs change 

Under the new rules, senior managers will be directly accountable for attesting that pricing models are compliant, and we’ve seen elsewhere that personal accountability is a powerful lever to drive cultural change and reduce conduct risk. But for senior people to be confident in providing that attestation, they will need to be able to monitor, measure and manage operations transparently from top to bottom. 

One of the big challenges here is data, especially for long-established insurers that have built up a complex network of legacy systems and departmental silos over the years. The data is all there, but it’s difficult to get an overarching view across the whole business—which means imposing the kind of enterprise-wide governance required by these new regulations is a major headache. 

Measure, then improve 

However, as one of our panelists pointed out, the type of metrics and insight into products and customer relationships that the FCA is asking insurers to provide is information that most insurers’ boards should want to be monitoring anyway, regardless of regulatory expectations.

On the principle that “what we don’t measure, we can’t improve”, it’s vital for senior leaders to be able to drill down and understand what pricing they are offering to new and existing customers so that they can guide the company’s product and pricing strategies effectively. So, the motivation shouldn’t just be regulatory compliance—there will be ongoing value for the business if these changes are implemented correctly. 

Finding a pragmatic solution 

Regardless of whether your pricing processes depend on complex legacy systems or more modern architectures, it’s clear that the right approach is not to attempt to rearchitect or replace existing core pricing systems. The deadlines are too tight for that kind of radical change—such projects typically take years, and the current timeframe for implementation is a matter of months. 

Instead, the right approach is to implement a governance layer that sits above the existing systems and provides a single source of truth for pricing, renewals and other relevant data. The best kinds of solutions will be the ones that bridge the gaps between systems, controlling and monitoring the flow of information to ensure good governance, end-to-end traceability, and comprehensive auditing of pricing decisions. 

At the same time, any solution which can help to automate pricing processes by building a seamless, API-connected ecosystem that eliminates the need for manual hand-offs between teams will be of immense value to insurers seeking a seamless transition to more efficient technologies. This not only accelerates the delivery of pricing decisions, but it also reduces the risk of human error. A final benefit to highlight is one of huge importance into today’s workplace: its ability to free IT teams and analysts from hours of routine, low-level tasks. 

Critically, this approach is highly extensible, so firms can roll it out quickly to meet the immediate requirements of the new regulations, and then expand to add new features over time. When this kind of technology is available as a cloud service, firms can get up and running and start gaining new insights capable of revolutionising their relationships with customers within weeks.

By Dean Lowson, Insurance Industry Expert at SAS UK & Ireland 

The introduction of the Financial Conduct Authority (FCA)’s new policy on pricing practices in the general insurance market is one of the biggest shake-ups the insurance industry has seen in more than a decade. It’s not just a significant implementation challenge that needs to be delivered in a short deadline. It’s a change that affects many of the underlying assumptions around insurance market dynamics and could potentially change the way the whole industry works. 

Opportunities beyond compliance 

I recently discussed this topic with a group of industry experts as part of a webinar hosted by InsuranceERM. The panel acknowledged that practices such as price walking have gradually eroded customers’ trust, and led to a market where customers know that there is no value in being loyal to their current insurer. There was general agreement that the new regulations are a major opportunity for the industry to regain consumers’ confidence. 

The changes will benefit firms that are agile enough not only to implement effective new pricing models and product governance but also to react quickly as pricing dynamics shift to position themselves in a changing market. There’s scope to build stronger client relationships with higher retention rates, and reconfigure products to offer better features and greater long-term value, rather than focusing solely on pricing. 

Accountability spurs change 

Under the new rules, senior managers will be directly accountable for attesting that pricing models are compliant, and we’ve seen elsewhere that personal accountability is a powerful lever to drive cultural change and reduce conduct risk. But for senior people to be confident in providing that attestation, they will need to be able to monitor, measure and manage operations transparently from top to bottom. 

One of the big challenges here is data, especially for long-established insurers that have built up a complex network of legacy systems and departmental silos over the years. The data is all there, but it’s difficult to get an overarching view across the whole business—which means imposing the kind of enterprise-wide governance required by these new regulations is a major headache. 

Measure, then improve 

However, as one of our panelists pointed out, the type of metrics and insight into products and customer relationships that the FCA is asking insurers to provide is information that most insurers’ boards should want to be monitoring anyway, regardless of regulatory expectations.

On the principle that “what we don’t measure, we can’t improve”, it’s vital for senior leaders to be able to drill down and understand what pricing they are offering to new and existing customers so that they can guide the company’s product and pricing strategies effectively. So, the motivation shouldn’t just be regulatory compliance—there will be ongoing value for the business if these changes are implemented correctly. 

Finding a pragmatic solution 

Regardless of whether your pricing processes depend on complex legacy systems or more modern architectures, it’s clear that the right approach is not to attempt to rearchitect or replace existing core pricing systems. The deadlines are too tight for that kind of radical change—such projects typically take years, and the current timeframe for implementation is a matter of months. 

Instead, the right approach is to implement a governance layer that sits above the existing systems and provides a single source of truth for pricing, renewals and other relevant data. The best kinds of solutions will be the ones that bridge the gaps between systems, controlling and monitoring the flow of information to ensure good governance, end-to-end traceability, and comprehensive auditing of pricing decisions. 

At the same time, any solution which can help to automate pricing processes by building a seamless, API-connected ecosystem that eliminates the need for manual hand-offs between teams will be of immense value to insurers seeking a seamless transition to more efficient technologies. This not only accelerates the delivery of pricing decisions, but it also reduces the risk of human error. A final benefit to highlight is one of huge importance into today’s workplace: its ability to free IT teams and analysts from hours of routine, low-level tasks. 

Critically, this approach is highly extensible, so firms can roll it out quickly to meet the immediate requirements of the new regulations, and then expand to add new features over time. When this kind of technology is available as a cloud service, firms can get up and running and start gaining new insights capable of revolutionising their relationships with customers within weeks.