Insurers turning to price optimization: Celent

The insurance industry is changing its approach to product pricing, increasingly using price optimization to differentiate themselves from competitors, according to Celent, a Boston-based financial research and consulting firm.
Celent’s recent report, Price Optimization in Insurance: A Revolution in Progress, defines “price optimization” as multi-dimensional method of pricing.
“It brings other dimensions into the pricing calculation, balancing profit and sales volume, while applying customer behavior and competitive analysis in order to maximize profit,” the report says.
“It leverages analytical tools and large amounts of data about consumer behavior to help insurers refine the price component that is a critical driver of consumer behavior.”
A great deal of data about consumer behaviour can be generated by means of selling a product online, the report notes.
But insurers have been “laggard” in their ability to capture such data, the report says, because “consumers’ late adoption of buying insurance online has delayed insurers’ initiatives around price calculation methodologies.”
Partly for this reason, Celent recommends that insurers focus their energy on attaining “real-time” price optimization tools, rather than focusing on the “back office approach,” which focuses instead on an insurer’s back office systems.
“Celent recommends that online insurance companies invest in real time price optimization tools because they shorten the time needed to implement new tariffs and help capture useful information about customers’ behavior directly from the market.”