Price Optimization at The Tipping Point


Meryl Golden said companies that adopt price optimization realize substantial financial benefits. “Although some insurers have misconceptions about price optimization, adoption in the United States and Canada is well underway. Late adopters will be at a competitive disadvantage.”


Integrated Pricing & Customer Analytics


Integrated pricing and customer analytics


Significant improve- ment in financial results


US office: New York, N.Y.


How do you define price optimization? Insurance price optimization combines the best of the three traditional pricing approaches (cost plus, value-based, and market-based). It incorporates variables related to direct operating costs, consumer behavior, and the competitive environment to determine the best pricing strategy in order to achieve specific business goals.


What are some of the misconceptions about price opti-


mization? There are many myths about price optimization. A common misconception is that companies need a huge number of observations to build robust demand models. Our experience shows that in most cases as few as 50 to 100,000 observations are enough to construct robust models of consumer demand.


Which insurers are using price optimization in North


MERYL GOLDEN General Manager North America Operations, Earnix


TO LEARN MORE


Download the Whitepaper Price Optimization in North America: Myth vs. Reality Learn how to separate myth from reality when it comes to price optimization. DOWNLOAD YOUR COPY – www.earnix.com/pricing-myths


Plans for Price Optimization (companies with over $1B auto premium)


No plans 10%


Currently use


price optimization 29%


Probably in the future 29%


Planning to


optimize in the near future 33%


America? A survey conducted by Earnix shows the adoption of price optimization by insurers in the United States and Canada is well underway. Among companies with over $1 billion in auto insurance premium, 29% of the survey respondents currently use price optimization, while an additional 33% are planning to use it in the near future. These numbers match up with what we are seeing first hand in the field.


What is driving the rapid adoption of price optimization? Companies that adopt price optimization realize substantial financial benefits. These companies can see improvement of 1-4 points in the combined ratio and/or as much as 10-20% of a lift in new business conversion rates.


What can we expect next? The adoption trends of price optimization are analogous in many ways to the introduction of credit scoring in auto pricing. At first, most companies were skeptical, but within a few years virtually every insurer was using credit information. We are seeing a similar trajectory in price opti- mization today. Given the significant benefits realized by those that already use price optimization, we can only expect the pace of adoption to accelerate. Insurers that are late to adopt pricing optimization will be at a competitive disadvantage just like those that were late to incorporate credit scoring.


Best’s Review October 2012


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