Insurance is about two things: assessing risk and calculating premiums. Because of this, pricing risk precisely is paramount to optimizing payoffs. The principal suffers if pricing isn’t aligned with the associated factors, market conditions, and individual behaviours, the principal suffers. You deal with lost revenue and lower profit margins or, worse yet, massive losses.
The insurance space has been slower to adopt technological advances than other fields. For so long, things have been done manually and, for many insurance companies, they still are. In recent years, however, things are changing—insurtechs are innovating how we calculate risk and premiums. But one thing that still holds insurers back is the lack of access to pricing data. This, in turn, affects turnaround time—so to get those pricing changes for brokers can take months.
That’s why insurer hosted pricing, or IHP, is quintessential for the insurance space. It allows access to real-time data, so that insurance pricing can be more responsive to driving behaviour, environmental risk, and other external factors.
What is insurer hosted pricing?
Insurer hosted pricing allows insurers to control their own pricing. Adjustments in pricing can be transformational to the insurer's bottom line, whether these adjustments are made annually, monthly, or (as we recommend it) in real-time.
Real-time insights are only possible with large amounts of data. One way we implement big data for real-time insights is through environmental factors. We gauge things like traffic conditions, weather, or the speed of a vehicle, against historic risk, and create a unique risk assessment for that exact second the driver is on the road.
This is the power of modern big data. Now, insurers now have a new degree of flexibility to tailor their products appropriately for their customers. This can range from launching better product management to setting new rules and driver rates. IHP will ultimately result in dynamic pricing and a superior understanding of risk, allowing premiums to be more reasonably priced.
This also allows insurers to sell plans more suited or customized to the customer’s specifications. With increasing insurance companies adopting IHP, insurers have found themselves in a far more competitive market. Customer expectations are rapidly changing—and the demand for insurer hosted pricing premium rates will only increase.
Insurer hosted pricing will be the norm by 2023 and those utilizing it will reap the benefits.
Technology has left no markets untouched, but insurance has been slower to adopt than most industries. But now (finally), this change-resistant industry is going through a digital revolution.
Underwriters are well-equipped with advanced AI and ML techniques to process the humongous amount of data available. This has enabled them to better gauge risk and offer tailor-made pricing while adapting to the market changes.
The use of real-time insights is a growing trend in our advancing world. Improved AI technology and real-time data insights have combined to minimize car accidents and vehicle damage. This helps provide lifesaving information and enhances the efficiency of emergency medical services.
Not surprisingly, the real-time insights gained from insurer hosted pricing provide the greatest benefit. In the past, gaining insights about pricing and risk assessment could take months or even up to a year. Insurer hosted pricing allows for day-to-day, hour-to-hour or even minute-to-minute insight on every situation recorded. This is a more dynamic way of assessing risk, so as problems arise, insurers can adjust accordingly.
Policyholders will find that they are further rewarded with good driving behaviour and be more incentivized to practice safe driving. This transparency also rewards the good drivers while penalizing the bad actors rather than having a one-size-fits-all model.
Freedom to build, change, and evolve
Historically, underwriters have based the pricing solely on the information provided by applicants and a few external factors. The obvious issue here is that there is always a human error, malicious intent or dishonesty involved, making it difficult to assess the risk accurately.
Insurer hosted pricing can rectify this by providing instant feedback to the car insurance company regarding the objective facts of a car accident, protecting the firm from false claims and financial burden while constantly updating the models for future computations. They can go beyond traditional underwriting and actuarial approaches to find new ways to understand data and generate value from it.
Contrary to the misconception, usage-based insurance is a common type of insurance that’s already being rolled out. Lemonade is one of the emerging AI-based insurance companies that boasts high flexibility with market changes to allow them to show their customers which solutions are feasible. Companies like these put pressure on those in the market that hesitate to try new models. Insurer hosted pricing has the agility of real-time data handling—which proves to be a valuable addition.
Because of this, insurers not only can build better products for their customers, but also have better control of those products and schemes. So, instead of issuing a certain rate to a policyholder for a period of time, this premium can be changed more accurately based on the data the insurer instantly receives.
The ultimate result? Better bottom line
Since insurer hosted pricing allows insurers to adjust their rates more dynamically and gives them a better understanding of risk on a moment-to-moment basis, drivers end up paying less for safe driving and more for risky behaviour. This results in helping drivers avoid risky situations while also protecting the insurer more effectively.
Want to know more and see how IHP can benefit your business? Talk with us. We’ve built and deployed solutions for major insurance clients and could do the same for you.