For six years, a large life and property and casualty insurer hadn’t made the effort to renew the pricing model or raise prices on its motor insurance products, not even to account for annual inflation. Predictably, the firm was reaping the consequences of its inaction, experiencing zero or declining growth across segments and a profitability combined ratio well above 100%.
The insurer recognized that pricing within its industry was rapidly evolving through the use of new sources of behavioral data, more price differentiation, and more need for personalization. But it needed help in adjusting. Determined to become a pricing front-runner, the insurer turned to BCG for outside-in ideas on how best to meet its goals.
The insurer asked BCG to run a deep-dive project on its motor line, which represented a sizeable portion of the firm’s non-life-insurance business.
The BCG team took the motor insurance line through its solution of four building blocks—enhanced risk differentiation, proposition and churn management, price realization boosting, and pricing capability boosting—from a diagnostic point of view.
Specifically, BCG’s team identified five key levers to improve the pricing of the motor product:
In working through its approach, BCG developed a list of almost 100 diagnostic parameters that could be used for price differentiation and worked with the firm’s actuaries to model those parameters against its portfolio. BCG also conducted market research and took the insurer’s product lineup from one to multiple offerings, each with the appropriate price differentiation and features. The team worked with executives to develop a more effective, measurable discounting program.
In addition, after determining that no one in the organization had the responsibility or authority to set pricing strategy, BCG convinced the insurer to hire a pricing manager and team of experienced personnel to drive pricing improvements across the organization.
Most important, BCG worked with the insurer to provide its newly recruited team with in-depth curriculum and on-the-job learning so the insurer could acquire the skills, understanding, governance, and IT architecture needed to continuously improve pricing capabilities on its own. Because client enablement is a critical goal in all pricing projects, BCG worked directly with frontline stakeholders to get their input and collaborated with them closely during each step so the business line could own the changes it was making and achieve impact while also learning and practicing new skills.
As a result of its collaboration with BCG, the insurer implemented a new risk model and new motor insurance product lineup, significantly reduced its discount leakage, and improved its combined ratio by 5% to 6%.
More important, the positive outcomes solidified the company’s recognition that pricing was a major opportunity for ongoing operational and business benefit. This led to a much more clearly defined pricing strategy and governance policy.
Leveraging the pricing enablement and best practices that BCG provided, the insurer is now moving ahead with new pricing initiatives on its other product lines, including term life, pensions, and mortgages. Its new pricing manager and department are positively impacting the entire business.
The marketing director recently characterized this pricing project as one of the most effective initiatives ever undertaken by the firm, because it delivered millions of euros worth of value while simultaneously building new organizational capabilities as a foundation for ongoing success.