Case Studies

An insurer engages Dynamo to reinvent their actuarial pricing models

An insurer needed to develop the capability to build and implement ad-hoc actuarial models, primarily to assist the front line underwriters with pricing new insurance opportunities.  There was a shortage of in-house expertise, and their existing approach lacked technical rigour with poor documentation and inadequate data capture across accounts.  This resulted in an inability to re-calibrate and fine-tune their approach to take advantage of new niches or of good value sectors, and naturally made them more of a market follower than a market leader.  They knew this was not sustainable business practice, and sought our subject matter expertise to develop an effective solution.

We stepped in initially to provide short-term, tactical solutions for their large accounts, enabling the underwriting team to continue to write new business but with the input of technical actuarial models.  This alleviated the immediate pressure of pricing a number of new and renewal contracts and provided the business with a statistical basis to feed into its decision making and negotiations.  The models were created on demand, with a consistent front end enabling the business to review and consolidate the outputs more easily.

In parallel to the tactical solution, we began reviewing the underlying assumptions and bases for the models that were being used by the business.  Using statistical analyses of benchmark market data, supplemented with our expertise in the classes of business, we highlighted areas of weakness in the existing frameworks, and suggested methodologies and action to follow in order to bridge these gaps.  These documents provided the basis for a roadmap towards their end goal, an enterprise pricing platform.

We discussed the longer term strategic solution with senior management; building disparate and ad-hoc models could be sustained for a while but longer term the business needed a better solution.  It needed a platform that would provide global access to the rating platform no matter where the executives or underwriters were, ultimate control of the model parameters to sit with the technical actuarial team, and the flexibility for underwriters to adjust for the softer rating factors but in a way that captured their expert judgement as much as possible.  All of this had to be wrapped within an auditable and controlled framework.  After a period of discussion and deliberation, it was felt that Dynamo’s pricing application PROMO was fit-for-purpose, and provided the required key features.

Through a system of rapid proto-typing, and user testing to allow underwriters to buy-in to the application, we customised our web-based pricing platform in several short cycles to replicate one of their class pricing models.  This would provide the underwriters with the same algorithms as implemented in their Excel models, but with the addition of the functionality that is not available is Excel: the rigour of a defined pricing framework, the universal access, referral workflow management and the additional analytics that are built in to the application.

Through our work with our client, they were given confidence in their pricing abilities and in the technical rigour of the pricing of new contracts, with a formal documentation trail.  We provided the necessary expertise on a flexible basis at a crucial time in the calendar year, and the rating review provided the client with an overarching view of the weaknesses in their pricing processes, benchmarked against market best practice.  Going forward, PROMO should help the organisation bring further consistency, rigour, and insightful analytics to the pricing process.