Pricing and Risk Selection
With the dramatic increase in insurance comparison websites, switching insurance policies
and insurance carriers has never been easier. The risk of mis-pricing a policy can have a huge
impact on business revenue -- not to mention customer loyalty.
Making sure the price is right is critical -- especially in the more commoditized personal and
commercial product portfolios. And while one could argue that traditional risk pricing
methods still work today, the key is the ability to adjust and respond quickly to changing
market conditions.
In its paper
"Dynamic Pricing with AI Syncs Insurers with Market Realities," IBM suggests there
is plenty of room for the concept of "smart pricing" in insurance risk models. "Smart pricing
strategy incorporates multiple pricing models, developed with agile methods and designed
for rapid deployment. Smart pricing vastly increases pricing flexibility and circumvents
traditional development lag times and time-to-market for both new products and changes in
existing ones."
Utilizing AI technology, the smart-pricing model incorporates two key items:
BRAVE NEW WORLD | 13
New Unstructured Data Sources
Including the Internet of Things (IoT)
and social media outlets -- which
provide a higher degree of context
and meaning to the actual risk factors
that are used for determining the risk
premium.
Creation of
Tailor-Made Products
Traditional pricing modules are not
designed for greater personalization
or individualization, but AI can
facilitate customization of these
modules.
