With the recent announcement of a review on how insurers set their prices, is a change in pricing on the cards?
Yesterday, the Financial Conduct Authority (FCA) launched a study that will examine claims that general insurance (GI) firms have been overcharging loyal policyholders. The final report will be published by the end of 2019.
According to Fitch Ratings, the spectre of a regulatory review may itself be enough to compel some insurers to change how they set their prices. The ratings agency said that the need to demonstrate equitable pricing between new and existing customers will ultimately induce insurers to charge a fairer price.
“We expect the FCA investigation will lead to more competitive pricing for customers who have stayed with one insurer for several years and who may have been paying above-market prices,” said Fitch Ratings.
“Insurers are likely to start competing more strongly to keep or attract these customers. Those with the most sophisticated customer databases and underwriting analysis are best placed to benefit. In contrast, those insurers that have relied heavily on customer loyalty, notably some large insurers with significant home insurance portfolios, could lose out.”
New advances in technology may be key for insurers to determine a more accurate price, according to Iain Brown, head of data science at SAS UK and Ireland.
“The concerns about discrimination demonstrate that without the proper governance structures in place models can be flawed, in the same way that human instinct might be when designing them,” said Brown. “However, technology can also be the solution. As Artificial Intelligence (AI) becomes more readily available, insurers can use it to make sure their pricing is as fair as possible.
“Although AI-powered insurance may sound like a utopian future, in fact it’s already a reality right now. Some of the leading insurers we work with are already deploying AI capabilities that are transforming the customer experience, improving underwriting accuracy and cutting claims assessment decisions from weeks to mere seconds.”
