Sponsored content: Stephen Kennedy, director at Pearson Ham, discusses how to understand your trading environment and market movements
Insurers with direct offerings are running two businesses – one insurance and one retail distribution.
Understandably, the former receives significant focus and investment. However, distribution is often overlooked.
As a retailer, it is crucial to understand your trading environment and competitor strategies to formulate the most effective responses. In a market like UK motor insurance, where such a large proportion of new business is acquired through price comparison websites (PCWs), it’s even more important to have a ‘real time’ view of market movements.
While PCW datasets are invaluable, and big enough for market price and rank prediction models, they are limited in granularity and can be influenced by mix.
Understanding how individual competitors’ prices and products are changing for a fixed basket of risks is only possible by requesting repeated quotes for real consumers. However, collecting accurate competitor prices is more complex than simply scraping a quote from a PCW.
Insurers use sophisticated optimisation tools, rating engines, enrichment data and dynamic rules, which mean prices can be the product of many hidden factors. This creates serious challenges and risks if not properly understood.
Complications and risks
One major complication is background data enrichment. At quote time, insurers routinely pull in external data, for example, credit indicators, vehicle data, claims history, licence information and fraud markers.
It’s impossible as an outsider to know which data sources are being used and how. A limited understanding of the factors being used to calculate the price, can lead to systematic bias.
Providers are also increasingly using temporal pricing rules that vary prices by time of day, day of week or related factors like demand, renewal peaks or capacity constraints. Short-term rate changes, tactical campaigns and mid-day optimisation updates can cause significant volatility.
The process of price collection can also play a part. Prices can change based on the number of quotes requested or the journey itself.
Even without deliberate anti-scraping, some pricing engines adapt based on previous quotes or customer interactions, such as discounting on return visits, often linked to number of days to inception combined with other factors, or applying loadings when behaviour looks unusual.
These specific challenges create a broader set of risks in decision-making if the market data you use is inaccurate or biased.
Strategically, you may misjudge your competitiveness or underestimate how aggressively a rival is pushing in a certain segment. Commercially, this can lead to incorrect trading decisions and misaligned acquisition targets. From a risk and profitability perspective, decisions based on distorted competitor prices can result in eroding margins.
Competitor price collection in UK private car insurance is fraught with hidden complexity. Without careful design of the data collection process and robust understanding of these challenges, market pricing views can become dangerously misleading and so can the decisions based on them.
Working with 80% of the top UK insurers puts Pearson Ham in a unique position to understand what is impacting prices returned, mitigate the effect of dynamic pricing rules and validate price movements with clients.
Hosted by comedian and actor Tom Allen, 34 Gold, 23 Silver and 22 Bronze awards were handed out across an amazing 34 categories recognising brilliance and innovation right across the breadth of UK general insurance.
