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Taking risk rating and pricing to the next level

With the total amount of digital data created globally set to reach 180 zettabytes (180 trillion gigabytes) by 2025, we live in an age where the amount of information available about people, businesses and risks is increasing daily. This vast quantity of data means that more is known and can be validated today than could be yesterday.

Insurance risk rating and pricing

As a result, the insurance industry is moving away from aggregate risk profiles and towards a more informed and precise evaluation of each individual risk, based on behavioural and physical data, such as the proximity of a property to water. By taking full advantage of all the available insight, insurers can understand more about the risks they are insuring in real-time to provide an accurate, tailored price for that individual. That doesn't mean offering a cheaper or more expensive premium, just simply providing each customer with a price that matches their individual profile, credit score and behaviour.

While many insurers have great knowledge of their customers that can be used to drive more accurate pricing, some are already taking the next step by enriching their own information with data from third parties and distribution partners to build a more complete picture.

Over the last few decades, there has been a noticeable trend towards using industry-specific price optimisation tools, which SSP fully endorses rather than wishes to compete with. Yet, this activity has taken place offline, which is no longer good enough — it now needs to be online as part of the pricing process.

This insight from such data enrichment enables insurers to go beyond the 'what' is happening to drill down into the 'why'. For example, looking at an individual's credit score and credit history will enable insurers to determine the likelihood of that person defaulting on their insurance premiums. Similarly, figures from RBS Insurance show a driver with one conviction is 69% more likely to claim than a driver with no convictions.

As the amount of data generated continues to soar, so the number of external data sources and providers will grow and grow. Therefore, insurers will need to ensure they can consume and integrate all of these effectively.

By working with partners such as LexisNexis, Experian and Equifax to get the right data and then model this effectively, SSP can deliver real value to individual insurers. As insurers source their own data that is exclusive to them and hook into a greater number of connections, all of these can also be fed into SSP's solutions to produce the optimum results.

Aggregating data from different sources in this way not only enables informed decision-making based on a comprehensive understanding of an individual risk. It also eliminates the moral hazard of application fraud — reducing both the premium lost due to consumers changing their risk data to get the best price and the claims leakage that results from their actions — and enables streamlining of the question set to simplify the customer journey.

By understanding the other risks individuals have, insurers can analyse their customer lifetime value and use this as an input into pricing and rating to determine the next best action.

Moreover, as all of this data is generated in real-time, insurers have immediate visibility of their book of business and can react proactively to changes in their market share. This enables insurers to use elasticity and propensity models to test the impact of increased pricing or, conversely, manage the business written to match their capacity by amending their rates accordingly.

Being able to self-service these changes to their rates, prices and other business rules empowers the business to be in control and further increases the agility with which insurers can respond dynamically to changing market conditions. With the transfer of work from IT users to business users, the ability to changes product and price rates now lies firmly in the hands of the underwriters.

By combining risk rating, pricing flexibility and real-time visibility across the whole market in this way, insurers can change their rates multiple times a day in response to what is happening right there and then.

As data enrichment continues, it will become a hygiene factor in the insurance industry, so those insurers who do not adopt a single customer view and change their processes accordingly risk being left behind. With restricted ability to make instant pricing changes and rate fully for risk based on customer insight, they will lose their pricing edge and not be able to respond quickly enough to requests.

The best way for insurers to achieve a single customer view is by employing a sole solution that delivers whole of market visibility and customer transparency, coupled with the ability to self-service changes — and this is exactly what SSP provides.

SSP has the unique expert insight to help insurers on their journey so, to find out more, please contact us.

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