Why Pricing Model Reliability is Critical for Insurers

Pricing models are the backbone of every insurance product. They influence not just the premiums customers pay, but also profitability, competitiveness, and long-term financial sustainability. Yet, many insurers underestimate the impact of model reliability – until errors, delays, or governance issues cause costly surprises.

1. Why Reliability Matters

A reliable pricing model is not just about accuracy, it’s about speed, governance, and strategic decision-making.

• If the model is slow to run, new product launches and repricing exercises take longer, creating delays in going to market — a serious handicap if the company has an aggressive product strategy.

• If there’s poor governance, with multiple users able to make unchecked changes, consistency is lost, and errors can creep in without detection.

• If the model isn’t dependable, management can’t rely on it to make decisions — especially when new business (NB) is a big part of the company’s growth strategy.
  

When a model’s reliability is compromised, the impact is not only financial but also operational, slowing down response to market opportunities.

2. Consequences for the Business

An unreliable model can:

• Lead to underpricing (loss-making growth) or overpricing (lost sales).

• Delay product launches, impacting speed to market.

• Cause friction with distribution channels if rates change unexpectedly or take too long to approve.

• Damage credibility with regulators and auditors.

• Reduce internal confidence, slowing down decision-making at all levels.

  
  

3. Building Reliability Into Pricing Models

Reliability is not accidental, it’s engineered through:

• Strong governance and access controls so only authorised users can make changes, with a clear approval process.

• Regular model reviews and audits to detect and fix weaknesses early.

• Automation of repetitive processes to reduce human error and speed up outputs.

• Efficient design to ensure quick run times, enabling faster market response.

• Clear documentation for transparency, maintenance, and handover.

• Alignment with valuation and finance models for consistent assumptions and outputs.
  

4. The Actuarial Role in Reliability

Actuaries ensure pricing models are:

• Technically sound and statistically robust.

• Reflective of the latest claims experience and expense analysis.

• Capable of running scenario tests and sensitivity analysis to support both day-to-day pricing and strategic growth decisions.
  

Conclusion: A reliable pricing model is not just a technical necessity; it’s a competitive advantage. It supports speed to market, accurate decision-making, and sustainable growth, while building trust with stakeholders inside and outside the company.

Looking to strengthen your pricing models? We can review, enhance, and future-proof your actuarial tools so you can make decisions, and launch products, with confidence. Yes, this includes aligning your pricing models with IFRS 17 metrics.

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