November 6, 2020 by Udi Ziv, CEO of Earnix
COVID-19 exposed a particular challenge that insurers have been grappling with well before the pandemic started – the difficulty associated with deploying and executing the rates at the speed
that the market requires and in response to real-time and volatile market conditions.
That is at least to some extent contributing to the increasing gap between consumers and insurers, according to a June McKinsey report about the post-COVID-19 pricing imperative for P&C insurers.
Addressing this challenge means using automation, analytics, artificial intelligence (AI) and machine learning, which are already widely deployed in the P/C insurance industry. When leveraged to deliver real-time deployment of rating, pricing and product personalization, it enables proactive engagement with the customer at the right time, in tune with their needs.
How severe is the problem facing the P/C industry and the consumers?
The COVID-19 pandemic is not the first or the last crisis that the insurance industry has had or will have to endure. But this time around, what insurers considered “good enough” will become
insufficient to protect their market share even after the pandemic is over. Not only that, but as insurers turn to product personalization and quickly deploy solutions that power rating and
pricing, those who do not will be left behind.
Outstanding consumer debts, payment history, and the availability of credit are fluctuating. The evident financial strain on the consumers is obvious. Insurers that cannot make faster,
smarter, and safer decisions about their product offerings will not be able to sustain their business.
How can insurers respond to market conditions faster?
There are three major factors which will together define how well insurance companies respond to the pandemic and beyond:
No.1 – The speed of analytics: Analytics that use both the latest AI and machine learning techniques, combined with proven analytical methods, can execute simulations to help insurers
determine a pricing strategy. To do so successfully, analytics must operate at a certain speed to create an optimal insurance pricing strategy. Analytics also enable pricing strategies’
performance monitoring against business objectives and provides automated pricing updates based on real-time market feedback of deployed rates. This automation in analytics enables
insurers to adapt faster to the changing consumer financial needs and preferences, which makes this a win-win scenario for both insurers and consumers. The speed of smart analytics is the first fundamental component of an insurer’s capability to be more agile in their product personalization. However, that is only one of the prerequisites. Insurers who can utilize real-time market feedback to inform their pricing strategies must then execute on those strategies in real-time.
No. 2- The speed of rate execution: The execution of insurance rates in real-time is the second most important component of responding to the current market conditions. To do so at scale,
insurers must use an enterprise rating engine that propels business velocity -a combined ability to systemize, automate and accelerate the deployment of rates. This is not only necessary for realtime deployment and execution of analytically driven rates, but also for ensuring regulatory compliance, which is often sacrificed for speed. If software cannot ensure governance, control
and compliance over the entire rate-setting process, which is automated, insurers risk finding themselves in violation of laws that are in place to ensure that consumers are treated equally and
The value of the speed of smart analytics and the speed of rate execution exponentially increases when the two are incorporated in a single system. Utilizing two separate systems, one that offers
the analytics, and the other that generates rates can become an operational nightmare, undermining the potential for speedy time-to-market, in addition to an inherent value handoff. At
the same time, very few solutions offer a single system that can truly deliver both capabilities.
No.3 – The speed of implementation: Iterative deployment of a single system solution, as opposed to two or three systems, minimizes the number of integration points and can make all
the difference. This way, insurers can immediately realize the initial benefits of automation and analytics that power rate execution, as opposed to in a year or longer.
COVID-19 has accelerated the transformational trajectory of the industry that is here to stay – the need for insurers to accelerate rating, pricing and product personalization for consumers
through an agile real-time deployment of AI, machine learning and smart analytics. Insurers must be confident that their solution can deliver the speed necessary to generate effective price
strategies. The timing of implementation is particularly critical. Each component, analytics, rate execution and deployment, has a unique set of complexities, and implementing multiple systems
as opposed to one integrated solution can pose significant operational challenges and cause business delays. Achieving governance and compliance on the other hand requires
sophistication, and the two are often in conflict with achieving optimal speed. If not integrated into the system, governance and compliance can become an afterthought.
The pandemic has created market conditions that require insurers to adapt quickly. Moreover, to prepare for future uncertainty insurers should rely on solutions that can answer these challenges immediately, not after the fact.