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      In practice, a reduction in the claims ratio of around one percentage point can often be realised with manageable effort for the actuaries. Pricing does not require intervention in mass processes - unlike claims processing, for example. It is carried out and monitored by a small number of actuarial experts. This is another reason why a lot can be achieved here with a manageable amount of effort.

      This is one of the reasons why pricing actuaries in the market are still tending to add jobs instead of cutting jobs.

      In practice, improvements in the loss ratio in the order of one percentage point can often be achieved relatively easily by improving pricing capabilities.
      Frank Schönfelder
      Frank Schönfelder

      Director, Financial Service Insurance

      KPMG AG Wirtschaftsprüfungsgesellschaft

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      What makes good pricing?

      In essence, the pricing of composite insurers (e.g. motor, homeowners, household contents, liability, legal expenses, property, etc.) is good if it ...

      • ... identifies good and bad risks better than its competitors.

        This requires good modelling accuracy in the technical price. The basis for this is an adequate database, sufficient actuarial resources and an optimised software solution. This puts the insurer in a position to ward off anti-selection and realise selection gains.

      • ... pursues a pricing strategy that matches the sales channel.

        A good rate book must fit the respective distribution channel. The discount quota is a central component, especially in a tariff for the AO (exclusive organisation). Whereas in the direct insurance market, a good price compared to the competition is more important.

      • ... Information on competition and customer behaviour taken into account in market pricing.

        In order to optimally set the price in the individual tariff cell, the large German insurers in particular also take into account findings from prediction models on competition and customer behaviour. However, this is only possible within the regulatory framework.

      • ... monitors the performance of the business continuously and professionally.

        It is not sufficient to use the accumulated, realised combined ratio for this purpose. The expected combined ratio - based on actuarial technical prices - enables forward-looking monitoring that is not subject to random fluctuations. This enables insurers to derive data-based profitability management measures at an early stage.

      • ... responds quickly with adjustments to the new business tariff if necessary.

        In order to be able to react quickly to changes in competitors' pricing models, for example, it is necessary to be able to implement adjustments to new business tariffs at short notice (daily pricing). In practice, this often fails due to outdated IT systems.

      • ... Resources used sensibly from an end-to-end perspective.

        The level of maturity in pricing is not the same for all products - there are differences depending, for example, on risk, data availability and also the sales channel or target market. One competitive advantage is having a level of ambition for pricing that is harmonised at product level - and therefore being able to deploy resources appropriately.

      Good pricing involves more than just actuarial risk assessment. Preventing anti-selection and enabling positive selection through suitable market pricing and monitoring is one of the most important and most underestimated guarantees of success for good pricing.
      Miriam Müller
      Miriam Müller

      Senior Manager, Financial Services

      KPMG AG Wirtschaftsprüfungsgesellschaft

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      Evaluation of generative AI

      Insurance companies as an example

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      Building blocks for improving pricing capability

      With these building blocks, you can further increase your ability to innovate in pricing:

      Making actuarial expertise even more usable

      Business management with technical prices, portfolio restructuring with differentiated premium adjustment and actuarial analysis models for market pricing.

      • Business management with technical prices

        We support our customers in designing and setting up the monitoring system:

        • Outside-in proposals for the design, i.e. modules, analyses, use cases (including the necessary data requirements).
        • After a short introductory phase, the monitoring system can then be set up immediately.
      • Portfolio modernisation with differentiated premium adjustment

        We support our clients in developing methodological expertise for differentiated premium adjustment and subsequent implementation::

        • Prefabricated tools for scenario analyses in BI software.
        • Compliance with statutory and regulatory standards, e.g. the Supervisory Statement on Differential Pricing Practices.
      • Actuarial analysis models for market pricing

        We support our clients in setting up the models and subsequently deriving measures in market pricing::

        • Better practice for data (cleansing) and methodological procedures.
        • Compliance with statutory and regulatory standards, e.g. the Supervisory Statement on Differential Pricing Practices.

      Review and further develop technical price

      Improve technical price accuracy, pricing reviews and efficiently fulfil (new) regulatory requirements.

      • Portfolio modernisation with differentiated premium adjustment

        We support our clients in developing methodological expertise for differentiated premium adjustment and subsequent implementation:

        • Ready-made tools for scenario analysis in BI software.
        • Compliance with statutory and regulatory standards, e.g. the Supervisory Statement on Differential Pricing Practices.
      • Pricing Reviews

        We carry out independent reviews and prepare actuarial reports or certificates as required.

        • External, independent review carried out by specialists.
        • Independent comparison with better practices on the market.
      • Efficiently fulfil (new) regulatory requirements

        As a first step, we often support our customers by analysing their requirements in order to be able to efficiently derive the necessary customisation needs.

        • Up-to-date overview of all statutory and regulatory standards.
        • Standard procedures to efficiently fulfil new requirements.

      Increase efficiency and utilise actuarial resources sensibly

      Objective selection of new pricing software, pricing actuarial services of the future and efficiency in data management.

      • Objective selection of new pricing software

        We support our clients in setting up the models and subsequently deriving market pricing measures:

        • Better practice for data (cleansing) and methodological procedures.
        • Compliance with statutory and regulatory standards, e.g. the Supervisory Statement on Differential Pricing Practices.
      • Pricing actuary of the future

        We support our clients in deriving a harmonised target operating model for a pricing actuarial system of the future that suits the company:

        • Benchmark to competitors.
        • Outsight-in proposals to describe the target picture.
      • Efficiency in data management

        We support our customers in the optimisation and automation of data loading routes with the aim of automating manual steps and thus speeding up processes and improving quality:

        • Better practice for methodical procedures.
        • Expertise in standard open source software solutions.

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