Broadening the lens: The future of retail lines pricing
There is no holding back the advance of actuarial pricing. The burning question for insurers is whether this continuing drive for micro-granularity produces better performance.
If you buy home or car insurance from a market-leading player, you could be classified into one of between 200 million and 1 billion cells – more cells than there are people in the US. Customer categorisation is becoming not only more granular, but more frequent, as well. In some cases, quotes change in real time as the latest claims data is updated.
looks at actuarial pricing and argues that insurers must think more about building customer value and less about precision of claims prediction. Prices should be set to acquire and retain customers who will become more loyal, who will more likely accept future price increases, and who will more likely buy other (appropriately priced) products and services.
The challenges of customer lifetime management differ in execution (for example, broker-distribution offers opportunities for optimising the broker relationship which may be as great as end customer management), but the principle is the same.
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