Why Specialty and Commercial insurers need to rethink their approach to pricing


In the rush to become data-driven, something has been lost. As insurance becomes increasingly digitized, neither underwriters nor actuaries are happy with current processes.

Editor's note: This article is an excerpt from The State of Speciality and Commercial Pricing report, based on research conducted by independent research firm Coleman Parkes on behalf of hyperexponential.

Decisions on which risks to accept, and at what price, drive the single biggest line item in the P&Ls of Specialty and Commercial insurers – their premiums. Yet, 89% of UK survey respondents and 78% of US respondents think their pricing technology needs improvement and fewer than one in five respondents described their pricing processes as data-driven.

Even worse, 33% of UK underwriters see profits eroded by the poor quality pricing models they use today. One in five actuaries believe deficient pricing models damage their organization’s reputation, further risking future profits.

Given its impact on profitability and the palpable level of dissatisfaction with current systems, it’s no surprise that pricing transformation is a key priority for a significant proportion of respondents – 98% are either investing in pricing technology today or plan to over the next 12 months.

Despite the investment in this area, improvements are not happening fast enough. 56% of respondents think their pricing platforms aren’t delivering what was promised and 45% have yet to see value from the new pricing technology they’ve purchased.

Integrating new and legacy technology is a major problem in transformation initiatives – 57% still cannot price and underwrite optimally because of integration issues. Hardly surprising given one in four still rely on archaic ‘super spreadsheets’.

Today’s digital world creates roughly 1.7 megabytes of data per second for every internet user in the world and captures it in a variety of ways, from wearables to windfarm sensors.This data is both structured and unstructured, creating a data load that is impossible for traditional spreadsheets to handle.

Underwriters need accurate pricing models, but current sentiments show that today’s pricing tools don’t cut it. A large majority of Commercial P&C US underwriters (71%) and over half of Specialty & Commercial UK underwriters (54%) find it hard to keep up with the rapidly shifting risk landscape. This rapid rate of change demands technology versatile enough to integrate with legacy systems and powerful enough to ingest large datasets - and use them to analyze and predict the future.

Considering the rapid pace of market changes and the advancing accessibility of AI, standard data is becoming commoditized, necessitating insurers to seek out more complex datasets to gain a competitive edge. The ability to extract value from small, sparse, or fragmented data and leverage it for continuous improvement will separate the winners from the losers.

This is where pricing decision intelligence comes in.

To learn more, explore the full State of Specialty and Commercial Pricing 2023 report now. Download it here.

For the US-specific edition, download The State of US Commercial P&C Pricing 2023 here.