As insurers refocus on driving their businesses forward in 2016, we look at the demand for pricing systems and advanced analytics from the London Market.
Solvency II fatigue
2016 sees the implementation of the gigantic white elephant that is Solvency II. It is my personal belief that all the money, effort and executive time could have been better spent elsewhere to produce a sustainable insurance industry. However, unless insurers pass the regulatory test, they will not be licensed to trade.
As a result, I expect insurers will be suffering from what I call Solvency II fatigue. A condition diagnosed by a sigh which follows any mention of the dreaded framework. There’s no doubt that many of you exhaled a couple while reading the above paragraphs.
In 2016 I expect to see insurers refocusing their efforts on key business processes and looking for ways to manage and improve profit margins.
Data, analytic and pricing systems
I’ve met a significant number of pricing actuaries, senior underwriters and executives in the market over the past twelve months.
There are two things which they are keen to explore and deliver in 2016:
- Systemising technical pricing; and
- Exploration into big data, machine learning and other advanced analytics.
"With data, an insurer can begin to mine their portfolios, and begin to create strategies which can enhance the profit margins."
Systemising technical pricing
Technical pricing is a process introduced into the London Market at the end of the 20th century. It was promoted as a way of managing the volatile underwriting cycle. Effectively you define a benchmark rate, and measure the deviances away from it.
Pricing actuaries and Underwriters have worked closely in the early 2000s to build models for portfolios. Then, in 2008, Lloyds launched the Price Monitoring Data (PMD) initiative. The PMD requires the collection of key outputs from the technical pricing framework.
This resulted in many more models being built, and those models are mostly built in Microsoft’s Excel. This creates the challenge. How do you move those models from Excel into a powerful system which secures the data, the IP contained in the models and enhances the overall governance?
Data is king
With data, an insurer can begin to mine their portfolios, and begin to create strategies which can enhance the profit margins. The faster you systemise your models, the faster you increase underwriting margins, the faster you realise the return on your technical pricing investment.
DATA: using artificial intelligence and machine learning to create value
This year, we are helping insurers to explore the latest cutting edge techniques, social media data and the use of gigantic data sets. I am a strong proponent of the cloud. It offers the opportunity for any size company, at a minimal cost, to take advantage of the latest thinking.
You don’t need a big budget for big innovation in 2016.